The September 22, 2020, issuance of Executive Order 13950 limiting federal government contractors’ ability to conduct diversity, inclusion, and unconscious or implicit bias training has roiled the contractor community. Although the Executive Order provided broad categories of themes that it prohibits as subjects of diversity training, it does not provide contractors with substantial guidance as to what specific types of training the Executive Order prohibits. On October 7, 2020, the Office of Federal Contract Compliance Programs (OFCCP) issued an FAQ guidance document regarding the Executive Order, which provides some, but far from sufficient, guidance to contractors. OFCCP’s FAQ guidance largely quotes directly from the Executive Order without providing additional insight into the Executive Order’s terms. That said, the FAQ does clarify two points: First, even if a federal contractor does not have a government contract subject to the Executive Order (generally, one issued after November 21, 2020), “OFCCP may investigate claims of sex and race stereotyping pursuant to its existing authority under Executive Order 11246.” To that end, OFCCP earlier established a hotline for employees of contractors to submit complaints of prohibited diversity training programs. Accordingly, all federal contractors should ensure their training programs comply with the Executive Order, regardless of whether their contracts contain the Executive Order’s prohibition. Second, OFCCP addressed the scope of unconscious or implicit bias trainings. The FAQ clarifies that such trainings are not necessarily prohibited. However, bias trainings cannot single out a single group as being unconsciously or implicitly racist, sexist, oppressive, or biased. Instead, the training must be “designed to inform workers, or foster discussion, about pre-conceptions, opinions, or stereotypes that people – regardless of their race or sex – may have regarding people who are different, which could influence a worker’s conduct or speech and be perceived by others as offensive.” Although OFCCP’s FAQ may not have provided the details sought by contractors, a September 28, 2020, memorandum from the Office of Management and Budget (OMB) regarding similar restrictions on federal sector diversity trainings provides some additional guidance. OMB emphasizes that trainings must promote “fair and equal treatment.” The memorandum advises agencies to search for concepts like critical race theory, white privilege, intersectionality, systemic racism, positionality, racial humility, and unconscious bias as potentially prohibited.  Although these are also broad concepts, the OMB memorandum provides some additional guidance on what contractors should look for and avoid. Notably, neither OMB nor OFCCP addresses the thornier question of what contractors must do if employees themselves discuss prohibited topics or themes during discussion portions of trainings. Given the lack of clear guidance to date from the Executive Order, OFCCP, OMB, or any other official source, contractors should conduct a close review of any diversity and inclusion training materials they use to ensure that they are consistent with the “fair and equal treatment” principle and do not include the themes described in the Executive Order. The effect of the Executive Order remains an evolving issue that contractors should closely follow.

On September 22, 2020, President Trump issued an Executive Order Combating Race and Sex Stereotyping that will prohibit federal contractors and grantees from engaging in many forms of diversity, inclusion, and implicit bias training that have gained popularity in recent months. The new Executive Order announces a federal policy “not to promote race or sex stereotyping or scapegoating” and not to permit contractors to “inculcate such views in their employees.”  To that end, the order requires agencies to include in most new federal government contracts a clause prohibiting contractors from using any workplace training program that includes the concepts that: One race or sex is inherently superior to another race or sex; An individual, by virtue of his or her race or sex, is inherently racist, sexist, or oppressive, whether consciously or unconsciously; An individual should be discriminated against or receive adverse treatment solely or partly because of his or her race or sex; Members of one race or sex cannot or should not attempt to treat others without respect to race or sex; An individual’s moral character is necessarily determined by his or her race or sex; An individual, by virtue of his or her race or sex, bears responsibility for actions committed in the past by other members of the same race or sex; An individual should feel discomfort, guilt, anguish, or any form of psychological distress on account of his or her race or sex; or Meritocracy or traits such as a hard work ethic are racist or sexist, or were created by a particular race to oppress another race. The Executive Order also prohibits trainings that “assign[] fault, blame, or bias to a race or sex, or to members of a race or sex because of their race or sex.”  These prohibitions follow a previous Executive Order prohibiting similar trainings by federal agencies. Contractors are required to post a notice with the substance of the Executive Order in a conspicuous place in the workplace, and include the Executive Order’s prohibitions in any subcontracts.  The Office of Federal Contract Compliance Programs (OFCCP) is directed to establish a hotline and investigate complaints of prohibited training programs.  As sanctions for noncompliance, the Executive Order requires agencies to consider such drastic measures as terminating, suspending, or canceling contracts, or even debarring contractors.  The Executive Order does provide that it does not prevent contractors from promoting racial, cultural, or ethnic diversity and inclusiveness in a manner consistent with the Order. The Executive Order appears to target diversity and inclusion training programs like the popular White Fragility that focus on concepts of implicit bias.  These trainings have gained prominence in the wake of the George Floyd killing earlier this year.  New federal contracts or grants would prohibit contractors from implementing these types of efforts with severe consequences.  It is anticipated that the constitutionality and validity of the Executive Order will be challenged in litigation.  Federal contractors and grantees should keep close track of these developments due to the heavy potential penalties for noncompliance.

On September 22, 2020, President Trump issued an Executive Order Combating Race and Sex Stereotyping that will prohibit federal contractors and grantees from engaging in many forms of diversity, inclusion, and implicit bias training that have gained popularity in recent months. The new Executive Order announces a federal policy “not to promote race or sex stereotyping or scapegoating” and not to permit contractors to “inculcate such views in their employees.”  To that end, the order requires agencies to include in most new federal government contracts a clause prohibiting contractors from using any workplace training program that includes the concepts that: One race or sex is inherently superior to another race or sex; An individual, by virtue of his or her race or sex, is inherently racist, sexist, or oppressive, whether consciously or unconsciously; An individual should be discriminated against or receive adverse treatment solely or partly because of his or her race or sex; Members of one race or sex cannot or should not attempt to treat others without respect to race or sex; An individual’s moral character is necessarily determined by his or her race or sex; An individual, by virtue of his or her race or sex, bears responsibility for actions committed in the past by other members of the same race or sex; An individual should feel discomfort, guilt, anguish, or any form of psychological distress on account of his or her race or sex; or Meritocracy or traits such as a hard work ethic are racist or sexist, or were created by a particular race to oppress another race. The Executive Order also prohibits trainings that “assign[] fault, blame, or bias to a race or sex, or to members of a race or sex because of their race or sex.”  The Order also requires the Attorney General to consider whether these types of trainings violate Title VII by contributing to a hostile work environment.  These prohibitions follow a previous Executive Order prohibiting similar trainings by federal agencies. Contractors are required to post a notice with the substance of the Executive Order in a conspicuous place in the workplace, and include the Executive Order’s prohibitions in any subcontracts.  The Office of Federal Contract Compliance Programs (OFCCP) is directed to establish a hotline and investigate complaints of prohibited training programs.  As sanctions for noncompliance, the Executive Order requires agencies to consider such drastic measures as terminating, suspending, or canceling contracts, or even debarring contractors.  The Executive Order does provide that it does not prevent contractors from promoting racial, cultural, or ethnic diversity and inclusiveness in a manner consistent with the Order. The Executive Order appears to target diversity and inclusion training programs like the popular White Fragility that focus on concepts of implicit bias.  These trainings have gained prominence in the wake of the George Floyd shooting earlier this year.  New federal contracts or grants would prohibit contractors from implementing these types of efforts with severe consequences.  It is anticipated that the constitutionality and validity of the Executive Order will be challenged in litigation.  Federal contractors and grantees should keep close track of these developments due to the heavy potential penalties for noncompliance.

On September 14, 2020, the Office of Federal Contract Compliance Programs (OFFCP) requested approval from the Office of Management and Budget to require government contractors to certify on an annual basis that they are in compliance with their affirmative action program (AAP) obligations.  Under OFCCP’s proposal, federal contractors are required to certify on an annual basis that they have complied with applicable AAP requirements.  The certification would be done through a new Affirmative Action Program Verification Interface online platform developed by OFCCP. OFCCP’s request for approval is not completely clear about how the agency intends to use this information, but it appears reasonable to expect an uptick in enforcement activity against contractors who fail to certify compliance with their AAP obligations. In one portion of the request, OFCCP notes that its new platform will allow OFCCP to “run a comprehensive and informative report identifying the AAP status of covered federal contractors.”  The request does not address whether a contractor will face additional consequences, such as for false claims, if it certifies its AAPs are in compliance but OFCCP later determines that certification was incorrect. Also on September 14, 2020, OFCCP published a Comment Request in the Federal Register about the new certification requirement.  OFCCP expressed particular interest in comments addressing: 1.      The proposed frequency and level of the information collection; 2.      Whether the proposed collection of information is necessary for OFCCP’s enforcement and compliance assistance functions, including whether they will have practical utility; 3.      The accuracy of OFCCP’s estimate of the burden of the proposed information collection; 4.      Proposals to enhance the quality, utility, and clarity of the information to be collected; and 5.      Proposals to minimize the burden of the information collection to respondents. This new certification likely signals an increase in OFCCP enforcement activity, at least against the low hanging fruit of contractors who fail to certify their compliance with AAP requirements.  The impending requirement that contractors affirmatively certify AAP compliance only emphasizes the need for contractors to proactively review their AAPs and ensure compliance with all of OFCCP’s requirements.

The Office of Federal Contract Compliance Programs (“OFCCP”) recently issued new FAQ guidance on how federal government contractors should treat non-binary employees (i.e., those who do not exclusively identify as either male or female) in their affirmative action programs (“AAP”).  OFCCP instructs that contractors should include non-binary employees in AAP documents, but should exclude their data when conducting the gender-based analyses required by OFCCP’s AAP rules.  This means that non-binary employees should not be considered when determining gender-based placement goals and analyzing potential gender-based disparities in personnel activity and compensation systems. The new guidance also reminds contractors that they may not ask applicants or employees for documentation to prove their stated gender identity.  As a refresher, some other gender identity-related guidance from prior FAQs include that: OFCCP does not require contractors to collect data about the non-binary gender identification of applicants or employees, but contractors may voluntarily choose to do so. Contractors’ AAP obligations do not require outreach activities towards LGBT applicants or employees, but contractors may voluntarily choose to do so. If an employee self-identifies their gender, including as non-binary, the contractor may not override that identification based on its visual observation or other records. Under EEOC guidance, data regarding non-binary employees may be separately reported in EEO-1 form submissions. The new OFCCP FAQ provides some certainty for contractors and helps alleviate the conflict between OFCCP’s prior gender-binary framework and society’s rapidly-advancing understandings – often reflected in state, and now federal Title VII, law – of gender identity.  However, many thorny questions about the treatment of non-binary employees for AAP or other OFCCP compliance purposes remain unaddressed.  Because OFCCP accepts gender identity-based complaints from employees, and those complaints can now potentially be raised in a federal lawsuit under Title VII, contractors should take care in addressing these evolving issues.

The Office of Federal Contract Compliance Programs (“OFCCP”) recently issued new FAQ guidance on how federal government contractors should treat non-binary employees (i.e., those who do not exclusively identify as either male or female) in their affirmative action programs (“AAP”).  OFCCP instructs that contractors should include non-binary employees in AAP documents, but should exclude their data when conducting the gender-based analyses required by OFCCP’s AAP rules.  This means that non-binary employees should not be considered when determining gender-based placement goals and analyzing potential gender-based disparities in personnel activity and compensation systems. The new guidance also reminds contractors that they may not ask applicants or employees for documentation to prove their stated gender identity.  As a refresher, some other gender identity-related guidance from prior FAQs include that: OFCCP does not require contractors to collect data about the non-binary gender identification of applicants or employees, but contractors may voluntarily choose to do so. Contractors’ AAP obligations do not require outreach activities towards LGBT applicants or employees, but contractors may voluntarily choose to do so. If an employee self-identifies their gender, including as non-binary, the contractor may not override that identification based on its visual observation or other records. Under EEOC guidance, data regarding non-binary employees may be separately reported in EEO-1 form submissions. The new OFCCP FAQ provides some certainty for contractors and helps alleviate the conflict between OFCCP’s prior gender-binary framework and society’s rapidly-advancing understandings – often reflected in state, and now federal Title VII, law – of gender identity.  However, many thorny questions about the treatment of non-binary employees for AAP or other OFCCP compliance purposes remain unaddressed.  Because OFCCP accepts gender identity-based complaints from employees, and those complaints can now potentially be raised in a federal lawsuit under Title VII, contractors should take care in addressing these evolving issues. Federal government contractors can find additional updates on OFCCP and other contractor-specific compliance developments at Polsinelli’s Government Contractor Update blog.

On August 31, 2020, the Department of Labor’s Wage and Hour Division published its annual update to the minimum wage for federal government contractors.  As of January 1, 2021, employees performing services on or in connection with certain types of government contracts will be entitled to a minimum wage of $10.95 per hour.  The minimum cash wage for employees who are eligible for the tip credit will increase to $7.65 per hour.  The current minimum wages for 2020 are $10.80 and $7.55 per hour, respectively. The increased minimum wage stems from Executive Order 13658, which in 2014 established a special minimum wage for certain federal contractors.  Each year, the Wage and Hour Division is required to update the contractor minimum wage levels based on the CPI-W consumer price index for urban wage earners and clerical workers.  Employees are entitled to the heightened minimum wage if they work on or in connection with a construction contract covered under the Davis-Bacon Act, a service contract covered under the Service Contract Act, a concessions contract, or a contract to provide services to federal employees or the general public on federal lands or property. Contractors should ensure that any employees covered by Executive Order 13658 are paid the required amounts.  Polsinelli is available to assist contractors in determining whether specific contracts or employees are subject to the Executive Order.

The Department of Labor (“DOL”) settled a claim of gender pay discrimination against Boehringer Ingelheim Animal Health USA Inc., a pharmaceutical company, on August 18, 2020. The Office of Federal Contract Compliance Programs (“OFCCP”) investigated allegations that Boehringer paid female scientists and technicians less than males in the same positions at a facility in St. Joseph, Missouri where the Company manufactures biological animal vaccines. To resolve the claim, the Company agreed to pay 75 current and former scientists and technicians $379,089 in back pay and interest. The OFCCP noted that Boehringer “worked cooperatively” with the agency during its compliance review to resolve the claim and prevent future discrimination. In addition to the monetary penalty, the Company agreed to revise its policies and procedures to ensure they are not discriminatory. Specifically, the Company agreed to ensure that its pay schedules did not discriminate against women and to train managers and supervisors who are involved in determining compensation.  Carmen Navarro, the OFCCP Midwest Regional Director, stated that the DOL “is committed to combating pay discrimination and ensuring fair compensation of all employees.” Federal contractors must constantly evaluate their pay practices to ensure that they are not discriminating against women. In addition, they should maintain accurate records and document voluntary efforts to correct pay disparities. When faced with an OFCCP compliance evaluation, contractors must consult with legal counsel to ensure that their rights are fully protected. UPDATE - After our original posting, Boehringer Ingelheim requested that we include with our post the following statement regarding the settlement: “Boehringer Ingelheim provides a workplace free of discrimination and harassment to all employees and equal employment opportunity is a core principle at the Company. We are committed to ensuring that our employees are fairly compensated, based on business-related factors and regular market survey analyses. The current settlement relates to an Office of Federal Contract Compliance Programs (OFCCP) audit of 2014 data of the then Boehringer Ingelheim Vetmedica employees in St. Joseph, MO. Boehringer Ingelheim does not agree with the OFCCP’s allegations that, while unintentional, there was a gender-based wage discrepancy for a limited number of employees. Given the age of this matter, the Company decided to resolve in a collaborative manner with the OFCCP. The settlement discussions have now concluded, and both parties have come to an amicable resolution. The OFCCP has not made any additional allegations against Boehringer Ingelheim since 2014.”

On August 3, 2020, President Trump issued an Executive Order titled “Aligning Federal Contracting and Hiring Practices with the Interests of American Workers,” signaling that the administration may seek to limit the ability of federal government contractors and subcontractors to use H-1B visa holders and other temporary foreign laborers on federal government contracts. The Executive Order requires the head of each federal government agency and executive department to study the contractors’ use of temporary foreign labor on the contract as well as the “offshoring” of services previously performed in the U.S. to foreign countries.  Through this study, the agency and department heads must review the performance of contracts and subcontracts awarded in fiscal years 2018 and 2019 to assess: (i)   whether contractors (including subcontractors)  used temporary foreign labor for contracts performed in the United States, and, if so, the nature of the work performed by temporary foreign labor on such contracts; whether opportunities for United States workers were affected by such hiring; and any potential effects on the national security caused by such hiring; and (ii)  whether contractors (including subcontractors) performed in foreign countries services previously performed in the United States, and, if so, whether opportunities for United States workers were affected by such offshoring; whether affected United States workers were eligible for assistance under the Trade Adjustment Assistance program authorized by the Trade Act of 1974; and any potential effects on the national security caused by such offshoring. As part of this study, agency and department heads must assess the impact of contractors’ foreign labor hiring and offshoring practices on (1) the economy; (2) the efficiency of federal procurement; and (3) national security.  The agencies must report back to the Office of Management and Budget within 120 days if they have recommendations for corrective action. Separately, the Executive Order launches the Trump administration’s latest attack on the H-1B visa program for specialized foreign professionals.  It directs the Department of Labor and Department of Homeland Security, within 45 days of the Executive Order, to take action to protect U.S. workers from adverse effects caused H-1B visa holders: Within 45 days of the date of this order, the Secretaries of Labor and Homeland Security shall take action, as appropriate and consistent with applicable law, to protect United States workers from any adverse effects on wages and working conditions caused by the employment of H-1B visa holders at job sites (including third-party job sites), including measures to ensure that all employers of H-1B visa holders, including secondary employers, adhere to the requirements of section 212(n)(1) of the Immigration and Nationality Act (8 U.S.C. 1182(n)(1)). Although both of the initiatives in the Executive Order are preliminary in nature, they suggest that the administration intends to prohibit or substantially limit the use of non-American labor on federal contracts, whether through prohibitions on foreign labor sources or by favoring American labor sources in the procurement process.  Contractors and subcontractors should closely follow any developments as the federal agencies with which they contract complete their studies.  Contractors should also make certain that their subcontractors are prepared to comply with any resulting prohibitions on the use of foreign labor, whether through offshored services or H-1B and other temporary labor providers.

On July 15, 2020, the Virginia Department of Labor and Industry’s Health and Safety Codes Board (“Board”) voted 9-2 to adopt emergency temporary standards designed to prevent the spread of COVID-19 in the workplace. As businesses slowly reopen around the U.S., Virginia is the first jurisdiction in the country to adopt a COVID-19 workplace health and safety standard. The standard applies to every employer within the Commonwealth that falls under the Virginia Occupational Health and Safety Program (“VOSH”). The standard classifies occupations based on “exposure risk level” and requires adherence to various practices based on the risk level of a given occupation. Based on the potential of contracting and spreading COVID-19, an occupation can have a “very high,” “high,” “medium,” and “lower” exposure risk level. In determining exposure risk level, the factors employers must consider include, but are not limited to: (1) the job task performed; (2) whether the workplace is indoors or outdoors; (3) the presence of the virus in the workplace; (4) the presence of persons known or suspected to have the virus; (5) the number of employees in relation to the size of the workplace; (6) working distance between employees; and (7) the frequency and duration of close contact employees have with co-workers and other people.  The standard makes clear that the use of face coverings alone does not establish a “lower” exposure risk level. What does the standard require Virginia employers to do? Employers within every exposure risk levels must assess their workplaces for hazards and job tasks that could expose employees to COVID-19, inform employees of methods for self-monitoring, and encourage employees constantly to monitor their health. The standard also requires employers to develop policies for employees who experience COVID-19 symptoms to report their statuses when no alternative diagnosis has been made. Employers may not allow employees known or suspected to have COVID-19 to report to work until they are cleared to return to work, unless teleworking is an option. The standard also requires employers to ensure that their sick leave policies are flexible and compliant with public health standards and other applicable law, including the Families First Coronavirus Act (“FFCRA”). To track COVID-19 exposures, employers must develop a HIPAA-compliant procedure for receiving positive COVID-19 test results for employees, temporary employees, and the employees of subcontractors in the workplace within the previous 14 days from the date of the positive test. Employers must notify potentially exposed employees and the Virginia Department of Health within 24 hours of the potential exposure, ensuring that the names of the individuals who contracted the virus remain confidential. Employers that rent workspace must notify the building owner within 24 hours of discovering two or more positive results. If there are three or more positive results, the employer must notify the Virginia Department of Labor and Industry with 24 hours. Moreover, employers must implement policies and procedures for allowing employees known or suspected to have COVID-19 to return to work. These policies must require employees to first consult with appropriate healthcare professionals. Although the standard allows employers to use a “symptom-based” system to determine if employees are eligible to return to work, employers may require employees and contractors to also undergo a test under the “test-based” system before employees are permitted to return. For asymptomatic employees, the employer may use a “test-based” system or a “time-based” system.  Employers must pay for all testing required by its policies. To comply with the standard, employers must ensure that employees practice social distancing in the workplace by making announcements, posting signs, decreasing the density of employees, and adhering to Virginia’s occupancy limits. In addition, employers must eliminate or restrict employees’ access to breakrooms and common areas. If access to the common areas is restricted, the employer must post guidelines outside of the entrances that encourages social distancing and provide instructions on sanitizing shared surfaces. If employees are required to share a vehicle for work, they must wear the appropriate personal protective equipment (“PPE”). Employees with medical conditions that would be exacerbated by wearing a surgical mask can be excluded. When do Virginia employers have to comply with the standard? Most of the standard takes effect 60 days after its effective date. The requirement that employers train employees on infectious disease preparedness and response plans, however, becomes effective within 30 days of the effective date. The emergency standard will automatically expire within six months. If the Governor lifts the State of Emergency in the Commonwealth, the Board passes a permanent rule, or the Board repeals this standard, the standard will no longer apply. Practical Tips for Compliance Virginia employers should consider preparing a comprehensive infectious disease preparedness and response plan that covers all of the required information to ensure compliance with the standard. The plan should include all required policies and expectations regarding what employees must do if they experience symptoms and receive a positive test, and provisions for returning to work. Please feel free to contact us for assistance in developing a comprehensive plan that complies with the standard or general advice on compliance with the standard.

The first round of VEVRAA focused reviews is on the horizon.  Last year, OFCCP released its scheduling list identifying the federal contractors who were selected for focused reviews of their compliance with the Vietnam Era Veterans Readjustment Assistance Act.  The start of the focused reviews was delayed, however, because OFCCP did not have Office of Management and Budget approval for its Scheduling Letters that commence the reviews. In April 2020, OFCCP obtained the required OMB approval, which gives the green light for the agency to move forward.  In anticipation of the agency’s issuance of the Scheduling Letters to the selected contractors, OFCCP released new FAQ guidance on May 5, 2020 that provides contractors with insight into the new focused review process.  Some of the highlights are summarized below: Limited Scope of Review:   OFCCP confirmed that VEVRAA focused reviews will focus on the contractor’s compliance with VEVRAA, and not on other obligations under Executive Order 11246 or Section 503 of the Rehabilitation Act.  Although the VEVRAA Scheduling Letter requires the contractor to submit its Executive Order 11246 affirmative action plan (AAP), OFCCP will not conduct a full compliance review of that AAP or analyze whether there is evidence of discrimination based on race, sex, or ethnicity.  Instead, OFCCP will use the Executive Order 11246 AAP to help understand the contractor’s organizational structure and how the contractor’s VEVRAA efforts fit within its broader affirmative action program.  That being said, the FAQs do reserve the right for OFCCP to “take appropriate actions, beginning with technical assistance” if elements of the Executive Order 11246 are “missing or insufficient on their face.”  Accordingly, contractors should ensure that all of their AAPs are in order, even if the contractor has been selected for a limited scope VEVRAA focused review. On-Site Investigations:   The FAQs disclose that every VEVRAA focused review will include an on-site investigation in which OFCCP investigators will interview managers responsible for VEVRAA compliance, employees affected by VEVRAA policies, and evaluate the handling of accommodation requests.  In addition, OFCCP reserves the right for its first round of interviews to take place at both the contractor’s corporate headquarters and its establishment locations.  This contrasts with OFCCP’s guidance for Section 503 focused reviews, in which the first round of interviews is limited to the contractor’s headquarters.  Notably, the FAQ notes that OFCCP may revisit its policy of conducting an on-site investigation in every VEVRAA focused review in future years. Focus on Policy Assessment and Data Analysis:   Although the FAQs explain that OFCCP will assess the contractor’s compliance with “all elements” of the VEVRAA regulations, two aspects are explicitly noted as focuses for the review: “whether the contractor conducted the required assessments of its employment policies and tracked appropriate data concerning protected veterans.”  These data analysis and policy assessment obligations are often overlooked aspects of OFCCP compliance.  Contractors should be sure to engage in these exercises and document their occurrence to ensure they are in a position to produce evidence of compliance to OFCCP. Exemption from Other Reviews:   Finally, the FAQs clarify that while a VEVRAA focused review is pending, the contractor establishment is exempt from being scheduled for other compliance evaluations.  In addition, awardees of the 2018 HIRE Vets Medallion, for exceptional efforts in compliance, are also exempted from VEVRAA focused reviews. OFCCP will likely issue VEVRAA Scheduling Letters to contractors and subcontractors on its scheduling list in the very near future.  Contractors should take efforts now to pre-audit their compliance and identify and address any potential concerns before receiving a Scheduling Letter.  Polsinelli is available to assist the contractor community with VEVRAA and other OFCCP compliance obligations and guide contractors through V

Is Virginia the new California?  That may be an exaggeration, but in April 2020 the Commonwealth took major steps away from its historically pro-employer climate to provide employees and independent contractors with new potential claims.  We previously reported about Virginia’s extension of employment protection to LGBTQ employees and creation of a new state-law employment discrimination cause of action.  Virginia employers should also be aware of new changes to the Commonwealth’s wage and hour laws. Minimum Wage Increase The Virginia General Assembly submitted legislation to Governor Ralph Northam to increase the minimum wage from $7.25 to $9.50 per hour effective January 1, 2021. Under the proposed legislation, the minimum wage in Virginia would continue to increase to $11.00 in 2022, $12.00 in 2023, $13.50 in 2025, and $15.00 in 2026. The bill requires the General Assembly to vote again by July 1, 2024 in order for the final two wage increases to become effective. Governor Northam did not sign the bill and suggested that the bill be amended to delay the first increase until May 1, 2021. On April 22, 2020, the Virginia Legislature agreed with Governor Northam's suggestion and decided to delay increases in the Commonwealth’s minimum wage amid the COVID-19 pandemic. The Senate vote resulted in a 20-20 tie broken by Lieutenant Governor Justin Fairfax in favor of the amendment. The House of Delegates voted 49-45 in favor of the amendment to delay the increase. In addition to an increase in minimum wage, the new legislation requires three government agencies to review the effects of a regional minimum wage increase. These agencies must consider the potential impact of regional increases on benefits, income inequality and the cost of living. After review, the agencies must prepare a joint report with findings and recommendations by December 1, 2023. Under the new law, employers may pay a “training wage” at 75 percent of the minimum wage for employees in on-the-job training programs lasting less than 90 days. Moreover, the law provides that the Virginia minimum wage applies to persons whose employment is covered by the Fair Labor Standards Act, persons employed in domestic service or in or about a private home, persons who normally work and are paid on the amount of work done, persons with intellectual or physical disabilities except those whose employment is covered by a special certificate issued by the U.S. Secretary of Labor, persons employed by an employer who does not employ four or more persons at any one time, and persons who are less than 18 years of age and who are under the jurisdiction of a juvenile and domestic relations district court. The Virginia minimum wage does not apply to individuals participating in the U.S. Department of State's au pair program, those employed as temporary foreign workers, or individuals employed by certain amusement or recreational establishments, organized camps, or religious or nonprofit educational conference centers. New Wage Payment Claim Virginia also imposed a new “wage theft” statute that provides employees with powerful statutory remedies for an employer’s non-payment of wages.  Under the new law, employees can bring a claim for the recovery of unpaid wages.  If the employee is successful in proving that he or she has not been paid all wages due, then the employee can recover prejudgment interest of 8% per year on the amount of the wages from the date they were due.  If the employee can show that the employer “knowingly” failed to pay wages due, then the employee can recover his or her reasonable attorney’s fees incurred in the action.  And, if there was no “bona fide dispute” regarding the employee’s entitlement to the wages, the employee is entitled to recover liquidated damages equal to triple the amount due. Construction contractors should take particular note of this new statute.  The statute provides that general contractors are jointly and severally liable for the wages owed to their subcontractors’ employees, and are considered to be the employers of such employees.  General contractors doing business in Virginia should immediately review their contract forms to ensure that they make adequate provisions for indemnification in the event that a subcontractor fails to comply with its obligations. Independent Contractor Misclassification Finally, Virginia enacted a new statute to combat independent contractor misclassification.  Independent contractors may now bring a claim for misclassification against their putative employer to recover wages, benefits (including expenses that would have been covered by the putative employer’s insurance), or other lost compensation, as well as reasonable attorney’s fees.  Notably, the statute presumes that any individual performing services in exchange for compensation is an employee, unless the putative employer can show that the person is an independent contractor under the IRS’s independent contractor test.  The use of the IRS test is a small victory for employers, as it is a lower bar to satisfy than the “ABC” tests imposed by many state statutes such as California’s AB5. These enactments substantially shift Virginia’s legal environment in favor of employees.  Employers in the Commonwealth can no longer count on Virginia’s traditional, business-friendly environment.  Polsinelli is available to assist Virginia employers in reviewing their policies, understanding these new requirements, and evaluating the risks of any independent contractor relationships in light of the newly-enacted claims.

On April 17, 2020, OFCCP released three new directives that aim to advance outgoing Director Craig Leen’s longstanding focus on increasing the agency’s transparency and efficiency.  The new directives are: 1.      Directive 2020-02:  Efficiency in Compliance Evaluations 2.      Directive 2020-03:  Pre-Referral Mediation Program 3.      Directive 2020-04:  Ombuds Service Supplement Although these directives are agency policy statements that do not create binding legal rights or obligations, the issuance of these three directives is a promising sign to the contractor community that Director Leen’s agenda may continue following his eventual departure from the agency. Directive 2020-02 – Efficiency in Compliance Evaluations Directive 2020-02 is arguably the most important of the three new directives to contractors.  The directive seeks to build on prior efforts to reduce the number of aged audits and expedite the resolution of OFCCP compliance evaluations.  This has been one of Director Leen’s major priorities, and the directive notes that between FY 2018 and FY 2019 the agency reduced the average time to complete a compliance evaluation from 516 days to 399 days, a 23% reduction.  The directive defines “aged cases” as those that have not resulted in administrative closure, a conciliation agreement, or referral to the Office of the Solicitor within two years, and states OFCCP’s new goal of reducing the number of aged cases below 15% of the agency’s total case load. The new directive implements both internal and external measures to reach this goal.  Internally, the agency will seek to close compliance evaluations within 180 days of the issuance of a Scheduling Letter if there are no preliminary findings of discrimination and issue a Pre-Determination Notice (PDN) within one year of the Scheduling Letter if OFCCP finds discrimination.  OFCCP’s National Office will receive “detailed monthly reports” about the progress of aged evaluations.  Regional directors will required to implement an action plan to expedite the completion of these evaluations.  Compliance officers will also be required to provide monthly status reports to contractors on the progress of aged evaluations. Externally, the directive provides contractors with a mechanism to escalate aged evaluations to the National Office’s attention.  If an evaluation remains open for more than a year after the issuance of a Scheduling Letter without a PDN, or more than two years without referral to the Office of the Solicitor, contractors may petition the OFCCP’s Director and Ombudsman to review the evaluation.  Prior to submitting a petition, the contractor must first confer with the applicable Regional Director about the evaluation.  In response to a petition, the Ombudsman will review and report upon the status of the evaluation, and the Director will determine how to appropriately proceed. Directive 2020-03 – Pre-Referral Mediation Program Directive 2020-03 builds upon the Early Resolution Program created by Directive 2019-02 to seek amicably to resolve compliance evaluations short of enforcement actions.  The directive creates a new, additional alternative dispute resolution program that will take place before findings of discrimination are referred to the Office of the Solicitor for review.  Mediation will be conducted by members of the Ombudsman’s office or other neutral third parties agreed upon by the contractor and OFCCP.  Importantly, the new mediation program is not a substitute for the agency’s current conciliation procedure that occurs between the issuance of a Notice of Violation and a Show Cause Notice.  The directive reserves OFCCP’s right to dispense with the mediation requirement in cases where the alleged violations concern a contractor’s failure to provide OFCCP with access to records or information or in the “very rare case” where OFCCP elects to proceed directly to enforcement without the issuance of a Show Cause Notice due to the existence of “exceptional circumstances.” Directive 2020-04 – Ombuds Service Supplement This directive expands and clarifies the role of OFCCP’s Ombudsman.  The Ombudsman is generally responsible for understanding and addressing the concerns of OFCCP’s stakeholders, addressing those concerns with the agency, and identifying potential areas for improvement.  According to the directive, the Ombudsman is not a member of other OFCCP work teams and should not be influenced or incentivized based on other OFCCP divisions or the agency’s broader goals.  The directive implements a new Protocol for the Ombudsman’s operations.  The Protocol emphasizes the principles of confidentiality, neutrality, independence, and informality. Before contractors submit sensitive information or documents to the Ombudsman, however, they should consult with counsel to understand whether such materials may be subject to disclosure under FOIA or other applicable law. These directives should provide contractors with some hope that Director Leen’s reforms will be institutionalized within OFCCP and will survive his departure from the agency.  Contractors facing long-running, unresolved evaluations should consider whether the new procedures set forth in the directives may be effective in moving those evaluations towards a resolution.

On April 11, 2020, Virginia Governor Ralph Northam signed the Virginia Values Act (“Act”), which significantly strengthens the Virginia Human Rights Act’s prohibition on employment discrimination.  Some of the major changes include: Greatly expanding the class of employers who can be sued under state law; Removing limitations on the relief employees may obtain; and Adding sexual orientation, gender identity, and status as a veteran as new protected classes. These changes show that Virginia’s new Democratic majority is not hesitant to flex its muscles in the area of employment law, and could herald additional changes that may further erode Virginia’s relatively pro-employer legal climate. The most important change is the Act’s dramatic expansion of employees’ rights to seek relief for employment discrimination under the Virginia Human Rights Act.  Prior to the Act, Virginia Code § 2.2-3903 limited employees to bringing claims against employers who employed five to fifteen employees, or five to twenty employees for claims of age discrimination.  These size limitations meant that employees could only bring a claim under the Virginia Human Rights Act if their employer was too small to be covered by the federal employment discrimination statutes.  Employees whose employers were large enough to be covered by the federal statutes could only bring a federal claim.  The remedies available to employees under the Virginia Human Rights Act were also limited.  Employees were limited to recovering twelve months of back pay in most circumstances, and could not recover punitive damages or obtain reinstatement to their former position.  Attorney’s fee awards were capped at 25% of the employee’s recovery. The Act repeals all of Section 2.2-3903’s limitations.  Now, employees may bring state law employment discrimination claims against any employer with more than fifteen employees.  If the employee claims unlawful discharge, that threshold is reduced to five.  Employees can now recover compensatory and punitive damages, as well as attorney’s fees, with no cap on recovery.  Virginia employees now have a state law employment discrimination claim that is more generous than the federal Title VII (which caps compensatory and punitive damages, but not back pay, at up to $300,000).  Virginia employees bringing claims under the new state law may also now be able in some cases to avoid federal court jurisdiction and thereby escape the “rocket docket” in the Eastern District of Virginia, which is regarded by some as pro-employer. The Act also broadens the Virginia Human Rights Act by adding “sexual orientation,” “gender identity,” and “status as a veteran” as new protected classes.  “Sexual orientation” is defined as “a person’s actual or perceived heterosexuality, bisexuality, or homosexuality,” which apparently incorporates an Americans with Disabilities Act-type “regarded as” analysis.  Notably, courts hold that such “regarded as” claims are not cognizable under Title VII.  “Gender identity” is defined as “the gender-related identity, appearance, or other gender-related characteristics of an individual with, or without regard to the individual’s designated sex at birth.” The Act’s dramatic expansion of the Virginia Human Rights Act may be a signal that Virginia’s Democratic majority intends to enact additional employment protections akin to those in neighboring Maryland and Washington, D.C.  Polsinelli will continue to monitor these developments.

On March 31, 2020, the U.S. District Court for the Southern District Court of California entered partial summary judgment in Erhart v. BofI Holding, Inc., a prominent, long-running whistleblower lawsuit under the Sarbanes-Oxley and Dodd-Frank Acts. The court’s decision provides welcome limitations on the scope of protected activity under these statutes, but also emphasizes the need for employers to be diligent in protecting their confidential data and documents against theft by internal actors. The plaintiff, Charles Erhart, was an internal auditor for the Bank of the Internet, a publicly-traded financial institution. Although Erhart claimed he battled upper management to confront illegality in a turbulent corporate environment, the Bank contended that he was, in the court’s words, an “auditor gone rogue - a loose cannon who recklessly handled confidential information and conducted unauthorized investigations.” Among other things, the Bank claimed Erhart instructed staff to run unauthorized due diligence reports to find “dirt” on another executive’s son, improperly accessed the Bank’s CEO’s personal tax returns, and disseminated confidential compensation data to other employees. Wherever the truth lies, Erhart ultimately filed a whistleblower lawsuit under Sarbanes-Oxley and Dodd-Frank, claiming he had been retaliated against for reporting illegal conduct. The next day, the New York Times ran a story about the lawsuit and the stock price of the Bank’s holding company fell by thirty percent. Numerous securities lawsuits asserting similar claims to those alleged in Erhart’s lawsuit followed. The Bank later filed its own lawsuit against Erhart, asserting contract and tort claims based on his alleged theft of confidential information. The court’s summary judgment ruling significantly narrowed both Erhart’s and the Bank’s claims. With respect to Erhart’s whistleblower claims, the court ruled that the bulk of his alleged internal and external reporting did not constitute protected activity under either Sarbanes-Oxley or Dodd-Frank. Erhart claimed he reported illegal or improper conduct spanning eleven categories of wrongdoing, including, among other things, late 401(k) contributions, the lack of Board approval of the Bank’s strategic plan, high deposit concentration risk, the failure to disclose to regulators the Bank’s receipt of subpoenas, and improprieties with respect to the CEO’s brother’s account. The court noted that Sarbanes-Oxley and Dodd-Frank do not generally protect alleged whistleblowers who report any type of wrongdoing, but only extend protection to certain types of reports of certain types of fraud and securities violations. Seeking to evade Sarbanes-Oxley and Dodd-Frank’s limitations on protected activity, Erhart advanced expansive arguments based on the SEC’s “Books and Records” and “Internal Controls” rules. The court rejected these arguments. The court found that the Books and Records rule implicated only the accuracy of records necessary to accurately and fairly reflect the transactions and dispositions of a corporation’s assets, not any and all corporate records. Similarly, the court limited the Internal Controls rule to procedures to assure accurate financial reporting and prevent unauthorized financial transactions, rejecting the argument that it required compliance with any and all laws or risk management objectives. Based on these narrow interpretations, the court granted the Bank summary judgment on Erhart’s claims based on reporting alleged illegal conduct and wrongdoing outside of the scope of the SEC rules, finding they did not constitute protected activity. Although the court’s narrow construction of the scope of Sarbanes-Oxley and Dodd-Frank protected activity is a welcome sign for employers, its rulings on the Bank’s claims against Erhart for document misappropriation are not. After previously ruling in the case that the Bank could not enforce Erhart’s confidentiality agreement with respect to confidential documents and information he removed that directly related to his whistleblowing activity, the court also struck down the bulk of the Bank’s tort claims relating to Erhart’s document misappropriation. The court ruled that California’s uniform trade secret act preempted the Bank’s tort claims for Erhart’s misappropriation of confidential business information. The Bank’s claims were limited to Erhart’s alleged misappropriation of confidential documents containing personally identifiable information of the Bank’s customers and employees. The court’s ruling emphasizes the need for employers to enforce the rigorous security measures required to obtain trade secret protection, such as marking documents as confidential, limiting internal distribution and access, maintaining and enforcing confidentiality agreements, and ensuring information is protected by information security best practices. Although the court’s decision limited the Bank’s ability to seek redress for Erhart’s misappropriation of confidential information, it continues a trend of employer victories on the scope of Sarbanes-Oxley and Dodd-Frank protected activity. Polsinelli will continue to monitor this trend and other developments in the whistleblower space.

On February 21, 2020, OFCCP announced the launch of its new Contractor Compliance Institute as part of its ongoing efforts to provide guidance and training to aid federal government contractors in meeting their compliance obligations.  The Institute provides free, interactive tools and courses to educate contractors about their compliance obligations and help them evaluate the sufficiency of personnel practices and affirmative action efforts.  At its launch, the Institute offered one course providing a two-hour basic overview of the legal authority governing OFCCP’s enforcement activities, required job listings, postings, and notices for federal contractors, and applicant tracking. Along with other OFCCP compliance assistance efforts, such as its issuance of opinion letters and technical assistance guides, the Institute is a sign of OFCCP leadership’s focus on transparency and cooperation with contractors.  Polsinelli will continue to track and report on developments at OFCCP.

Polsinelli attended the February 18, 2020 Compensation Roundtable jointly hosted by OFCCP and the National Industry Liaison Group (NILG).  The event provided valuable insight into the thought processes of senior OFCCP officials as they fielded questions from federal contractor compliance professionals.  The frank discussion during the roundtable highlighted contractors’ ongoing concerns regarding OFCCP’s approach to the evaluation of the compensation of small groups of specialized employees and smaller AAP groups. OFCCP’s preferred method of evaluating compensation and other personnel practices is the regression analysis, a statistical tool that seeks to control for various non-discriminatory factors and identify statistically-significant disparities that may be based on race, gender, or other protected characteristics.  Regression analyses can be effective for evaluating large groups of employees performing the same job, such as entry-level or line employees at larger organizations, but is an ineffective tool for addressing employees in higher-level, specialized positions, which may have only one or a small handful of employees or smaller AAP establishment groups consisting of relatively few employees.  Two common contractor complaints regarding OFCCP’s statistical analysis were highlighted in the Roundtable: (1) OFCCP’s combination of groups of employees across job titles, salary grades, job functions, or other relevant groupings into pay analysis groups (PAGs), and (2) OFCCP’s failure to properly consider and control for non-discriminatory factors relied on by the contractor in setting compensation. Both of these concerns stem from OFCCP’s reliance on the regression tool, which OFCCP contends requires a large number of data points to provide reliable results.  It is OFCCP’s position that valid PAGs must contain at least 30 employees.  For specialized or higher-level positions, this rule can result in PAGs containing numerous different positions having different job functions in different departments.  The contractor advocates at the Roundtable urged OFCCP to drop its insistence on 30-member PAGs in every case and instead analyze more focused “similarly-situated employee groups” (SSEGs) that do not consolidate employees in dissimilar positions. Although OFCCP indicated that it will control for differentiating factors among PAG members, two other statistical principles relied upon by the agency hinder its ability to effectively do so.  First, OFCCP requires that for each control factor, the PAG contain at least 10 employees (i.e., to control for 5 different factors requires a PAG of at least 50 employees).   This creates a Catch-22 in which the creation of a PAG requires consolidating dissimilar positions, but including additional controls necessary to account for the dissimilarity requires adding still more employees in other positions to the PAG.  The second rule applied by OFCCP is that any variable must have at least 5 observations or data points or OFCCP will combine that variable with the next closest variable.  For example, if an employer’s performance evaluation system rates employees into three categories – Needs Improvement, Meets Expectations, and Exceeds Expectations – and only four employees in the PAG are rated as “Needs Improvement,” those four employees will be combined with the employees in the “Meets Expectations” category, eliminating consideration of a factor that is likely significant to the employer’s decisions.  Although the OFCCP officials at the Roundtable expressed some openness to considering small group analysis techniques, they showed little willingness to move away from the agency’s current approach to these principles. In addition to recommending that OFCCP adopt a more flexible approach and reduce its rigid adherence to these statistical principles, the contractor advocates at the Roundtable also criticized the agency for failing to consider two factors commonly relied upon by employers in setting compensation: job grades and market rate.  The contractor representatives noted that an employer’s salary or job grades represent the employer’s holistic business judgment about the relative value of each position within its organization. OFCCP, on the other hand, contended that if the agency has data regarding the underlying factors that inform the assignment of employees to grades (i.e., job responsibilities, seniority, etc…) then the agency should more reliably analyze those underlying factors.  As the contractor representatives noted, however, OFCCP’s independent assessment of those factors to the exclusion of the grades actually used by the employer may be inconsistent with OFCCP Directive 2018-05’s emphasis on conducing compensation evaluations using the same factors relied upon by the employer. The Compensation Roundtable provided a forum for a frank discussion of OFCCP’s compensation evaluation practices.  Although there is a wide gulf between the views of OFCCP officials and contractor advocates regarding OFCCP’s analytical techniques, the agency’s consideration of contractors’ concerns is a step in the right direction.  OFCCP’s apparent reluctance to move away from some of its current practices identified as contractor concerns highlights the need for contractors to rigorously self-audit their compensation practices to identify potential agency concerns and address them prior to being selected for a compliance evaluation.

On February 3, 2020, President Trump announced that OFCCP Director Craig Leen will be nominated to the position of Inspector General of the Office of Personnel Management.  The press release did not provide any details about the timing of Director Leen’s formal nomination or the appointment of a successor director. During his tenure at OFCCP, Director Leen sought to bring transparency to OFCCP’s compliance evaluations, to clarify the standards for the review of compensation data, and to focus the agency’s efforts on disability issues under Section 504 of the Rehabilitation Act and veterans issues under VEVRAA.  So far, the administration has not announced a potential successor and it is unclear whether new leadership will advance a similar agenda.

Public company directors, who are under constant threat of claims, received welcome news earlier this month.  On December 9, 2019, the U.S. District Court for the Southern District of New York ruled that corporate directors cannot be sued for whistleblower retaliation under the Sarbanes-Oxley Act (SOX).  The SDNY decision splits with a 2015 opinion from a California federal district court permitting SOX claims against corporate directors to go forward. The SDNY case involved a number of “yieldco” subsidiaries formed by SunEdison to facilitate investment in renewable energy projects.  The plaintiff and alleged whistleblower was the CEO of two of these subsidiaries.  The CEO claimed that he started questioning SunEdison’s public statements about the subsidiaries’ finances and SunEdison’s liquidity and that, in response, the subsidiaries terminated his employment.  He also accused two SunEdison directors – the Board’s Executive Chairman and Governance Committee chair – of orchestrating his termination.  The CEO’s claim was consolidated with related shareholder litigation concerning the representations about SunEdison’s finances. The court relied on the plain language of the SOX whistleblower retaliation statute, 18 U.S.C. § 1514A, to dismiss the former CEO’s claims against the directors.  SOX provides a retaliation claim against a “company” with publicly-traded securities, a “nationally recognized statistical rating organization,” “or any officer, employee, contractor, subcontractor, or agent of such company or nationally recognized statistical rating organization.”  Directors are not listed in the statute.  Given that SOX specifically regulates the conduct of corporate directors in other respects, the court refused to read the broad term “agent” to encompass corporate directors.  The court also noted that individual directors are not ordinarily regarded as agents of the corporation for which they serve. The New York decision splits with a 2015 decision from the Northern District of California in Wadler v. Bio-Rad Laboratories, Inc.  There, the court found that SOX’s use of the term “agent” was ambiguous and construed it to include directors.  Although the Ninth Circuit ruled on appeal on various issues in the Wadler case earlier this year, it did not address the director liability issue.  No federal appellate court has yet ruled on this issue, leaving the question split between the New York and California federal district courts. Since the SOX was enacted in 2002, plaintiffs and their counsel have been testing the scope of whistleblower claim, including the individuals and entities – such as directors – that can be held liable.  .  Director liability is worth closely watching with D&O insurance rates reportedly on the rise due to an uptick in shareholder litigation.  Polsinelli will continue to monitor this and other emerging SOX and Dodd-Frank whistleblower issues.

On December 30, 2019, OFCCP issued a Notice of Proposed Rulemaking on Nondiscrimination Obligations of Federal Contractors and Subcontractors: Procedures to Resolve Potential Employment Discrimination.  The proposed rulemaking codifies aspects of several of OFCCP 2018 directives, including Directive Nos. 2018-01 (Use of Predetermination Notices), 2018-05 (Analysis of Contractor Compensation Practices During a Compliance Evaluation), and 2018-08 (Transparency in OFCCP Compliance Activities). Perhaps most importantly for contractors, the proposed regulation elaborates on the statement in OFCCP’s Directive 2018-05 concerning compensation reviews that “OFCCP will be less likely to pursue a matter where the statistical data are not corroborated by non-statistical evidence of discrimination unless the statistical evidence is exceptionally strong.” The proposed rulemaking adds specificity to this statement, clarifying that in the absence of non-statistical evidence, OFCCP will issue a Predetermination Notice (PDN) only where the statistical evidence is significant at a confidence level of 99% or higher, equating to three or more standard deviations. This appears to be a positive development for contractors, as OFCCP currently pursues compensation audits based solely on alleged statistically-significant disparities falling below this threshold. The proposed rulemaking also defines statistical and non-statistical evidence. The definition of statistical evidence echoes the focus in OFCCP’s recent directives of “controlling for the major, measurable parameters and variables used by employers” in making compensation and selection decisions. The definition identifies several exemplary control factors that OFCCP may consider, including performance evaluations, years of experience or service, and location.  This may provide additional weight to contractors’ arguments that OFCCP must consider contractor’s control factors in its compliance evaluation analyses. The proposed rulemaking defines non-statistical evidence to include testimony about workplace bias, non-statistical cohort analyses, testimony about individuals being denied or given misleading information about employment practices, testimony about subjective or discretionary decision-making, and other anecdotal evidence. Overall, this specificity about the types of non-statistical evidence OFCCP will rely upon is beneficial to contractors.  However, the focus on discretionary elements in compensation systems as evidence of discrimination is problematic as the U.S. Supreme Court has held that giving managers discretion in making employment decisions is not inherently discriminatory. Finally, the proposed regulations will codify OFCCP’s current practice, described in Directive 2018-01, of using of PDNs and Notices of Violation when a compliance review shows preliminary findings of discrimination. Noticeably absent from the proposed regulations, however, is Directive 2018-05’s pledge that OFCCP will attach to the PDN the individual-level data necessary for the contractor to replicate OFCCP’s statistical analyses. Contractors should welcome OFCCP’s effort to formalize these aspects of its Directives into regulations.  Contractors will have until January 29, 2020 to comment on the proposed regulations. Polsinelli will continue to monitor and report on the proposed rulemaking as it proceeds through the regulatory process.

CP opined that participants in the Department of Defense’s SkillBridge Program are not government contractors subject to the obligations of Executive Order 11246, as amended, Section 503 of the Rehabilitation Act, or VEVRAA. The SkillBridge Program aims to provide service members with opportunities to gain civilian work experience and training by matching service members with civilian employers and allowing service members to receive civilian on-the-job training during their last 180 days of military service.  OFCCP reasoned that the SkillBridge Program does not qualify as a procurement contract because the government does not obtain property or services for its direct benefit.  Accordingly, the program is more akin to a cooperative or grant agreement, which is not a government contract. As in its earlier opinion letter regarding Pell Grants, OFCCP in the SkillBridge Program opinion letter takes a more conservative approach to its jurisdiction in the context of government programs that are not traditional procurement contracts.  Polsinelli will continue to update the contractor community on OFCCP developments.

Maintaining its recent focus on compliance issues particular to educational institutions, OFCCP published a technical assistance guide for educational institutions on October 11, 2019.  The guide follows a flurry of OFCCP guidance for institutions of higher learning, including an opinion letter regarding the agency’s jurisdiction over such employers, a directive that student employees need not be considered in fulfilling AAP obligations, and an FAQ providing guidance on the definition of AAP “establishments” in campus settings.  OFCCP is also holding a town hall on issues particular to academic institutions on October 23, 2019 in Washington, D.C.  Contractors can review Polsinelli’s coverage of OFCCP’s prior guidance by following the links in the previous sentence. The guide recognizes that educational institutions present “unique challenges” for OFCCP compliance and enforcement purposes because they have “numerous methods of governance, various organizational structures, and multiple workforces,” as well as “elements that can be difficult to quantify” in their hiring, promotion, and compensation structures.  These subjective criteria can include “the prestige of publications, research, discipline, and contributions to the institution.”  OFCCP also recognizes in the guide that it must apply different analyses to three major areas of an educational institution’s workforce: tenured instructional staff, non-tenured instructional staff, and non-instructional staff. Although it is a good omen for educational institution contractors that OFCCP recognizes that their employment decisions involve idiosyncratic factors and differ from those of a commercial employer, that does not mean OFCCP is abdicating its oversight over educational institutions.  The guide clearly telegraphs OFCCP’s intention to scrutinize the tenure selection process due to the historical and continuing disparities in tenure selection rates for female and minority instructors.  Though OFCCP recognizes that many of the factors going into the tenure analysis are subjective and difficult to quantify, the guide states OFCCP’s intention to evaluate whether a contractor applies these factors consistently and in a neutral, non-discriminatory manner.  It is therefore essential for educational institutions to clearly outline the factors relevant to tenure selection and document how those factors are applied in each selection or non-selection decision.  OFCCP will also look at structural issues in the tenure selection process such as “the process by which the contractor composes the departmental committees responsible for granting tenure” as well as historical tenure data. A second issue of interest to educational institution contractors is the guide’s discussion of disparities in compensation by academic discipline.  OFCCP will only control for differences in discipline areas that have a “substantial impact on determining instructional staff salaries.”  Much like a private sector contractor’s use of “market rate” data in setting compensation, it is essential for educational institutions to be able to explain how differences in compensation by discipline factor into compensation and to have defensible data supporting discipline-based compensation disparities.  The need for careful analysis is heightened because discipline-based disparities can potentially correlate to gender or race based disparities to the extent that members of different genders or races are disproportionately represented in disciplines that command different levels of compensation. Educational institutions should review the new technical assistance guide as it provides useful guidance and a window into OFCCP’s priorities in this field.  Polsinelli will continue to monitor developments in OFCCP’s approach towards educational institutions and other types of contractors and provide updates on new developments.

The OFCCP opened the month of October by announcing three multimillion dollar settlements with major government contractors.  The agency entered into early resolution conciliation agreements with Goldman Sachs & Co. LLC and Dell Technologies, Inc. to resolve claims that they engaged in race and gender discrimination in compensating employees.  Also, Bank of America NA will pay $4.2 million to resolve claims that a predecessor company engaged in hiring discrimination. Goldman Sachs will pay nearly $10 million to approximately 600 workers at its New York City headquarters and Dell will pay $7 million (with a credit for $1.5 million previously paid in another settlement) to resolve 20 ongoing OFCCP compliance evaluations.  Goldman Sachs will also move from establishment-based to functional affirmative action programs (FAAPs) as part of the settlement.  Because Goldman Sachs and Dell settled through OFCCP’s early resolution program, the establishments in question will not be subject to further compliance evaluations for five years. In each case, the employer released a statement noting that OFCCP’s claims resulted from statistical analyses by the agency that the contractor disputed.  These major settlements emphasize the need for thorough self-auditing to identify and fix potential compensation and hiring vulnerabilities before contractors are required to submit data for OFCCP review and analysis as part of compliance evaluations.

On September 11, 2019, the Department of Labor announced that whistleblower retaliation complaints under the Taxpayer First Act (TFA) will be handled by the Occupational Safety and Health Administration (OSHA). TFA was created as part of a broader IRS reform bill that passed on July 1, 2018.   It provides a retaliation claim for employees who are terminated or otherwise disciplined because they provided information or assisted in an investigation regarding underpayments of tax or violations of the internal revenue or other federal tax fraud laws.  Generally speaking, the procedures for a TFA whistleblower retaliation claim follow those in place for whistleblower claims under the Sarbanes-Oxley Act, which are also administered by OSHA. Employees who prevail under this cause of action are entitled to “all relief necessary to make the employee whole” and compensatory damages, including reinstatement, 200% of the amount of back pay and 100% of all lost benefits, with interest, and special damages including litigation costs, expert witness fees, and reasonable attorney fees.  Employers cannot require employees to arbitrate TFA retaliation claims through pre-dispute arbitration agreements. The TFA adds to the increasing list of statutes, such as the False Claims Act and the Sarbanes-Oxley Act, which provide whistleblower protections to employees who reasonably believe that their employer has violated federal law and report such beliefs.  When an employee blows the whistle regarding alleged wrongdoing, now including tax underpayment or fraud, employers should consult outside counsel to help navigate through the investigation and subsequent interactions with the employee and avoid or better prepare for potential whistleblower litigation.

Following closely on its release of guidance for higher education institutions, and its promise of a forthcoming technical assistance guide for contractors in this field, OFCCP announced it will hold a town hall forum for academic institutions in Washington, D.C. on October 23, 2019.  Contractors can register for the town hall here. This event follows town hall events focused on veterans issues, the financial and legal industries, and the tech industry, among others.  In past events, OFCCP officials have announced new areas of emphasis, so these events can be a source of insight for contractors into the agency’s views and priorities.

UPDATE:  California Governor Gavin Newsom signed AB5 into law on September 18, 2019.  In his signing statement, Governor Newsom stated that the “next step is creating pathways for more workers to form a union, collectively bargain to earn more, and have a stronger voice at work.”  Businesses that retain workers as independent contractors in California should now immediately begin planning to defend these arrangements under the new law or adapt them to avoid or reduce potential misclassification liability (September 19, 2019). On September 10, 2019, the California Senate passed AB5, a sweeping bill to control the use of independent contractors in the nation’s largest state.  With the California Assembly concurring in the Senate’s amendments to the bill on September 11, 2019, the legislation now proceeds to Governor Gavin Newsom who is expected to sign it into law. AB5 codifies the California Supreme Court’s holding in Dynamex Operations West, Inc. v. Superior Court of Los Angeles, and adopts an “ABC” test to determine whether a worker is classified as an “employee” for purposes of California’s Labor Code, unemployment insurance law, and wage orders.  Under the “ABC” test, for a worker properly to be classified as an independent contractor, the putative employer must satisfy three conditions: The worker is free from the employer’s control and direction in connection with the work performed, both under the contract and in fact; The work being performed is outside the usual course of the employer’s business; and The worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed. The bill contains numerous exceptions for occupations and contracting arrangements that will not be subject to the ABC test under either AB5 or Dynamex.  Certain professionals, including lawyers, doctors, engineers, accountants, investment advisors, insurance brokers, and others, will continue be governed by the pre-Dynamex common law standard.  Independent contractors providing certain types of services (including, marketing, human resources, design, photography, writing, and editing) will not be subject to the ABC test if they meet a separate, six-factor test focusing largely on whether they operate an independent business.  Construction subcontractors and bona fide business-to-business contracting relationships are also exempted from the ABC test. Although AB5 states that it applies only prospectively to work performed after January 1, 2020, it is an open question whether the Dynamex ruling will be applied retroactively.  The U.S. Court of Appeals for the Ninth Circuit previously ruled that it did, but then vacated that ruling and certified the issue to the California Supreme Court, which has not decided the issue.  AB5 is not helpful to employers on this point, providing that its test “does not constitute a change in, but is declaratory of, existing law.” It is anticipated that Governor Newsom will sign the bill, though he has stated he will continue to negotiate with major California gig economy employers about its scope.  If passed, the bill will upend numerous independent contractor relationships in the state and subject businesses that retain independent contractors to a patchwork of local minimum wage laws (21 in the Bay Area alone), meal and rest break requirements that are difficult for employers to police, and the requirement to provide wage statements containing nearly a dozen categories of information.  Businesses in California that use independent contractors should immediately begin working with counsel to plan for AB5’s January 1, 2020 effective date by either ensuring that existing contractor relationships pass the ABC test or meet the requirements of one of AB5’s exceptions and/or preparing to transition certain contractors to W-2 employment status.

On August 15, 2019, the Office of Federal Compliance Contract Programs (OFCCP) proposed a new rule broadening the religious exemption that applies to its equal employment opportunity regulations.  The proposed rule is based on recent Supreme Court opinions addressing religious protections and OFCCP’s stated perception that religious organizations are “reluctant to participate as federal contractors because of uncertainty regarding the scope of the religious exemption contained in section 204(c) of Executive Order 11246.” The proposed rule states that it should be construed to provide the broadest protection of religious exercise permitted by the Constitution and other laws.  The proposed rule clarifies that: The exemption applies to “not just churches but employers that are organized for a religious purpose, hold themselves out to the public as carrying out a religious purpose, and engage in exercise of religion consistent with, and in furtherance of, a religious purpose” Religious employers can “condition employment on acceptance of or adherence to religious tenets without sanction by the federal government, provided that they do not discriminate based on other protected bases” To find a violation of Executive Order 11246, OFCCP must find by “a preponderance of the evidence that a protected characteristic other than religion was a but-for cause of the adverse action” Religious organizations will continue to be required to comply with OFCCP’s prohibitions on discriminating based on race, color, sex, disability, protected veteran status, and other characteristics as well as the requirement to maintain affirmative action programs.  Contractors covered by the exemption should also note that it may not protect them from liability under Title VII or applicable state or local anti-discrimination laws if those laws do not have similarly broad religious exemptions. Acting U.S. Secretary of Labor Patrick Pizzella stated in a press release that the proposed rule “helps to ensure the civil rights of religious employers are protected.”  “As people of faith with deeply held religious beliefs are making decisions on whether to participate in federal contracting, they deserve clear understanding of their obligations and protections under the law.”  OFCCP will accept public comments on the rule for 30 days, until September 16, 2019.  Polsinelli will continue to monitor this issue and provide updates on the new developments.

On July 11, 2018, New York State enacted a sweeping new law aimed at combating sexual harassment in the employment context.  A year later, on July 22, 2019, the U.S. District Court for the Southern District of New York ruled that the law’s prohibition from requiring employees to submit sexual harassment claims to mandatory arbitration was preempted by the Federal Arbitration Act (FAA). The court’s decision is a straightforward application of the FAA.  Section 2 of the FAA provides that arbitration agreements are enforceable except on grounds that would invalidate any type of contract.  The U.S. Supreme Court has consistently applied the FAA to invalidate state laws that target the enforceability of arbitration agreements and do not apply generally to all types of contracts.  As New York’s prohibition on mandatory arbitration clauses was clearly targeted at arbitration agreements, it fell squarely within the type of prohibition that is preempted by Section 2 of the FAA. This decision comes as welcome news to employers, and shows that the FAA remains a powerful tool to ensure that arbitration agreements are enforced even in the face of state legislation.  Employers with questions regarding arbitration agreements would do well to consult with able counsel.

In a welcome development for federal government contractors, OFCCP issued its second opinion letter on July 22, 2019.  The opinion letter endorsed a process through which contractors can submit proposed pay analysis groups (PAGs) to OFCCP for pre-approval for future audits. PAGs are groups of employees who OFCCP deems comparable for purposes of the contractor’s pay practices.  The PAG is the building block of an OFCCP compensation audit as OFCCP compares the compensation of PAG members to assess whether there is systemic discrimination in employee compensation.  PAG members need not have the same job title, work in the same departments, or be members of the same affirmative action plan job group.  Because OFCCP demands PAGs consist of a certain number of employees for statistical purposes, creating PAGs for non-entry level positions that do not have a large number of employees with the same title or performing the same functions requires careful analysis. By permitting contractors to gain pre-approval of their PAG composition, the opinion letter provides an opportunity for contractors to obtain certainty about how their employees will be grouped and analyzed in compensation audits.  Contractors can then self-audit and identify and address potential compensation disparities before they face the pressure of an OFCCP compliance audit.  Contractors should note, however, that OFCCP reserves the right to dispense with the pre-approved PAGs if there is a material change in the contractor’s compensation system between the pre-approval and the time of the audit. This development is the latest in a trend of OFCCP efforts to work cooperatively with contractors to obtain compliance.  Similarly to the Voluntary Enterprise-Wide Review Program announced earlier this year, PAG pre-approval may provide contractors with an opportunity to work more collaboratively with OFCCP to avoid or reduce the cost and uncertainty of random annual compliance evaluations. Contractors should consider taking advantage of this procedure to obtain certainty that their self-audits are consistent with the analysis that OFCCP will perform in a compliance evaluation.  That being said, contractors should work with counsel before submitting data or information to the OFCCP to ensure that the submission does not contain information that would draw unwanted OFCCP scrutiny. Polsinelli will continue to report on OFCCP developments.

On July 15, 2019, the EEOC opened its online filing system for the submission of EEO-1 Component 2 pay data.  Employers that are required to file EEO-1 reports can now submit pay data broken down by job category, pay band, race, ethnicity, and sex for the calendar years 2017 and 2018.  This submission is due by September 30, 2019. As of now, the filing system only allows the manual entry of the Component 2 data by employers.  The EEOC previously reported that it is working to finalize a data file upload function for the Component 2 reports.  That function should be available to employers by August 15, 2019. To access the EEO-1 Component 2 filing system, employers will need log-in information that EEOC mailed and e-mailed to them on July 12, 2019 and July 15, 2019.  The EEOC has also posted a 44-page user guide to assist employers in preparing the Component 2 report. Polsinelli will continue to monitor developments on the Component 2 data submissions and has staff available to assist employers with their filings.

On August 7, 2019, OFCCP and the Veterans’ Employment and Training Service (VETS) will hold a joint town hall focused on VEVRAA and USERRA compliance issues. This town hall meeting comes as the OFCCP continues to focus its attention on VEVRAA and Section 503 compliance issues.  Earlier this year, OFCCP sought approval for a scheduling letter for VEVRAA focused reviews and also projected that the number of focused reviews would increase from 500 in fiscal year 2019 to 1,500 by fiscal year 2021. The town hall is anticipated to address “the challenges federal contractors and employers face in recruiting, promoting and retaining veteran talent.”  Like earlier OFCCP town halls, it is open to the public.  As OFCCP gears up for its first round of VEVRAA focused reviews next year, this town hall could provide insight into the agency’s expectations for contractors. Stay tuned for a summary of the guidance provided by OFCCP during the town hall meetings.

On May 22, 2019, the Trump administration released its Spring 2019 Unified Agenda of Regulatory and Deregulatory Actions.  This agenda reports on the actions that administrative agencies plan to issue in both the near and long term.  Most notably for government contractors, OFCCP announced three regulatory priorities: TRICARE and Other Healthcare Providers OFCCP’s first planned regulatory initiative is entitled “Affirmative Action and Nondiscrimination Obligations of Federal Contractors and Subcontractors: TRICARE and Certain Other Healthcare Providers.”  The abstract states that this initiative “would include limiting and otherwise altering the obligations of TRICARE and other healthcare providers” that are subject to OFCCP’s jurisdiction.  Although the agenda states that OFCCP would issue a Notice of Proposed Rulemaking in May 2019, the agency appears to have missed that deadline. OFCCP identifies this initiative as being “deregulatory” and a “major” regulation, i.e., one having an economic impact of $100 million or more.  Last year, in Directive 2018-02, OFCCP extended a moratorium on the enforcement of compliance obligations against TRICARE subcontractors to May 7, 2021.  It is possible that the contemplated regulation will extend make permanent some or all of Directive 2018-02’s moratorium. Religious Exemptions In its second item, OFCCP announced that it “plans to update its regulations to comply with current law regarding protections for religion-exercising organizations.”  This initiative is also listed as “deregulatory” and its priority to the agency is described as “significant.”  The agenda states that OFCCP will issue a Notice of Proposed Rulemaking in June 2019. Again, this regulatory initiative follows on a 2018 directive concerning religious freedom.  In Directive 2018-03, OFCCP noted several prominent Supreme Court decisions that “addressed the broad freedoms and anti-discrimination protections that must be afforded religion-exercising organizations and individuals” and instructed its staff “to take these legal developments into account in all their relevant activities.”  Now, it appears the agency may be planning to codify formal religious exemptions into its regulations. Resolving Potential Employment Discrimination Finally, OFCCP announced that it would publish “Procedures to Resolve Potential Employment Discrimination.”  The goal of this initiative is to “increase clarity and certainty for OFCCP stakeholders, and enhance the agency’s efficiency in remedying employment discrimination.”  Although the description in the agenda is sparse, this initiative appears to follow OFCCP Director Craig Leen’s stated goal of increasing the agency’s transparency and cooperation with the contractor community. OFCCP intends to issue a Notice of Proposed Rulemaking for this initiative in September 2019.  The initiative is described in the agenda as non-major and “nonsignificant.” Polsinelli’s Government Contractor Update will continue to track these developments and alert the contractor community if and when OFCCP provides more detail about its proposals.

On May 23, 2019, the OFCCP -- without fanfare -- issued its first opinion letter since its announcement last year that it would begin issuing opinions to provide guidance to the contractor community. In its opinion letter, OFCCP concluded that Pell Grants, under which the federal government provides funds to higher education institutions as supplemental financial aid, do not qualify as government contracts because they do not acquire property or services for the direct benefit of the federal government.  Accordingly, higher education institutions do not become subject to the obligations imposed on government contractors under Executive Order 11246, Section 503, or VEVRAA solely by receiving Pell Grant funds. Polsinelli will keep you apprised of future opinion letters and other compliance guidance issued by OFCCP.

On April 30, 2019, the U.S. Court of Appeals for the Tenth Circuit in United State ex rel. Reed v. KeyPoint Government Solutions affirmed the dismissal of an employee’s False Claims Act (FCA) whistleblower retaliation claim.  In its ruling, the Tenth Circuit confirmed that employees with compliance responsibilities bear a heightened burden to show that their alleged protected activities were not simply the performance of their assigned job responsibilities. Ms. Reed, the plaintiff, worked as a Senior Quality Control Analyst for KeyPoint Government Solutions, a company that conducted federal background check investigations.  Amid a series of scandals that rocked the broader background investigation industry, Ms. Reed claimed that she observed systemic violations of KeyPoint’s federal government contract as investigators allegedly made false background check reports, omitted information from reports, and failed to follow proper background check procedures.  Ms. Reed alleged that these violations formed the basis of fraudulent requests for payment from the government.  Ms. Reed claimed that she discussed the issues with several people within the company, but ultimately her efforts were unsuccessful and KeyPoint terminated her employment. The Tenth Circuit affirmed the dismissal of Ms. Reed’s FCA whistleblower retaliation claim.  The court noted that to face FCA whistleblower liability, an employer must know that the relator-employee’s actions were connected to a claimed FCA violation.  Where the employee’s job involves compliance and fraud investigations, it must be clear that the employee is engaging in FCA protected activity and “not just doing her job” to report suspected fraud internally.  Critically, the court found that the requirement for this heightened showing from compliance employees was not affected by the 2009 and 2010 amendments to FCA that expanded whistleblower protections.  Because Ms. Reed’s allegations did not show that she went outside of the established chain of command or beyond the scope of KeyPoint’s ordinary reporting procedures, the court held that she could not establish KeyPoint’s knowledge of her claimed FCA protected activity. Compliance employees are in a prime position to report corporate activities that may trigger whistleblower protection under FCA or other statutes.  However, their internal reports of fraudulent activities should not be protected under the FCA whistleblower protections unless they go beyond their job duties and either report the alleged violation outside of her ordinary chain or tie their concerns to violations of the FCA.  Employers should exercise caution when taking adverse action against employees in their compliance, HR, legal, contracting and finance departments to ensure that (1) the action is justified, well-documented, consistent with policy and prior actions against employees; and (2) the employee did not “blow the whistle” through means or mechanisms outside of their normal job duties.

On April 12, 2019, the OFCCP submitted new forms of its scheduling, compliance check, and Section 503 focused review letters to the Office of Management and Budget (OMB) for approval.  OFCCP also sought OMB’s approval of a new scheduling letter for VEVRAA focused reviews.  OMB’s authorization of the current versions of the scheduling and compliance check letters is scheduled to expire on June 30, 2019.  Government contractors and other interested parties have until June 11, 2019 to submit comments to OMB regarding the new form letters. If approved, the changes to the OFCCP’s letters will impose significant new data reporting requirements on contractors.  Some of the major changes are described below: Scheduling Letters Contractors must identify their three largest subcontractors to OFCCP. In addition to the percentage of minority and female incumbents within each job group, contracts must also submit the specific race of each employee within the job group. In addition to placement goals for minorities and women generally, contractors must submit data from which OFCCP can determine disparities in the utilization of particular minority groups, or men or women of particular minority groups, to create separate goals for these groups. Significantly, OFCCP will require contractors to submit the results of their most recent compensation system analysis. Contractors must identify the pool of candidates from which promotions were selected by gender and race/ethnicity. In submitting data regarding terminations, contractors must state whether terminations were voluntary or involuntary. Section 503 Focused Review Letter Contractors must submit information provided by each applicant or employee who self-identifies as an individual with a disability. Contractors must submit applicant and employee-level employment activity data concerning applicant flow, hires, promotions, and terminations of disabled and non-disabled employees and applicants. Contractors must submit employee-level compensation data of disabled and non-disabled employees. In addition, all of the data required to be submitted to OFCCP must now be submitted electronically to facilitate OFCCP’s analysis. OFCCP’s supporting statement for the proposed letters reveals that OFCCP intends to increase the number of audits it conducts.  For fiscal year 2018, OFCCP audited 3,500 contractor establishments, divided between full compliance audits, compliance checks, and Section 503 focused reviews.  In its submission to OMB, OFCCP stated that it anticipates conducting 2,500 full compliance audits and 1,000 compliance checks, and that the number of Section 503 and VEVRAA focused reviews will increase from 500 in fiscal year 2019 to 1,500 by fiscal year 2021. OFCCP’s submission shows that the agency intends to seek increasing amounts of data, at an increasingly granular level, from an increasing number of contractor establishments and functional units.  Contractors would be well served to reevaluate their data collection and analysis and other compliance procedures with the assistance of experienced counsel to ensure that they are meeting all applicable requirements and identify and address potential issues before they are discovered in an OFCCP audit.

On April 22, 2019, the U.S. Supreme Court heard argument in Food Marketing Institute v. Argus Leader Media.  Polsinelli attended the oral arguments to provide insight concerning the potential implications for federal government contractors that submit data to OFCCP. In that case, a grocery store trade association challenged lower court decisions requiring the disclosure through Freedom of Information Act (FOIA) of data concerning food stamp purchases at the individual store level.  Although the case does not involve disclosures by OFCCP, a victory for the challenger would enhance the ability of contractors to protect confidential workforce data submitted to OFCCP from FOIA disclosure. Contractors facing OFCCP audits are required to provide sensitive employment-related data, including compensation data.  To prevent this data from being disclosed to competitors or others pursuant to a FOIA request, contractors and their counsel typically rely on FOIA’s Exemption 4, which prevents the disclosure of “trade secrets and commercial or financial information obtained from a person and privileged or confidential.” In the Food Marketing Institute case, the trade association is challenging lower courts’ rulings concerning Exemption 4, which require that a party resisting the disclosure of confidential information under it show that the disclosure would cause “substantial competitive harm.”  If the Supreme Court rules that such a showing is not required, a contractor submitting data to OFCCP would only be required to show that it takes steps to protect its compensation and other workforce data from disclosure to fall within the exemption. Although it is difficult to forecast the Supreme Court’s ultimate decision based on the justices’ questions and comments, several justices appeared skeptical of the “substantial competitive harm” requirement, noting that it lacks support in Exemption 4’s text.  The questioning also suggested that several of the justices believe that Exemption 4 requires the information holder to take affirmative steps to maintain confidentiality, rather than simply deeming or labeling it as confidential without more. Polsinelli will continue to monitor the case in anticipation of the Supreme Court’s decision.  In the meantime, contractors should consult with experienced counsel to ensure that they are implementing best practices to safeguard sensitive data and support a claim of confidentiality under Exemption 4.

“Glaring,” “concerning,” “troubling,” “problematic,” and “systemic” were some of the words used by OFCCP Director Craig Leen to describe the underrepresentation of women, minorities, and individuals with disabilities at large law firms at an April 10, 2019 town hall meeting in New York City.  Director Leen announced that representation and pay equity issues at law firms and other professional services providers will be an area of focus for OFCCP as early as next fiscal year. Director Leen indicated that OFCCP will focus on investigating and redressing disparities in the promotion of law firm associates to partner.  OFCCP is also expected to examine whether law firm billable hours policies act as an impediment to the advancement of female lawyers and the ability of employees of all genders to take family leave.  OFCCP also plans to issue guidance regarding its ability to police practices involving attorneys who are equity partners. OFCCP’s 2019 listing of contractors selected for audit included five AmLaw 100 law firms for compliance audits.  Law firms that are not government contractors may also unexpectedly fall within OFCCP’s jurisdiction if they provide services to government contractor clients that are deemed “necessary” to the performance of a federal government contract. Director Leen’s announcement comes against the backdrop of several high-profile lawsuits filed by female attorneys, both partners and associates, against some of the nation’s largest firms.  These developments show that pay equity and gender discrimination at law firms are in the crosshairs of both private litigants and government agencies.  Rather than wait to be the target of a government investigation or lawsuit, law firms should retain outside counsel and undertake comprehensive compliance audits, including reviewing pay equity and promotion rates reviews.

On April 3, 2019, the EEOC announced in a court filing that it will require employers to submit 2018 EEO-1 pay and hours data by September 30, 2019.  With EEO-1 reports currently due by May 31, 2019, this announcement gives employers four additional months to collect and submit this information.  The extension of the EEO-1 deadline appears only to apply to Component 2 pay and hours data because EEOC’s website still lists the deadline for submission of the Component 1 demographic data as May 31, 2019.  The EEOC’s filing states that employers will not be required to report 2017 pay and hours data at this time. The EEOC’s filing came in response to a March 19, 2019 order from Judge Chutkan of the U.S. District Court for the District of Columbia requiring the agency to state its position on the filing of the Component 2 submission in light of her prior summary judgment ruling reinstating the Component 2 obligation.  A link to our blog summarizing the March 4, 2019 summary judgment order is included here.  The plaintiffs in the case will now have until April 8, 2019 to respond to the EEOC’s announcement. In another development in the case, a coalition of employer advocacy groups (including, among others, the U.S. Chamber of Commerce, Society for Human Resources Management, and Associated Builders and Contractors) on April 4, 2019 filed an amicus curiae brief requesting that employers be provided at least 18 months to comply with the reinstated pay and hours data submission requirement.  The coalition also raised concerns about the EEOC’s ability to maintain the confidentiality of Component 2 pay data it receives. Polsinelli will continue to monitor these developments closely.

While the U.S. Supreme Court’s recent decisions have generally supported the enforceability of employment-related arbitration agreements, mandatory employment arbitration remains under fire in other contexts.  The latest example  came on March 21, 2019, when a National Labor Relations Board (NLRB) administrative law judge (ALJ) ruled in Pfizer, Inc., Case 10-CA-175850 that an employer’s arbitration agreement requiring employees to engage in  confidential  arbitration proceedings and prohibiting disclosure of arbitration-related submissions and materials constituted an unfair labor practice prohibited by the National Labor Relations Act (NLRA). The ALJ’s decision comes in the wake of the Supreme Court’s Epic Systems decision, which rejected a similar argument that the NLRA prohibits employers from requiring employees to arbitrate their claims on an individual basis and waive the ability to bring claims on a class or collective basis.  In an attempt to distinguish Epic Systems, the ALJ reasoned that while the Epic Systems Court endorsed an arbitration agreement’s limitation of the procedural right to litigate as a class or collective, it did not permit limitations on substantive rights, such as an employee’s right under the NLRA to engage in “concerted activity” by discussing his or her terms and conditions of employment with co-workers and others. The ALJ also ruled that a limiting clause in the arbitration agreement stating that the confidentiality requirement did not “prohibit employees from engaging in protected discussion or activity relating to the workplace, such as discussions of wages, hours, or other terms and conditions of employment,” was insufficient to save the agreement because it did not explicitly permit disclosure of arbitration-related materials in furtherance of NLRA-protected activity. The ability to maintain the confidentiality of arbitration proceedings is one benefit that employers may seek through mandatory arbitration.  However, the ability to compel confidential arbitration is being challenged by legislative action, public awareness campaigns, in agency proceedings, and in the courts.  As the ALJ’s decision may be subject to further review before the NLRB and a federal court of appeals, employers that rely on confidential arbitration agreements should consult with counsel to stay abreast of any developments and ensure that their agreements do not run afoul of the NLRA or other federal and state statutes.

On March 27, 2019, the Office of Federal Contract Compliance Programs (OFCCP) announced that it was lowering the Vietnam Era Veterans’ Readjustment Assistance Act (VEVRAA) hiring benchmark again this year.  Effective March 31, 2019, the new benchmark is 5.9 percent, down from 6.4 percent the previous year.  This marks the fifth consecutive year that the benchmark has been lowered since its inception in March 2014, when it was set at 7.2 percent. VEVRAA is designed to provide equal opportunity and affirmative action for Vietnam era veterans, special disabled veterans, and veterans who served on active duty during a war or in certain campaigns.  Contractors are required to establish annual hiring benchmarks for protected veterans and assess their progress against that benchmark.  Contractors have the option of establishing their own benchmark or adopting OFCCP’s annual national benchmark. Contractors should be especially diligent in ensuring compliance with VEVRAA and retaining related documentation in light of OFCCP’s announcement in August 2018 that it would begin conducting focused reviews. Moreover, this documentation may also be requested during other scheduled compliance evaluations. Additional information regarding VEVRAA compliance and the national benchmark can be found on the OFCCP website.