Diversity: Compliance Concerns

Questions raised by new rules on hiring veterans and people with disabilities.

By David Tobenkin Dec 1, 2013
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New federal rules encourage federal contractors to hire more veterans and people with disabilities. But as contractors prepare to comply with the rules, a debate rages on over just how challenging compliance will be.

The U.S. Department of Labor’s Office of Federal Contract Compliance Programs (OFCCP) issued two final rules in late August. The new rules update the affirmative action and other compliance requirements under Section 503 of the Rehabilitation Act of 1973 and the Vietnam Era Veterans’ Readjustment Assistance Act of 1974 (VEVRAA).

In general, the rules encourage contractors to hire a set percentage of veterans and people with disabilities without setting quotas. Although the rules do not explicitly require employers to hire a specific percentage of people from these populations, many employers are concerned that the failure to hire benchmark levels of veterans and people with disabilities will expose them to scrutiny and possible enforcement actions by the OFCCP. Others question whether the targets and compliance measurements are realistic and feasible.

Initial Reactions

Employers in the building industry say the rules may be impractical. Associated Builders and Contractors is concerned that the rules set "infeasible compliance requirements for federal construction contractors," says Sean Thurman, the Arlington, Va.-based organization’s director of legislative affairs. "Now contractors will be saddled with incredibly expensive record-keeping obligations that will do nothing to increase employment of these individuals."

Compliance could be demanding for large companies and even more so for smaller ones. "I’ve heard a lot of contractors express [compliance] concerns around the administrative and systems piece [of the final rules] due to the lack of high-tech resources and manpower," observes Cristina Solis, a San Jose, Calif.-based senior compliance analyst at Oracle. "It can be difficult to quickly modify systems and produce information just the way another party wants it. I believe that the new regulations will bring burdensome work for all but especially to the small and non-high-tech contractors.

"It remains to be seen if any changes we implement will be enough to meet compliance in an audit compliance review," Solis adds. Still, she says, this is "a great opportunity for contractors to evaluate their internal systems so that they can identify areas of improvement."

Advocates for people with disabilities say the rules are a major step in the right direction. "Despite 23 years of the Americans with Disabilities Act, the unemployment numbers for people with disabilities have remained virtually unchanged, with 70 percent to 80 percent of adults with disabilities unemployed," says Carol Glazer, president of the New York City-based National Organization on Disability. "From our perspective, this is an issue for business. Companies that have done disability hiring have shown that this is a highly productive, loyal workforce—with less safety violations—that can contribute positively to the workforce."

But contractors remain wary. "Clients have been concerned about how the rules will be applied by the OFCCP in practice," says Bradley Cave, a partner at law firm Holland & Hart LLP, who is based in Cheyenne, Wyo. "The benchmark figures are very concerning to employers because, although the OFCCP states these are [hiring goals], not quotas, employers will feel pressure to hire disabled or veteran applicants even when they are not the best qualified."

What the Final Rules Say

Section 503 of the Rehabilitation Act prohibits federal contractors and subcontractors from discriminating in employment against individuals with disabilities. The new Section 503 rule introduces a hiring goal for federal contractors and subcontractors: 7 percent of the employees in each job group in their workforce should be qualified individuals with disabilities. The new final rule details specific actions contractors are required to take in recruiting, training, record-keeping and policy dissemination. These actions are similar to the steps that have long been required to promote workplace equality for women and minorities.

The new final rule updating the VEVRAA strengthens affirmative action and nondiscrimination rules for contractors and subcontractors regarding protected veterans—including disabled veterans and veterans who have recently separated from the military. The new rule provides contractors with a hiring goal to measure their success in recruiting and employing veterans. Contractors must annually adopt either a benchmark based on the national percentage of veterans in the workforce (currently 8 percent) or their own benchmark based on the best available data and factors enumerated by the rule. Contractors are required to take affirmative action to recruit, hire, promote and retain these veterans. The rule also strengthens record-keeping requirements to help employers and the OFCCP assess the effectiveness of recruitment efforts.

Federal contractors will have additional time to meet the goals for hiring and employing individuals with disabilities and veterans, says David Cohen, president of DCI Consulting Group Inc., a national human resources risk management consulting company based in Washington, D.C.

Even though the many aspects of the regulations will become effective in March 2014, employers will not have to comply with the requirements related to the hiring goals or change their data collection, record-keeping and reporting procedures until the following plan year. Cohen offers this example: If an employer’s next affirmative action plan (as of March 24) is due to the OFCCP Jan. 1, 2015, only then would it have to start collecting data on individuals with disabilities and veterans.

For other aspects of the rules—such as the nondiscrimination provisions and general enforcement and complaint procedures for the disability rule—contractors must be in compliance as of the March 24, 2014, effective date, he says.

Final Rules Eased Earlier Proposals

The final rules are less demanding in some respects than the OFCCP’s earlier proposed rules released in 2011. The agency eliminated from the final Section 503 rule, for example, a proposed subgoal of hiring “severely disabled” employees to represent 2 percent of an employer’s workforce.

For contractors with 100 or fewer employees, the 7 percent goal for hiring people with disabilities may be applied to the entire workforce, rather than each job group. The OFCCP explained that this adjustment was made because it is “mindful that smaller contractors may find it more difficult to attain the goal in each of their job groups.”

The final rules also ease administrative tasks and paperwork burdens contained in the earlier proposal, notes Daniel V. Yager, president and general counsel of Washington, D.C.-based HR Policy Association, an organization representing chief human resource officers at more than 350 of the largest U.S. and multinational corporations.

“It has gone from a situation where our companies were saying they wouldn’t be able to comply to their saying, ‘We … should be able to comply depending upon how the OFCCP administers and enforces it,’ ” Yager says.

Consequences

The OFCCP stated that federal contractors are not required to achieve the new hiring and employment goals, and the agency did not articulate a penalty for failing to achieve them. In fact, the agency explicitly said in its compliance materials about the disability rule that failure to meet the disability goal would not be a violation of the regulations and would not lead to any fine, sanction or penalty.

Nonetheless, some attorneys say it is unclear if failure to meet the goals of either rule could be used by the OFCCP in combination with other facts to find violations of the rules during an audit, investigation or other enforcement action.

Also, while a failure to achieve the goals is not a violation per se, it may trigger additional compliance obligations. For example, with respect to the disability rule, a contractor that falls short of the goal must take steps to determine whether and where impediments to equal employment exist. This includes assessing existing staffing processes, the effectiveness of the contractor’s outreach and recruitment efforts, the results of its affirmative action program audit, and any other factors that might affect the success of the affirmative action program.

After conducting this assessment, the contractor must develop programs to correct any identified problem areas. Failure to do so could lead to investigation and enforcement actions by the OFCCP. While the rules are not explicit in this respect, existing regulations provide for specific sanctions and penalties—such as withholding of progress payments, termination of contracts and debarment from receiving future contracts—for violations of the underlying VEVRAA and Section 503 statutes.

In many cases, contractors already have tools they can use to track compliance with the new final rules. "Federal contractors should already be set up to track hiring for women and minorities," says Elizabeth Lewis, a partner at the Reston, Va., office of law firm Cooley LLP. "Executive Order 11246, which has been in effect for a long time, requires government contractors with at least 50 employees and a $50,000 contract to have written affirmative action plans with goals for the hiring and promotion of those groups," she says. Contractors "will have to adapt those tools to track veterans and the disabled. Most vendors that provide software to track [hiring of women and minorities] are already trying to make the changes needed to track the new categories."

Self-Identification

Among the most challenging components of the final rules for employers will be the self-identification provisions contained in each final rule. Prior to the final rules, contractors were required to invite candidates to self-identify their disability or veteran status after making an offer of employment, and employers were prohibited from soliciting this information before making an offer, Lewis notes. The final rules require contractors to invite applicants to self-identify voluntarily at both the preoffer and postoffer phases of the application process.

The disability final rule also requires that contractors invite all their employees to self-identify as disabled every five years, using prescribed language that will be posted on the OFCCP’s website. Like the benchmark hiring goals and record-keeping and reporting requirements, the OFCCP has delayed the self-identification provisions.

Cave says the self-identification provisions will add paperwork and an administrative burden. In addition, he notes, employers are now required to "audit the effectiveness of their affirmative action efforts against [the rules’ hiring and employment goals] and document that audit and the assessment of the results. They also need to review their processes for connecting with disabled applicants, determine if there are any barriers to employment and, if there are, fix them and document the fix."

Adding another layer of complexity, many employer advocates contend that "disabled" is a vague term and that many employees with disabilities may not view themselves as, or want to be identified as, disabled. To maximize protection against potential enforcement actions, employers will need to demonstrate that they are taking necessary and advisable steps to meet the benchmarks for hiring, Cave says.

It is critical to note, however, that employers should not ask job applicants to self-identify their disability status until the regulations take effect. "The concept of self-identification of disabilities in the prehire phase right now is prohibited," Lewis says. "As for posthire, you can ask people to self-identify, but that has been, and will continue to be, voluntary."

Awaiting Clarity

Failure to meet the hiring goalsor other compliance obligations under the rules will continue to be an employer concern until the consequences become clear, which is likely to happen only after investigatory and enforcement actions by the OFCCP.

"They say failure to meet the benchmarks will not by itself be the basis for a violation," Cave says. "What they don’t say is when it will be used with other facts to support a violation. My guess is [the OFCCP] will keep a low profile using benchmarks for enforcement purposes for some time. They don’t want to feed into employer concerns."

David Tobenkin is an attorney and freelance writer based in the Washington, D.C., area.

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