OFCCP’s Fiscal Year 2017 (FY2017) is coming to a close and the Agency may be looking to make some deals, particularly in matters alleging pattern and practice discrimination. For the past decade, OFCCP has engaged in what has been best described as "plaintiff-style" tactics to achieve highly publicized, big-dollar settlements in its efforts to uncover workplace discrimination by federal contractors. Relying on Directive 310, Calculating Back Pay as a Part of Make-Whole Relief for Victims of Discrimination, issued on July 17, 2013 ("Directive 310"), OFCCP routinely calculates back pay using "formula relief" to determine monetary damages for an affected class of alleged discrimination victims. Then, upon agreement of the amount, the settlement fund is divided equally among all eligible class members. Formula relief for a class of aggrieved individuals is considered by OFCCP as the most economical and convenient method for calculating damages. Although Directive 310 claims to follow Title VII principles, the proof requirements for the affirmative defense of mitigation puts contractors at an insurmountable bargaining disadvantage, particularly given that OFCCP is the sole arbiter of whether the evidence presented will be considered "sufficient."
But that was then and this is now, and the writing on the wall is that OFCCP’s manner of carrying out its mission is about to change. In the fall of 2017, the U.S. Chamber of Commerce published a 53-page report entitled, OFCCP: Right Mission, Wrong Tactics – Recommendations for Reform, in which the Chamber criticized OFCCP’s methods over recent years and set forth recommendations for change, encouraging a return to OFCCP’s core mission of "fostering true affirmative action" and abandoning its transformation to a "plaintiff-style enforcement agency" with a singular focus of issuing findings of discrimination – "often where none exists."
In November 2017, the Office of the Attorney General cautioned federal agencies that reliance on "published guidance documents," like Directive 310, that have not been subject to the rulemaking requirements of the Administrative Procedure Act, are not binding to impose legal obligations on the parties. As of July 3, 2018, the Attorney General has rescinded 24 guidance documents described as "unnecessary, outdated, inconsistent with existing law, or otherwise." Directive 310 was not issued with notice-and-comment rulemaking and, therefore, does not create legally enforceable rights contrary to existing law.
Given these developments, it is crunch time for the OFCCP and we think they will be ready to reach agreements in certain cases in the final weeks of FY2017. Here are some tips that may help you get your best deal:
Negotiate the lowest shortfall(s) possible for the identified job groups/job titles. This factor is critical in calculating damages under formula relief. During negotiations, every non-applicant should be removed from the disparity analysis, e.g. duplicates, multiple applications, unqualified, uninterested, disqualified. Similarly, and more importantly, every selection that can be removed should be removed, e.g. rehires, former temp employees, hires outside of review period, selections into positions that do not belong in the analysis. If a pre-determination notice (PDN) has been issued, you will have the best opportunity to negotiate the applicant and selection pools. It is more difficult to move OFCCP off of their calculated shortfalls after a notice of violations (NOV) is issued.
Remember to identify overlapping protected groups to reduce the back pay damages. OFCCP normally will oppose any reduction in reporting the shortfalls for each protected group – e.g. 5 women, 4 Hispanics, 3 Asians and 1 Native American. However, for back pay purposes, there may be some duplication (3 Hispanic females), so the back pay amounts should be reduced accordingly. OFCCP typically will not offer this adjustment; you have to demand it.
Provide information to OFCCP that may limit the back pay period. OFCCP may not chase down facts during its investigation that could limit the back pay period. For example, if there was a layoff which affected workers who were selected into job groups or job titles under investigation, the OFCCP back pay period could be affected. That is, if several or all of the employees hired into the identified job groups/titles were laid off sometime within the two (2) year period, the back pay accumulation will necessarily be reduced. The contractor has to make this observation and argument.
Eliminate proposed class members who are current or former employees. Before agreeing to a class member list, cross check every potential class member with your HRIS and payroll systems. You don’t want to send a claim form notice and back pay check (with interest) to a current employee. And you definitely do not want to offer a job to a former employee, who was fired for cause or quit, as part of hiring obligations under a conciliation agreement.
Consider using W-2 wages to determine the unmitigated back pay amount. Unfortunately, most employers do not have reliable payroll records. Data records are incomplete or missing. Payroll systems change during the review period and records often do not reconcile. Therefore, OFCCP typically estimates back pay damages by analyzing employee tenure, extrapolating payroll information that is available, and then propose a back pay demand that is impossible to replicate and/or challenge. So rather than estimating back pay damages, employers should consider providing actual W-2 wages earned by the employees hired into the relevant positions during the review period. The actual wages paid include all compensation earned – regular hourly rates, overtime, bonuses, other pay awards, vacations, promotions, etc. Most often, the actual wages are less that the extrapolated wages proposed by OFCCP – especially in high turnover, entry-level positions.
Consider submitting evidence that adverse impact in selections no longer exists after the review period. Pursuant to Title VII case law authority, OFCCP normally seeks back pay for a period of up to two (2) years prior to the date that the contractor received the OFCCP’s scheduling letter. Additionally, back pay may continue from the date of the identified violations forward until the alleged discrimination stops, or a resolution is reached by conciliation agreement, consent decree, or final administrative/court order. During conciliation, OFCCP will contend that back pay for "victims" continues to accumulate through enforcement if there is evidence of adverse impact in selections in the identified job groups/job titles, even after the review period. Therefore, if the contractor has reviewed the selection processes at issue, fixed the problems, and can demonstrate to OFCCP that there is no additional back pay value, the information may be helpful in limiting the monetary relief in conciliation.
It is critical to offer evidence of mitigation to reduce OFCCP’s proposed back pay figures. As in any Title VII case, mitigation is an affirmative defense, so the employer bears the burden of proving the amount of interim earnings which may be applied to reduce a back pay award. However, the alleged victims of discrimination also have a duty to mitigate their damages by using "an ‘honest good faith effort’" to seek "employment that is ‘substantially equivalent’" to the position that they were allegedly discriminatorily denied. See NLRB v. Midwestern Personnel Services, Inc., 508 F. 3d 418, 423 (7th Cir. 2007) (quoting Golay & Co. v. NLRB, 447 F.2d 290, 295 (7th Cir. 1971). See also Booker v. Taylor Milk Co., 64 F.3d 860, 864 (3d Cir. 1995) (employer bears the burden of proving a failure to mitigate which may be satisfied if the employer can demonstrate that "1) substantially equivalent work was available, and 2) the [class member] did not exercise reasonable diligence to obtain the employment.") (citing Anastasio v. Schering Corp., 838 F.2d 701, 707-08 (3d Cir. 1988). Therefore, the importance of the mitigation evidence is twofold.
First, evidence of job availability in the labor market during and after the review period should have an impact on determining the period of unemployment. In plain terms, how long should it take a victim of discrimination, engaging in reasonable diligence, to find comparable employment after they were not hired by the contractor? Relying on select Bureau of Labor Statistics ("BLS") – which includes all industries and is not job specific – OFCCP usually proposes a significant period of unemployment, even when the positions at issue are entry-level, hourly jobs. This factor alone necessarily increases the back pay calculations considerably.
Therefore, employers need to do some legwork to provide evidence that comparable employment in the labor area was available and could have been secured if class members engaged in reasonable efforts to find other job opportunities. Employers may produce comparable job postings from the same period, help-wanted advertisements in local newspapers and online recruiting sources, documentation of local career fairs, etc. Although OFCCP must accept the contractor’s interim mitigation evidence if it is "sufficient" to provide potential for mitigation of earnings under Directive 310, OFCCP has taken the position that it is the final arbiter on the "probative weight" of the mitigation evidence supplied by the contractor. Of course, this determination is akin to the fox guarding the hen house, and in enforcement proceedings, OFCCP’s determinations may be subject to challenge. See Lawrence Aviation Indus., Inc. v. Reich, 182 F.3d 900, *1-*2 (2nd Cir. 1999)(unpublished opinion)(holding that OFCCP’s method of calculating back pay was "flawed" and remanding matter for the lower court to consider evidence offered by contractor as to average tenure of employment for shortfall which was rejected by OFCCP early in the proceedings and also raising questions about whether OFCCP properly considered mitigation amounts for alleged victims).
Second, mitigation evidence also may be used to reduce the back pay award by the amount that could have been earned by the victims of discrimination with reasonable diligence. Again, this evidence may come from the availability of jobs in the labor market, paying comparable wages, and "appropriate evidence of actual or assumed interim earnings." This evidence may be available in the documentation submitted by applicants (applications, resumes) showing that they were employed at the time that they applied for a job with the contractor and they would presumably have remained employed in order to reasonably mitigate their damages. Another source of information regarding interim earnings may be found in multiple applications filed by job seekers that reveal subsequent employment, including employment with the contractor. While OFCCP may oppose such evidence, the contractor should still propose to reduce back pay based on information from class members who were not seeking comparable employment – periods of incarceration, medical/personal leave, absence from country so not available to work, leaving employment to go back to school.
Relying on Directive 310, OFCCP often summarily dismisses evidence of mitigation and interim earnings proffered by the contractor with little to no explanation or justification. But given the anticipated trend to return to a more neutral enforcement role, the tide may be turning to a more reasonable approach to estimating unemployment periods – especially for entry-level hourly positions – and OFCCP may no longer ignore this evidence based on well-established Title VII principles.
Attempt to negotiate a cap for the payout to individual class members. The NOV will typically include several violations which identify different protected groups who were allegedly discriminated against in selection. For example, an NOV may allege that women, Hispanics, Asians, and Native Americans were discriminated against in selections for machinery jobs, and men, African Americans, and Asians were discriminated against in selections for assembler jobs. A conciliation agreement will typically establish separate settlement funds for each group of alleged victims by the job groups or positions. Depending on estimated back pay, the class size for each violation, and the class member response, it is possible for a group of class members to receive a "windfall" recovery rather than make-whole relief. For example, if the settlement fund is $1,200,000 for a group and the class member size was 1,000, but only 10% of the class members respond, then the settlement amount may far exceed the calculated average back pay amount. While it is true that a fundamental purpose of Title VII is to make injured parties whole, an equally important principle is that injured parties should not receive a windfall in any back pay award. Back pay is intended to compensate for injury, not to reward plaintiffs or penalize defendants.
OFCCP will challenge a cap and it will likely only be a point of discussion if there is a high back pay demand with a smaller class size. But it is worth a shot to make the argument during negotiations, rather than trying to amend a conciliation agreement after the fact.
A final word. For several years, OFCCP has had the upper hand in securing high-dollar settlements, with splashy headlines, from federal contractors who reluctantly agree to outrageous monetary demands rather than risk enforcement proceedings, possible debarment, and unwanted publicity. But it would appear that the tide is about to turn, and the time to get the better deal may be now.