OFCCP’s Revised Proposed Scheduling Letter Does Little to Allay Contractors’ Concerns

On April 10, 2023, after considering public comments, the Office of Federal Contract Compliance Programs (“OFCCP” or the “Agency”) issued a modified version (“Modified Revision”) of its initial proposed revisions to the Scheduling Letter and Itemized Listing published on November 21, 2022 (“Initial Revision”).  OFCCP retracted a few of its proposed information and data demands (e.g., no requirements to identify whether a promotion is “competitive” or “non-competitive”).  However, its more onerous and fundamental changes remain – most notably, requiring submission of information regarding the use of artificial intelligence tools, more compensation data, and documentation of compensation analyses.  The Modified Revision does little to alleviate contractors’ concerns that the revised Scheduling Letter and Itemized Listing will significantly increase the burden of responding to an OFCCP audit and related risk.

The Most Onerous Changes Remain

Despite the overwhelmingly negative reaction from the government contracting community, as evidenced by the volume of comments in opposition to the Initial Revision, OFCCP proposes to implement the vast majority of the most significant proposed changes to the Scheduling Letter and Itemized Listing.  The Modified Revision reflects a sweeping rejection of contractors’ major concerns that OFCCP is exceeding its regulatory authority, that the proposed changes constitute a substantive rulemaking rather than a mere modification of an information collection request, and that the result amounts to a paradigm shift in the audit process.  The most significant proposed changes to the Scheduling Letter and Itemized Listing are detailed below:

• Post-Secondary Institutions and Contractors with “Campus-like Settings”: OFCCP proposes to impose a requirement that all contractors who have “campus-like settings,” including “hospitals and information technology companies” and other work environments in which a contractor “maintains multiple [affirmative action programs (“AAPs”)] for the same campus,” “submit the information requested in this scheduling letter for all AAPs developed for campuses, schools, programs, buildings, departments, or other parts of [a contractor’s] institution, or company located in” a city.
  1. OFCCP received 25 comments, of which 11 objected to this proposed change. The Agency rejected the suggestion that “this proposal exceeds its current regulatory authority and requires rulemaking.”  OFCCP justified this change on the basis that (i) “E.O. 11246 authorizes OFCCP to request and receive records relevant to compliance,” and (ii) cited regulations stating that “[c]ontractors subject to the affirmative action program requirements must develop and maintain a written affirmative action program for each of their establishments [that includes] [e]ach employee in the contractor’s workforce ….”  The Agency further asserted that its regulations “do not limit [it] to scheduling only one establishment in a given area.”  Finally, OFCCP claims that the proposed changes are “merely clarifying existing policy,” citing to its current “guidance explaining that a university review includes the entire university located in one city.”  The Agency noted that it made a similar clarification when it posted its recent Scheduling Methodology.
• E-Submission: OFCCP proposes to continue its COVID-practice of issuing the Scheduling Letter by email with a read receipt requested, rather than certified mail, and allowing contractors to submit their AAPs and itemized listing information electronically.
• Itemizing Listing Item 8 and Item 12 – Veteran and Disabled Outreach Efforts: OFCCP proposes to expand the amount of information contractors must provide about their disability and veteran outreach efforts and their assessment of the effectiveness of their efforts, including an assessment of “whether you believe the totality of your efforts were effective” and, if not, “detailed documentation describing your actions in implementing and identifying alternative efforts.”
• Itemized Listing Item 11 – Disability Utilization Analyses: OFCCP continues to propose to expand the amount of information contractors must provide about their disability utilization analysis, stating that “if any underutilization of individuals with disabilities is identified, [contractors must] provide a description of the steps taken to determine whether and where impediments for equal employment opportunity exist . . . . [T]his description shall include your assessment of personnel processes, the effectiveness of your outreach and recruitment efforts, the results of your affirmative action program audit, any other areas that might affect the success of the affirmative action program, and a description of action-oriented programs developed and executed to correct any identified problem areas.”
• Itemized Listing Item 16 – IPEDS Data: Unlike corporate government contractors, colleges and universities are not required to file annual EEO-1 reports. To address this, OFCCP proposes to require post-secondary educational institutions to submit copies of the Integrated Postsecondary Education Data Systems (“IPEDS”) Human Resources Survey Component data collection reports for the last three years.
• Itemized Listing Item 18(c) – Promotions Policies: OFCCP continues to propose that contractors provide documentation of their established policies and practices related to promotions.
• Itemized Listing Item 19 – Compensation Data:
  1. Second Snapshot: OFCCP is continuing to propose that contractors provide a second snapshot of data as of the date of the prior year’s organizational display or workforce analysis. OFCCP justifies this change by noting that having an additional year of data “allows OFCCP to better identify whether there is a pattern or practice of systemic compensation discrimination,” and allows OFCCP to ensure that “victims are made whole” if disparities are found in the two-year period.
     • OFCCP received 29 comments, of which 13 objected to this proposed change. The Agency disagreed with commenters’ concerns that: (i) “increasing the burden related to compliance evaluations diverts contractor resources away from conducting a full, self-critical evaluation of their compensation systems,” (ii) “requesting a second snapshot does not improve the statistical models for OFCCP’s compensation analysis,” and (iii) “this proposal is outside OFCCP’s regulations and should be implemented through the rulemaking process.”
     • In response to commenters’ concerns that OFCCP is overreaching its regulatory authority, the Agency again claimed that “requesting and reviewing information on contractors’ compensation is within the scope of OFCCP’s authority.”
     • In rejecting commenters’ concerns that submitting a second snapshot is a significant burden, the Agency noted that because contractors “are already required to provide one snapshot of compensation data, … [they] have systems in place to provide this information.”
  2. Staffing Agency Employees: OFCCP continues to propose an expansion of the definition of “temporary employees” to include “those provided by staffing agencies.”
     • OFCCP received 14 comments, of which 10 objected to this proposed change. The Agency rejected commenters’ concerns that: (i) “staffing agency employees are employees of a separate unrelated company in which the contractor has no input on pay decisions,” (ii) “contractors’ human resource information systems generally do not include pay information for temporary employees that are provided by staffing agencies,” (iii) “contractors’ human resource information systems generally do not include pay information for temporary employees that are provided by staffing agencies,” and (iv) “this type of change would require OFCCP to add definition of ‘employee’ to its regulations.”
     • Rather than address each separately, the Agency briefly responded that it “already has guidance for determining whether an individual is an ‘employee’ and clarifies that this guidance would still apply when assessing the status of temporary employees. This guidance includes factors such as assessing the method of payment to the individual, the source of equipment and materials needed to perform the work, the right to assign additional projects, etc.”  Thus, “[a] temporary employee that has an employment relationship with the contractor based on these factors should be included in its compensation data.”
  3. Factors Used to Determine Pay: OFCCP continues to propose changing the wording of the Itemized Listing from “[y]ou may provide additional data . . .” (emphasis added) to “provide relevant data on the factors used to determine employee compensation” and expanded the identified factors to include time in current position, experience, geographic differentials, and job families and/or subfamilies, in addition to prior identified factors of education, duty location, performance ratings, department or function, and salary level/band/range/grade. Further, the OFCCP stated that “if the contractor does not maintain any of these items, please notate that in your submission.”
     • OFCCP received 10 comments, 6 of which objected to this change. The majority of commenters expressed concerns that “producing this information creates a substantial new burden on contractors, as these factors may not be included in a centralized database,” and that “there is no regulatory requirement to maintain factors related to pay in a certain manner.”
     • The Agency again claims that this proposed change is “merely asking contractors to provide information on these factors,” because “as part of their existing requirements, contractors should already be analyzing their compensation systems to determine if there are impediments to equal employment opportunity,” which includes “assessing whether various compensation factors are driving pay disparities.”
• Item 21 – Increased Scrutiny on the Use of Artificial Intelligence in Hiring Decisions:
  1. OFCCP continues to propose that contractors submit their “policies and practices regarding all employment recruiting, screening and hiring mechanisms, including the use of artificial intelligence, algorithms, automated systems, or other technology-based selection procedures.” This is a new area of audit focus for OFCCP, though both OFCCP and the Equal Employment Opportunity Commission have undertaken a variety of initiatives in recent years targeting automated employment decision tools, machine learning, and other emerging technologies used in hiring and other employment decisions.
• Item 22 – Documentation of Compensation Analyses:
  1. Following up on its controversial Directive 2022-01 Revision 1 (published in August 2022), OFCCP is continuing to propose that all contractors be required to provide “[d]ocumentation that the contractor has satisfied its obligation to evaluate its compensation system(s) to determine whether there are gender-, race-, or ethnicity-based disparities,” including documentation that demonstrates at least the following:
     1. • When the compensation analysis was completed;
        • The number of employees the compensation analysis included and the number and categories of employees the compensation analysis excluded;
        • Which forms of compensation were analyzed and, where applicable, how the different forms of compensation were separated or combined for analysis (g., base pay alone, base pay combined with bonuses);
        • That compensation was analyzed by gender, race, and ethnicity; and
        • The method of analysis employed by the contractor (g., multiple regression analysis, decomposition regression analysis, meta-analytic tests of z-scores, compa-ratio regression analysis, rank-sums tests, career-stall analysis, average pay ratio, cohort analysis).
     2. OFCCP received 27 comments, of which 11 objected to this proposed change.  Specifically, commenters expressed concern that because “the information may be subject to attorney-client privilege, [] contractors may choose not to perform meaningful analyses due to the risk of disclosure.”  Some commenters highlighted that “the proposed item conflicts with Directive 2022-01 Revision 1, which states that OFCCP may request additional compensation information if the desk audit reveals disparities.”  As with most of the proposed changes, some commenters also stated that the “proposal exceeds OFCCP’s regulatory authority, and that the agency must undergo the rulemaking process to add this item.”
        • Regarding concerns that the Agency is exceeding its regulatory authority, OFCCP responded that “the regulations at 41 CFR 60-2.17(b) already require contractors to self-audit their compensation systems[,] . . . [t]hus, the proposal is requesting documentation of analyses that contractors should already be conducting.”
        • OFCCP claims that it had “addressed concerns about privilege as OFCCP will not require the production of privileged attorney-client communications or attorney work product.”
        • Finally, the Agency stated upon approval of the Modified Revision, “it will update all relevant guidance, including any relevant directives, to align with the new scheduling letter” to “clarify contractors’ obligations and [] ensure uniformity in submissions.”

 

Initial Revision v. Modified Revision: What Has Changed?

Though the OFCCP has kept most of the changes proposed in the Initial Revision, the Modified Revision does eliminate a few of the initial proposed changes that caused concern.

• Item 18(c) – Individualized Promotion Information: OFCCP removed its initial proposal that contractors be required to identify whether a promotion is “competitive” or “non-competitive,” and provide information on the previous supervisor, current supervisor, previous compensation, current compensation, department, job group, and job title from which and to which individuals were promoted, for each promotion.
• Item 18(d) – Termination Information: OFCCP retracted its initial proposal that contractors be required to provide the reason for each termination.

 

What Is Next?

These revisions move the revised Scheduling Letter and Itemized Listing one step closer to implementation, but it is not yet a fait accompli.  Similar to its Initial Revisions, OFCCP is seeking comments on its Modified Revisions.  The public has until May 17, 2023 to submit their concerns here or here.