Affirmative-Action Regulatory Focus Shifts.

Government wants contractors to seek results, not just show compliance

Remember the new math? That was the short-lived teaching philosophy that rewarded students for following the right process, even if they reached the wrong answer.

Government policy on affirmative action has long been a similar exercise. If contractors followed the technical requirements of the law, they usually got a free pass--even if their policies resulted in little tangible progress for women and minorities in the workplace.

But as of 2001, new math is our.

Late last year, the federal Office of Contract Compliance Programs (OFCCP) completed its first major overhaul in 30 years of regulations governing affirmative action programs. The new rules took effect on December 13, 2000.

The many technical changes in the new regulations are less significant than the shift in focus. The government now wants to see contractors targeting results, not just designing a policy in order to show compliance. And it has backed up this goal with a powerful new tool--a bi-annual survey of workforce and compensation data that gives the OFCCP a road map for conducting audits.

The new regulations apply to any organization with 50 or more employees that:

* Has a contract with the United States of $50,000 or more.

* Has a subcontract of $50,000 or more that is necessary to a primary contractor s performance of a covered federal contract.

* Has government bills of lading that in any 12-month period total, or can reasonably be expected to total, $50,000 or more.

* Serves as a depository of government funds in any amount.

* Is a financial institution that is an issuing and paying agent for U.S. savings bonds and savings notes in any amount.

Many employers are covered by federal affirmative-action requirements without realizing it. This happens most often when a company enters into a subcontract to provide goods or services to another company without realizing that the prime contractor is doing business with the federal government. However, the same situation also can arise as a result of a failure in communication between a company's sales department and its human-resources department or in-house legal counsel.

Even though the new rules cover all but the smallest contractors, small- to medium-sized businesses are likely to feel the greatest impact. The agency's traditional lack of enforcement has allowed some contractors to fly under the radar, giving only lip service to affirmative action in a belief that the likelihood of being audited was small.

That is no longer so. While the giant contractors have long been aggressive and proactive about affirmative action--knowing that the government was looking over their shoulder--smaller players now are likely to face similar scrutiny.

As was true under prior regulations, covered employers are required to adopt a formal affirmative-action program, documented by a written plan. An acceptable program must include procedures for reviewing all employment related practices, ensuring equal-employment opportunity and implementing good faith efforts to employ and advance women and minorities.

If a company was compliant before, the rules are written in such a way that it is likely to be compliant now. In fact, several aspects of the rules simplify the affirmative-action process for contractors. For example:

* Workforce Analysis--Employers previously were required to prepare a workforce analysis listing every job title used in the organization by department. Employers will now have the option of preparing an "organizational profile" which, in some cases, may be easier to generate.

* Availability and Utilization Analysis--Under one key element of an affirmative-action program, employers must assess the availability of women and minorities in the labor force to fill the types of jobs performed for the employer. They must then compare that availability analysis with the actual representation of women and minorities in the employer's workforce.

Previously, employers were required to consider eight factors in determining availability. Under the new regulations, employers need only consider two: the percentage of minorities or women with requisite skills in the reasonable recruitment area and the percentage of minorities or women among those promotable, transferable or trainable within the employer's organization.

In addition, small employers (meaning employers with less than 150 employees) now will be able to perform their availability and utilization analyses using EEO-1 categories for their job groups instead of having to create job groups specially tailored to their organizations.

* Employers with Multiple Work Sites--Under the previous regulatory regime, employers needed to maintain separate affirmative-action plans for each of their work sites or "establishments." However, questions sometimes arose as to which plan covered particular employees. The new regulations provide some guidance on this issue, providing, for example, that "employees who work at locations other than that of the manager to whom they report, must be included in the affirmative-action program of the manager." The new regulations require employers to annotate their affirmative-action plans to indicate when employees are included in affirmative-action programs for establishments other than where they are physically located.

Under the new regulations, the agency also indicates a greater willingness to consider plans based on a business function or line of business, without regard to geographic locations. Such plans will have to be individually negotiated with top OFCCP officials in advance.

Even though employers may find some aspects of the new compliance program easier to manage, they also must deal with the agency's substantial change in focus. The new regulations place less emphasis on the "boilerplate" language to be included in the written plan and require greater attention to the practical operation of the employer's entire affirmative-action program. As described by OFCCP, the new regulations are intended to refocus emphasis from the development of a written affirmative-action plan "that complies with highly prescriptive standards, to a performance based standard that effectively implements an affirmative-action program into the overall management plan of the contractor.

In addition, OFCCP has promised aggressive efforts to uncover and remedy pay discrimination. Contractors targeted by the agency on this issue face the prospect of expensive litigation and, potentially, significant damages. Even the allegation of pay disparities can also lead to internal morale problems and employee lawsuits.

Employment Survey

The regulations give OFCCP a powerful new tool for measuring compliance and results. All covered employers will need to complete an equal-opportunity survey, which includes highly detailed information on the company's equal-employment opportunities and affirmative-action program activities; its personnel categorized by gender, race and ethnicity; and compensation data for minorities and non-minorities by gender.

The new regulations also place greater emphasis on the requirement that employers make every reasonable effort to identify the gender, race and ethnicity of every employee and applicant for employment. In addition, the regulations require employers to adopt new standards for race and ethnicity classification in line with the October 1997 decisions of the federal Office of Management and Budget.

The agency plans to survey approximately half of the contracting community each year. About 50,000 contractors received the first survey earlier this year, and the next wave of surveys will be arriving shortly. On an ongoing basis, contractors can expect to complete the EEO survey every other year.

No contractor should take the survey lightly. The document gives OFCCP a road map for identifying contractors that are likely to be out of compliance, and the survey data will almost certainly be a key tool in deciding which companies will be audited--a process that carries substantial costs and risks. As a result, companies should get proper counsel before completing the EEO survey and should always have their attorneys review the document before it is sent to the government.

The agency specifically notes that one of the goals of the survey is "to improve the deployment of scarce federal government resources toward contractors most likely to be out of compliance." Translation: Big Brother is watching.

In the past, failing to implement a required affirmative-action program did nor expose an employer to significant risks. OFCCP had limited resources to conduct audits of covered employers and was therefore unlikely to discover a failure to comply. Moreover, even when the agency did discover that a covered employer had failed to adopt an affirmative-action program, the employer could almost always avoid any adverse consequences by simply agreeing to implement the program going forward.

But as a result of the equal-employment survey and new methods for checking compliance, OFCCP is more likely to discover that a covered contractor is failing to fulfill its affirmative-action obligations. The agency's focus on systemic discrimination, especially with regard to pay, makes it increasingly likely that an OFCCP audit will result in the agency seeking to recover monetary damages.

By implementing an appropriate affirmative-action program, an employer can reduce the likelihood of a comprehensive audit and increase the likelihood that, if audited, the employer will receive a clean bill of health. When implementing a program for the first time--or updating and evaluating an existing program--companies should:

* Be proactive. Employers should not set out to do any more than they have to. They should look for ways to make diversity a sincere part of the culture, and implement training, recruiting and recognition programs that demonstrate a commitment to diversity.

* Beware the tightrope. Affirmative action doesn't mean quotas. Most preferential treatment programs may make a company liable for reverse discrimination. The goal in implementing an affirmative action program is not to disadvantage more qualified applicants. It is to seek our and provide greater opportunity to women and minorities who might not otherwise be in the pool at all.

* Get help with the numbers. Regulatory compliance is a complex minefield. Not all firms have the internal expertise to manage it.

* Assess pay equity. Companies should audit the compensation practices carefully, because this will likely be a primary focus of the OFCCP analysis. It is recommended to rely on counsel, because it is easy to create evidence that inadvertently documents discriminatory practices, which can come back to haunt a company in litigation.

* Be reasonable. If a company has acted in good faith, it is likely to pass muster with the government. But when a company appears to be looking for ways to skirt the rules, or makes only a token effort, the agency may be more inclined to take a hard line.

What's Next

Even with the new regulations in place, the future of affirmative action is far from clear. In 1995, the Supreme Court held in the Adarand case that race-conscious federal programs are subject to the most stringent level of constitutional review-but failed to resolve whether the disputed program (or any affirmative action program) could satisfy this strict level of scrutiny. After another six years of litigation, Adarand is back on the Supreme Court docket this year, giving the justices another opportunity to rule on the constitutionality of affirmative action.

The Bush administration, meanwhile, is less favorably inclined toward affirmative action and may be less aggressive in enforcing compliance or funding the OFCCP in its watchdog role.

But contractors cannot afford to be complacent and hope that affirmative action goes away. The OFCCP regulations are the law of the land. Any contractor that ignores the regulations--or fails to take them seriously--is at risk.

Most businesses that embrace diversity also discover a bottom-line payback. They find more qualified employees, they enrich their workforce with new perspectives and ideas and they align their marketing strategy to serve an increasingly diverse world.

David Goldstein is a partner in labor and employment law at the Minneapolis law firm of Faegre & Benson.