Despite Improvements, Functional Affirmative Action Programs May Be Too Risky

​The Office of Federal Contract Compliance Programs (OFCCP) is trying to persuade more federal contractors to use functional affirmative action programs (FAAPs) rather than traditional affirmative action programs. While the agency has made FAAPs more attractive for employers, their drawbacks—such as the possibility of increased liability if there is an agency audit—may outweigh their benefits for many federal contractors.

Affirmative action programs ensure workforce diversity by race, ethnicity and gender. They also show whether minorities or women are underused or underrepresented and whether the federal contractor is engaged in good-faith efforts to correct underutilization or underrepresentation, such as by casting a wider net in recruiting and promoting employees.

Contractors using FAAPs provide them for each function within their business. Traditional affirmative action programs are prepared for each establishment.

A large business with numerous establishments might have far fewer FAAPs than if it used traditional affirmative action programs. For example, if a federal contractor had 100 establishments, it would have 100 traditional affirmative action programs, said David Cohen, president of DCI Consulting in Washington, D.C. If it had seven lines of business, it would have only seven FAAPs.

This may sound advantageous. But for businesses with traditional affirmative action programs, OFCCP audits are limited to individual establishments. Audits of FAAPs may pull in data from across the entire line of a business.

"With more data comes an increased likelihood that statistical issues, such as adverse impact in hiring or compensation disparities, will arise," said Matthew Camardella, an attorney with Jackson Lewis in Melville, N.Y.

Suppose 99 percent of men who apply to work for a federal contractor are hired and 98 percent of women are hired. The 1 percent difference isn't statistically significant until the applicant pool reaches 1,200 men and 1,200 women who are applying, Cohen said.

OFCCP's Changes

In a directive that took effect June 20, the OFCCP made the following changes to FAAPs:

• The OFCCP will no longer consider compliance history when reviewing a request for a new FAAP agreement.
• The agreement term has been extended from three years to five years.
• There will be a minimum of 36 months between compliance evaluations for a single functional unit. This is 12 months longer than the minimum length of time between establishment reviews.
• The OFCCP will approve or reject complete FAAP applications within 60 days of receiving them. Previously, there was no deadline.
• The OFCCP no longer requires that FAAP contractors undergo at least one compliance evaluation during the term of their FAAP agreement.

"Historically, employers consented in the FAAP agreement to undergo a prescribed number of audits during the term of the agreement," Camardella said. "Under the new directive, this requirement has been dropped, which may make contractors more interested in pursuing FAAPs."

Camardella said that the OFCCP is promoting FAAPs because it "recognizes the way companies do business is changing—specifically, the old brick-and-mortar organizational structure is less and less common." As a result, traditional affirmative action programs based on establishments increasingly do not align with a federal contractor's organizational structure, which may be a better foundation for analysis.

"Technology companies probably would have the greatest interest in FAAPs because of their highly matrixed and remote workforces that are organized around business unit[s] or segment[s]," he said. Universities may find FAAPs attractive as a way of analyzing their individual schools in separate affirmative action programs, since the schools operate somewhat autonomously, Camardella added.

Technically, the requirement for establishment-based affirmative action programs is to create a program for each building, but that may not make sense when universities might have more than one school in a building, Cohen said.

Federal contractors that have "highly segmented and independently managed functions can most benefit from FAAPs," Camardella stated.

[SHRM members-only toolkit: Managing Federal Contractor Affirmative Action Programs]

Skepticism Remains

However, the OFCCP's changes may not be enough to convince many federal contractors they should start using FAAPs.

In addition to liability concerns, in order to prepare FAAPs, an employer must apply to the OFCCP and receive permission, Camardella explained. "The process can be burdensome and time-consuming," he said, despite the OFCCP's asserting otherwise in an Aug. 29 document called "Busting Myths Around Functional Affirmative Action Programs."

As a company adds or removes functional units, the contractor must notify the OFCCP within 60 days after the changes are made and detail the impact of those changes on the FAAP structure. Finally, because FAAP approvals last for only five years, contractors must apply for renewal of their FAAP agreements with the OFCCP. There are no such burdens associated with establishment-based affirmative action programs.

Cohen said that while he's seen a slight uptick in questions about FAAPs, companies that use them should keep FAAPs while other entities consider them. He said that incentives for using FAAPs aren't that different from what they were before the OFCCP's changes, and most federal contractors do not use FAAPs out of concerns over increased liability during an audit.