John C. Fox 160 West Santa Clara St., Suite 700

San Jose, CA 95113 Direct Dial: (408) 844-2360

Direct Facsimile: (408) 844-2361 E-mail: jfox@foxwangmorgan.com

Website: www.foxwangmorgan.com

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* John C. Fox, Esq. is the President and a founder of Fox, Wang & Morgan P.C., headquartered in San Jose, California in the heart of the Silicon Valley. Mr. Fox leads large and complex litigation matters in state and federal courts, in cases involving trade secrets, wage-hour and discrimination class actions, wrongful termination, corporate investigations, and the use of statistics in employment matters. He also provides business and strategic advice for a wide range of companies nationwide relating to their employment practices and helps build employment systems in a way designed to minimize legal risk. Mr. Fox was previously Executive Assistant to the Director of OFCCP, where he was in charge of all policy and enforcement matters including as to OFCCP’s Section 503 policies and lawsuits OFCCP filed against federal contractors. Mr. Fox has a broad-based view of the many legal issues involved in discrimination and disability law.

OFCCP’s SECTION 503 PROGRAM

John C. Fox, Esq.*

March 1, 2014

This briefly outlines the Office of Federal Contract Compliance Programs (“OFCCP”) compliance obligations pursuant to its responsibility to enforce Section 503 of The Rehabilitation Act of 1973 (“Section 503”), and its implementing regulations at 41 C.F.R. § 60-741. This paper also briefly discusses OFCCP’s use of various “Compliance Evaluation” investigating tools, including Compliance Reviews (i.e., “audits”) and Complaints. We also describe OFCCP’s use of “Sanctions” (which are unique to OFCCP’s three program authorities) and “Remedies.”

© 2014 Fox, Wang & Morgan P.C.

THIS OUTLINE IS MEANT TO ASSIST IN GENERAL ADVICE REGARDING AFFIRMATIVE ACTION AND EEO. IT IS NOT TO BE REGARDED AS LEGAL ADVICE.

COMPANIES OR INDIVIDUALS WITH PARTICULAR QUESTIONS SHOULD SEEK ADVICE OF COUNSEL.

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1. OFCCP ENFORCES SECTION 503 OF THE REHABILITATION ACT OF 1973 (in addition to Executive Order 11246 and VEVRAA)

• Section 503 of the Rehabilitation Act of 1973, as amended, makes discrimination (based on disability) unlawful and requires “affirmative action” for individuals with a disability. Specifically Section 503:

(a) Prohibits Discrimination Based On Disability: Makes unlawful employment discrimination based on “disability” as to companies signatory to “a” federal contract (no aggregation) or federal subcontract (no aggregation) in excess of $10,000; and

(b) Requires “affirmative action” of a type and quality specified in OFCCP’s regulations at 41 C.F.R. § 60-1, including development annually of an “Affirmative Action Program” for those companies with 50 or more employees and “a” federal contract or subcontract in excess of $50,000.

2. REMEDIES INCLUDE:

(a) Injunctive relief, including to order unlawful discrimination to stop and technical affirmative action plan corrections (for example, construct the AAP in a way satisfactory to OFCCP’s regulations); and

(b) Typical (pre-Civil Rights Act Amendments to Title VII) discrimination remedies including back pay, interest, front pay, and injunctive relief (but not compensatory or punitive damages).

NOTE: Only OFCCP may investigate and sue federal contractors for compliance failures in pursuit of its mission as a federal contracting agency seeking to enforce the contract between the federal government and the contractor. Individual aggrieved applicants and employees or former employees may NOT privately seek to enforce Section 503. Rather, only OFCCP may investigate and enforce alleged violations of Section 503.

3. SANCTIONS INCLUDE:

(a) Contract termination;

(b) Debarment: from becoming signatory to federal contracts in the future following an administrative trial-type hearing and any subsequent appeal; and

(c) Interruption of progress payments (even while contract performance continues) following an administrative trial-type hearing and subsequent appeal.

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NOTE: OFCCP has debarred fewer than 70 federal contractors or subcontractors in its almost 50 year history. This is because a federal contractor has to want to be debarred to be debarred. If the contractor agrees to comply, OFCCP may not debar it.

4. OFCCP’s NEW FINAL SECTION 503 REGULATIONS

On September 24, 2013, OFCCP published a Final Rule (i.e. regulation) amending its Section 503 regulations effective March 24, 2014.While the new Rule has been highly controversial and has proven to be very complicated due to its detail and prescription of numerous compliance actions covered federal contractors and covered federal subcontractors must undertake, here is a list of the major changes:

-established, for the first time, a so-called “Utilization” Goal;

-initially set the Utilization Goal at 7% (requiring contractors to seek to achieve that percentage in recruitment -- not a “quota” hiring goal);

-required covered federal contractors/subcontractors to invite applicants for employment to voluntarily self-identify as an individual with a disability at the pre-offer stage of the hiring process; -required covered federal contractors/subcontractors to invite incumbent employees to voluntarily self-identify their disability status on a regular basis; -required covered federal contractors/subcontractors to maintain certain “quantitative measurements and comparisons” of the number of individuals with disabilities they hire to allow contractors to annually self-assess their outreach and recruitment program for individuals with a disability; and -bring Section 503’s disability discrimination prohibitions into alignment with the Congress’ recent amendments to Section 503 (and the Americans with Disabilities Act). As part of its regulatory discretion, OFCCP also announced in its Final Rule that all

Affirmative Action Programs created and dated before March 24, 2014 (the effective date of the new Final Rule) would continue in effect for their natural one-year lifespan and that the contractor would thus not have to update its existing AAP until it expired. Later, OFCCP further exercised its prosecutorial discretion to announce that it would not enforce the entirety of the new portions of the Subpart C section of its Final Rule until the conclusion of the contractor’s existing AAP. This announced delay of compliance will thus give contractors even more time to comply with the new requirements. Subpart C includes not just the required Affirmative Action Plan for individuals with a disability but also the obligations to (a) invite Applicants to voluntarily complete a mandated pre-offer self-identification form, (b) extend to incumbent employees an invitation to self-identify disability status otherwise due between March 24, 2014 and March 23, 2015, (c) comply with OFCCP’s new Utilization Goal, and (d) comply with OFCCP’s newly established Utilization analyses requirements.

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5. BROAD INVESTIGATIVE AUTHORITY.

OFCCP is the only federal civil rights agency to have both affirmative action and non- discrimination authority. OFCCP is also the only federal civil rights agency to have both Complaint and Compliance Evaluation authority.

The OFCCP annually (currently) completes approximately 4,000 “Supply and Service” (i.e. non-construction) “Compliance Evaluations,” otherwise colloquially known as either “Compliance Reviews” or “audits.” Each of these audits entails a review of the contractor’s Affirmative Action Program for Individuals with a Disability (among other things). OFCCP divides its audits into three discreet components: Desk Audit; On-Site Review; and Off-Site Analysis.

Beginning in the late 1990’s during the second Clinton Administration term, OFCCP began to close approximately 70% - 80% of Compliance Reviews at the Desk Audit Stage of its audit. The Bush Administration followed suit. Both the Clinton and Bush Administrations closed approximately 5% of their audits with findings of violations, but rarely as to Section 503. Typically, only 2% of OFCCP’s audits (under all 3 of the statutes it enforces) result in a finding of illegal discrimination (and rarely involve, these days, disability discrimination claims). Beginning in 2009, shortly after the Obama Administration arrived in office, OFCCP Desk Audits increased in length and depth of investigation and audit “running time” increased to often in excess of one year. The audit violation rate also increased dramatically (over 6-fold) to its current approximately 30-35% violation rate in FY 2013. The leading violation OFCCP cites is a failure of OFCCP’s Section 503’s regulatory requirement to undertake outreach and recruitment of Individuals with a Disability (and similarly as to Protected Veterans).

OFCCP does not, however, carry out its investigatory mission through audits alone. Rather, OFCCP currently claims to have authority to deploy not fewer than seven investigatory vehicles known generally as “Compliance Evaluations", including:

1. Compliance Reviews; (i.e. “audits”)

2. Compliance Checks (no longer used);

3. Focused Reviews;

4. “Off-Site Review of Records” (not used, to date—although an “Off-Site Analysis” is part and parcel of a Compliance Review);

5. Pre-award Compliance Reviews;

6. Individual Complaint investigations; and

7. “Class-type” Complaint investigations.

In contrast, for example, the United States Equal Employment Opportunity Commission (“EEOC”) has only one investigatory vehicle available to it under Title VII of the

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1964 Civil Rights Act known as a “Charge Investigation.” EEOC Charges may however, take one of two forms:

-Individual and Class-Type Charge investigations (the predominant method of EEOC investigation and enforcement), and

-Commissioner’s Charges (very rarely issued, but typically allege discriminatory class-wide patterns and practices of employment. As to Commissioner’s Charges, a Commissioner of the EEOC acts as a Complainant and files the Charge on behalf of an individual applicant(s) or incumbent or former employee(s)).

Because OFCCP is best known and feared for its Compliance Review capability, this document primarily addresses OFCCP audit strategy and the corresponding responsive corporate strategy.1 Nonetheless, many observations made here with regard to OFCCP Compliance Reviews are equally applicable to both individual OFCCP Complaint investigations and also to EEOC Charge investigations.

A. Complaints

OFCCP’s Complaint authority allows it to intake “Complaints” from Applicants and employees under all three of the agency’s program authorities (Executive Order 11246; Section 503 of the Rehabilitation Act and that portion of the Vietnam Era Veterans Readjustment Assistance Act of 1974 OFCCP enforces).

To avoid duplication and overlap with the EEOC’s program authorities under Title VII of the 1964 Civil Rights Act (making unlawful discrimination based on race, sex, color, religion, and national origin) and the Americans with Disabilities Act - ADA (making unlawful discrimination based on disability), the OFCCP and the EEOC periodically enter into Memoranda of Understanding (MOU’s).

As to Complaints based on disability, an EEOC/OFCCP MOU permits the agency which first receives the Complaint to proceed. Moreover, the OFCCP may defer to the EEOC any Complaints it may receive pursuant to its Section 503 authority which it may wish the EEOC to investigate pursuant to the sometimes superior remedies authority the EEOC enjoys pursuant to the ADA. See “Joint Final Rule” dated January 24, 1992 titled “Procedures for Complaints/Charges of Employment Discrimination Based on Disability Filed Against Employers Holding Government Contracts or Subcontracts” 57 Federal Register 2960 (1992). See also the OFCCP’s November 7, 2011 “Notice” with the EEOC titled “Coordination of Functions; Memorandum of Understanding”: http://www.eeoc.gov/laws/mous/eeoc_ofccp.cfm

1 Since the advent of the Americans with Disabilities Act, OFCCP now annually receives fewer than approximately 100 Complaints nationwide per year pursuant to Section 503 of the Rehabilitation Act.

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B. Compliance Evaluations

Prior to September 10, 1998, OFCCP only had two investigatory vehicles (“Complaints” and “Compliance Reviews”) at its disposal. However, OFCCP set the stage for major change when, in August 1997, it published final regulations pursuant to Executive Order 11246 (only) creating the term Compliance Evaluation and then authorizing four different types of such an “evaluation,” one of which remained a “Compliance Review.” Rather than to immediately deploy all of these new “Compliance Evaluation” authorities, however, OFCCP held off pending the development of Directives to its field personnel describing in greater detail how to implement these various new investigative vehicles. Beginning with a September 10, 1998 Directive (as to so-called “Compliance Checks”) and then a December 14, 1998 Directive (as to “Focused Reviews”), OFCCP then began to also deploy these two new investigative tools in addition to its historic use of its fabled Compliance Review tool. We briefly describe these Compliance Evaluation tools below.

It is important to note that an OFCCP Compliance Officer conducting a Compliance Review wears two hats. The Compliance Officer (“CO”) is investigating both the Company’s (1) technical affirmative action compliance (by reviewing the Affirmative Action Program at issue) and also (2) key employment transactions (hires/promotions/involuntary terminations/compensation) to determine whether unlawful employment discrimination has occurred during the relevant time period at the establishment in question. Also, while it is little understood, a “failure of reasonable accommodation” is a discrimination law violation pursuant to Section 503 (and also the ADA) and is not merely a failure of “affirmative action” (which it is in addition to being an unlawful discrimination violation). Accordingly, corporate defenders of OFCCP audits must remain cognizant that both affirmative action and non-discrimination issues are within OFCCP’s authority and are “on the table” for investigation during the OFCCP audits of a contractor’s Section 503 compliance.

OFCCP historically conducts audits by “establishment,” or what are otherwise colloquially known as “facilities.” In fact, both the terms “establishment” and “facilities” are used interchangeably within OFCCP’s regulations. Accordingly, the physical scope of the audit is historically limited to the establishment OFCCP identifies. With the advent in the Fall 1988 of the so-called “Corporate Initiative,” OFCCP audits of headquarters, regional facilities or other “higher-level” establishments now often, of course, also encompass selections made at the higher-level of personnel reporting at a subordinate establishment. This is true now even though the positions and employees at issue are located at a distant “subordinate” establishment not physically co-located with the “higher-level” establishment. Moreover, OFCCP’s Atlanta Region in 1997, inspired by its experience looking at nationwide policies emanating from Headquarter offices, began to audit selected employment transactions on a nationwide basis. As a follow-on to the Atlanta nationwide audit “pilots,” OFCCP has in recent years been undertaking dozens of corporate-wide audits per year. However, since OFCCP audits by “establishment,” this has meant OFCCP has simply set down dozens of a company’s establishments for audit each year rather than to place the entire company under audit with one audit notice.

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1. Compliance Reviews

Compliance Reviews are one type of “Compliance Evaluation” OFCCP may undertake and are OFCCP’s primary investigation tool. Compliance Reviews are highly detailed investigations potentially of every employment policy, practice and/or action the contractor has undertaken (in the two years preceding OFCCP’s audit Scheduling Letter). The OFCCP takes the position that it may go back at least two years prior to the Notice of Desk Audit (the document which commences a Compliance Review) as the period of time during which it may cure unlawful discrimination and procure remedies therefore. (OFCCP cites a March 23, 1983 memorandum from then OFCCP Executive Assistant, John C. Fox, for this proposition.)

Compliance Reviews proceed in up to three sequential stages, as briefly noted above and described in greater detail below:

(a) Desk Audit (commenced following receipt of a contractor’s or subcontractor’s AAP and will continue at OFCCP’s offices until such time – typically (these days) three to 24 months – as OFCCP completes approximately 70% of its work in the audit by reviewing previously supplied AAPs and “Support Data”). OFCCP now ALWAYS reviews the contractor’s Section 503 Affirmative Action Plan during an OFCCP audit and almost always makes inquiry, during the Desk Audit, for evidence the contractor has undertaken aggressive outreach and recruitment of individuals with disabilities pursuant to the requirements of OFCCP’s regulations at 41 C.F.R. § 741.44(f) “External dissemination and positive recruitment.” Whether the contractor has formed a sufficient relationship with recruitment sources likely to be able to refer qualified individuals with a disability is often the subject of intense OFCCP inquiry and scrutiny during the Desk Audit phase of the audit.

(b) On-site Review (OFCCP comes on-site to collect additional information of interest and to confirm what it believes it identified at Desk Audit. “On-sites” need not occur at all, but in the approximately 10% of the time they do occur (these days), they typically last 1-2 days and may include interviews of the Chief Executive Officer, managers and (frequently) of employees. OFCCP, these days, often precedes the On-site Review with a written “On-site Letter” describing the issues of concern to OFCCP as revealed to the agency during its Desk Audit. The On-site Review also typically (but not necessarily anymore) starts with an “Entrance Conference” and concludes with an “Exit Interview,” during which time the OFCCP Compliance Officer(s) tentatively identifies areas of compliance and non-compliance). The Obama Administration is moving more and more compliance analyses previously undertaken during the On-site audit into the Desk Audit phase. The consequence is more prolonged audits and greater contractor costs to defend often as many as 10-15

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written (typically email) “Supplemental Data Requests” seeking additional information and documents during the Desk Audit phase of the audit.

(c) Offsite Analysis (OFCCP repairs to its offices and analyzes all data collected during the On-site Phase of the audit and proposes an audit resolution to the contractor).

2. Compliance Checks (currently not being used).

Beginning in the last two weeks of September 1998, OFCCP inaugurated its “Compliance Check” investigative authority. While OFCCP’s regulations published August 19, 1997 pursuant to Executive Order 11246 (see 62 Fed. Reg. 44174) authorized (after September 18, 1997) deployment of the Compliance Check method of investigation, OFCCP’s Preamble to the regulations also noted (at p. 44180) that OFCCP would withhold deployment of this (and two other new investigative vehicles) until after OFCCP had published Compliance Manual procedures to its Compliance Officers.

OFCCP Directive No. 227 dated 9/10/98 regarding “Investigative procedures: compliance check” amended OFCCP’s Compliance Manual to institute the Compliance Check investigation vehicle. However, publication in June, 2005 of a Final Regulation (see Federal Register) overtook this Directive in two ways. First, OFCCP no longer required its Compliance Officers to come on-site to conduct a Compliance Check. Second, OFCCP expanded the scope of Compliance Checks to permit it to access and review all documents OFCCP’s regulations require Federal contractors to maintain pursuant to OFCCP’s record keeping regulations at 41 CFR § 60-1.12

Following publication of OFCCP’s Final Compliance Check regulation, OFCCP then allowed contractors to either provide documents on-site or via e-mail, fax, mail or overnight delivery service. In general, OFCCP notified covered contractors or covered subcontractors in writing (and often also by telephone) that an OFCCP Compliance Officer wished to examine compliance with the contractor’s record keeping requirements.

Since the Fall of 2005, however, OFCCP has not conducted Compliance Checks. The Obama Administration is actively discussing their return in Fiscal Year 2014, but The White House has not yet approved OFCCP’s resumption of this investigation tool.

3. Focused Reviews

While OFCCP only began to deploy this investigative tool in FY 2000 on a widespread basis, OFCCP now uses it virtually 100% of the time it comes On-site (which is, however, only approximately 10% of the time (these days), and its incidence of use is shrinking). This tool allows OFCCP to investigate, perhaps,

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only one or two issues identified during the Desk Audit phase of a Compliance Review. In this way, OFCCP feels it will better serve the taxpayers by not deploying resources unnecessarily to investigate all employment policies and practices, most of which do not prove to be problematic.

J.C.F.