OFCCP is breathing new life into its FAAP program, one that has been largely dormant since functional AAPs were first authorized in 2000. Many companies may now find the FAAP structure appealing. But the question remains, is the FAAP structure a good fit for your business?
What is a Functional Affirmative Action Plan?
FAAPs are not new, but they are one of the lesser-known options in OFCCP compliance. Only a small fraction of covered contractors and subcontractors choose to structure AAPs along functional lines each year.
FAAPs provide an alternative to the establishment-based AAP framework. Rather than tying plans to a specific physical location, FAAPs are structured along discrete functional lines. They are intended for companies who are organized, at least partly, by independent business units or functions, which have their own reporting and management structures. (Companies can use a combination of establishment-based and functional AAPs to cover their employees.) FAAPs are intended to better reflect and capture the way employment decisions are made in such organizations. They permit an AAP to span wide geographic areas, tied together by the functional operation.
Employers must obtain advance approval from OFCCP before implementing FAAPs. A formal application is required, with details about the company's organizational structure and its plan for implementing FAAPs. If approved, the company enters into a written agreement with OFCCP for a set period of years.
Background of FAAPs
FAAPs emerged as it became evident that some corporate structures do not align with an establishment-based AAP model. Since the 1960s, companies have grown in size and geographic scope, and may opt for decentralized management models. The increasing prevalence of remote and telework employees has further complicated establishment-based plans.
The formal authorization for FAAPs appeared in 2000, when the OFCCP overhauled its AAP regulations. The reference to a functional plan structure was understated, and vague:
41 C.F.R. §60-2.1(d)(4). The regulation goes on to the specify that:
After section 60-2.1(d)(4) was enacted, contractors requested more information about how this "non-establishment" AAP might be accomplished. To answer those questions, Charles E. James, Sr., then the Deputy Assistant Secretary for Federal Contract Compliance under President George W. Bush, issued Directive 254 in 2002. Directive 254 set forth a process by which contractors could seek approval of a functional AAP system.
OFCCP's guidance on FAAPs has since been amended many times, including in 2011, 2013, and 2016. Even with these changes, contractors have expressed confusion and frustration with aspects of the FAAP program. A chief complaint has been that compliance officers in the field are unfamiliar with how to audit a FAAP, especially when it comes to on-sites. Contractors have also been deterred from FAAPs by the mandatory audit requirement, which ordered at least one OFCCP audit during the term of the FAAP agreement.
The June 2019 Changes: A "Friendlier" FAAP
OFCCP has been a hotbed of activity under the leadership of Director Craig Leen. Director Leen has expressed a goal of making OFCCP a more efficient and transparent organization. As part of that effort, OFCCP has reworked the FAAP process. Reform came through Directive 2013-01, Revision 2, which went into effect on June 20th of this year. The changes wrought by the Directive make the FAAP process more accessible and advantageous for contractors.
Some of the most noteworthy aspects to Directive 2013-01 Rev. 2 are:
- FAAP agreements last for 5-year terms, up from 3 years. This reduces the administrative burden on companies associated with the reapplication process.
- OFCCP will make decisions on FAAP applications within 60 days. Before, it had no deadline by which to act. This new expediency helps contractors work promptly to meet AA obligations.
- OFCCP no longer requires an FAAP contractor to be audited during the FAAP term. This removes one of the primary obstacles to many companies going the FAAP route.
- OFCCP will not consider a company's compliance history when reviewing a request for an FAAP program. This allows businesses with less than a perfect record to switch to FAAPs, if they better suit the corporate structure.
- After a FAAP audit, the unit receives a 36-month grace period from future audits. That is a year longer than the grace period afforded to establishment-based plans. This is perhaps the single greatest incentive for employers to consider FAAPs.
Should You Pursue FAAPs?
In light of OFCCP's changes to FAAPs, companies should make new assessments as to whether the model may be right for their organization.
The first consideration is whether the business is eligible for FAAPs. Only companies truly structured along functional lines will be granted permission by OFCCP. The company must have business lines or units that operate autonomously from others, with identifiable personnel practices and decisions that are distinguishable from other parts of the employer's operation. An appropriately discrete function will have its own managing official(s), rather than reporting up through a centralized hierarchy. And, each proposed function must have at least 50 employees (unlike establishment AAPs, where the employer can opt to prepare smaller plans).
If base requirements are satisfied, contractors should decide if FAAPs make strategic sense. Will FAAPs better position the company to defend audits?
Several considerations affect the FAAP v. Establishment dichotomy. For instance:
- Number of plans: How many AAPs would the company have to create under either approach?
- Size of plans: Would FAAPs result in significantly larger, or smaller, plans than an establishment approach?
- Administrative cost: What will be involved in switching from an establishment system to an FAAP one, or to a combination of AAPs and FAAPs?
- Access to records and data: During an audit, OFCCP gains access to witnesses and information within the scope of the plan. In a FAAP system, does that create concern given the encompassed breadth of activity?
- Likelihood of audit: Though an audit is no longer required during an FAAP agreement, the odds seem stacked against FAAP contractors. OFCCP sent CSALs to 66 FAAPs in late 2018, and to 72 FAAPs in March of 2019. In 2018, OFCCP had 71 active FAAP agreements (the current figure is not known). The odds of being audited thus seem much higher with FAAPs.
- Legal exposure: Given the above, how likely is the company to be audited under either approach? How would the business fare during an audit? Keep in mind that smaller plans are typically preferred from an audit perspective, both because statistics work more favorably and because the potential number of "victims" is reduced.
Every business will reach its own conclusion as to whether FAAPs are well suited for its organization. It will be interesting to see, over time, whether OFCCP's recent changes increase the popularity of the program.