Recent Rulings Back OFCCP’s Deep-Digging Audits

By Dietrich Knauth

Law360, New York (September 6, 2012, 8:48 PM EDT) — Recent court cases have rubber-stamped more aggressive data requests made by the Office of Federal Contractor Compliance Programs during audits of contractors’ affirmative-action programs, making it more difficult for companies to fight requests that they feel are unduly burdensome or irrelevant, experts say.

Contractors were handed losses in United Space Alliance LLC v. Solis — decided in Washington federal court in November — and in an OFCCP Administrative Review Board decision involving Frito-Lay Inc. in May. In both cases, contractors had resisted OFCCP data requests during audits of their compliance with affirmative action and nondiscrimination rules, and both the D.C. federal court and the ARB came down firmly on the side of the OFCCP.

Jeffrey Norris of the Equal Employment Advisory Council, speaking at the 2012 National Industrial Liason Group meeting between OFCCP regulators and contractors, said the decisions gave the OFCCP open-ended authority to ask “virtually anything” in compliance audits.

“It’s going to be very difficult to argue that OFCCP is not entitled to data that it asks for,” Norris said. “Instead, you’ll be forced to argue that the information isn’t relevant.”

Both United Space and Frito-Lay involved audits over potential pay disparities between male and female employees, which has been a particular focus for the OFCCP under President Barack Obama. The OFCCP has recently proposed rules that would give it more authority to ask for compensation data from contractors and has delved more deeply into pay disparity during its compliance audits.

United Space, which is owned by Lockheed Martin Corp. and The Boeing Co., sued to fight a sex discrimination audit by the OFCCP, which ordered the company to provide detailed pay records within 30 days or face termination of its current government contracts and face ineligibility for future procurements. According to the DOL, United Space holds contracts with NASA that are worth at least $8 billion.

While United Space claimed that initial data provided to the OFCCP had met the department’s initial tests for pay fairness and that a demand for further documents and an inspection was unfair and intrusive, U.S. District Judge Royce Lamberth concluded that the OFCCP had full authority to perform other analyses to determine whether pay discrimination existed and to base document requests on those other tests.

In his order, Judge Lambert said he preferred United Space’s interpretation of OFCCP’s regulatory authority, but he ruled that courts must give considerable deference to agency interpretations of their own regulations as long as they are not plainly erroneous.

“Submission to such lawful investigations is the price of working as a federal contractor,” Lamberth wrote.

OFCCP Director Patricia Shiu has said that the decision will ensure that her office has the tools it needs to protect workers from discrimination, but contractors hoping for a legal check on the OFCCP’s increasingly aggressive audits were disappointed by the result.

“United Space is a disaster for the contractor community,” said David Fortney, co-founder of Fortney & Scott LLC.

The Frito-Lay case, which the contractor has appealed in Texas federal court, also has the potential to limit contractors’ ability to push back against data requests, according to Fortney and John Fox of Fox Wang Morgan PC.

Frito-Lay actually won the first round of litigation in its dispute with the OFCCP, when a U.S. Department of Labor administrative law judge agreed that the agency had unlawfully expanded the scope of a pay disparity investigation by trying to reach back for another two years of pay records long after it began its initial review. But the DOL’s Administrative Review Board, the highest appeals body within the agency, reversed the decision in May, ruling that the OFCCP had regulatory authority to request data from years before and after the period it initially began auditing.

With the Frito-Lay decision, the ARB showed that it had transitioned from a neutral body willing to take a skeptical look at OFCCP practices to one firmly in OFCCP’s favor, Fox said. The decision contributes to contractors’ complaints of being “bullied” in OFCCP audits, he added.

In looking for recent cases that contractors could use to defend against audit requests, Fortney said that contractors could take some heart in the U.S. Supreme Court’s decision this year in Dukes v. Wal-Mart Stores Inc. and Christopher v. SmithKline Beecham.

The Dukes ruling, which shot down a discrimination suit brought on behalf of a nationwide class of 1.5 million female Wal-Mart employees, could help contractors defend themselves when OFCCP tries to establish a pattern and practice of discrimination, Fortney said. The Supreme Court’s focus on the influence and discretion of local managers in pay and promotions decisions could be brought up as a shield against OFCCP attempts to find discrimination patterns by pooling data from several locations and divisions within a contractor company.

And the Christopher decision — in which the Supreme Court ruled that pharmacecutical sales representatives are outside employees and thus exempt from federal overtime pay requirements — was sharply critical of the DOL’s attempt to informally reinterpret ambiguous regulations, both in the majority and dissenting opinions. While the DOL cited its own previous court filings to argue that drug representatives were not exempt, the position was a change from a decades-long policy of allowing drug companies to classify the reps as exempt, creating an “unfair surprise” for an industry that had not been given notice or a chance to comment on the new interpretation.

That rationale could be used against OFCCP during some of its audits, preventing the agency from greatly pushing the boundaries of its audit authority or of relying on posthoc rationalizations of its requests, according to Fortney. Indeed, in its appeal to the Texas federal court, Frito-Lay argues that the OFCCP’s tactics were a “marked departure from how the agency has historically interpreted its regulations and conducted compliance evaluations.”

Despite those defenses, contractors still must deal with an aggressive OFCCP, and the United Space and Frito-Lay cases could have contractors facing an uphill battle against expansive data requests during audits, particularly with increased pressure on the OFCCP to get settlements in pay disparity cases.

“There’s a long haul to get litigation relief if the Obama administration is re-elected,” Fox said.

Published by Law360

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s