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Legal Updates

OFCCP Final Rules Create New Compliance Obligations For Federal Contractors

The Office of Federal Contract Compliance Programs (“OFCCP”) has issued stringent new requirements for federal contractors under Section 503 of the Rehabilitation Act of 1973 (“Section 503”) and the Vietnam Era Veterans’ Readjustment Assistance Act (“VEVRAA”), the laws that require contractors to affirmatively recruit, hire, train, and promote qualified individuals with disabilities and certain categories of military veterans (“covered veterans”).  The new requirements concern, among other issues, data collection, hiring and outreach efforts, self-evaluation of progress toward benchmarks, invitations to employees and applicants to self-identify, and contract modifications.  They take effect on March 24, 2014.

Compliance will entail significant costs for many federal contractors.  For example, contractors may need to hire additional staff to conduct outreach efforts and to update their online job applications and information technology systems to capture newly required hiring data.  Contractors who do not comply with the new requirements could face stiff penalties, including termination of their federal contracts and subcontracts, as well as debarment from receiving future contracts.  Thus, contractors should begin working immediately to ensure that their policies, human resources systems, and practices are compliant with the new regulations.

Contractors also should be aware that they will now have to pay a higher minimum wage to workers on future government contracts.  On February 12, 2014, President Obama signed an executive order increasing the minimum wage for workers under new federal contracts to $10.10 per hour, up from $7.25 per hour.  The change does not apply to previously existing contracts.

Data Collection And Record-Keeping Requirements

The Section 503 and VEVRAA regulations introduce new data collection and analysis requirements for federal contractors.  For example, contractors will be obligated to collect the following information annually and retain the associated records for three years:

  1. The number of job openings;
  2. The number of jobs filled;
  3. The number of applicants for all jobs;
  4. The number of applicants who self-identify as, or are otherwise known to be, covered veterans or individuals with disabilities;
  5. The number of applicants hired; and
  6. The number of applicants hired who are covered veterans or individuals with disabilities.

Capturing this data may require employers to implement new human resources data systems and procedures and to revise record retention policies.

Recruitment And Outreach Requirements

Federal contractors and subcontractors will be required to undertake certain outreach and recruitment activities for disabled employees and covered veterans, to document all such activities, and to retain those records for three years.  Contractors must also annually review and assess their outreach efforts and document the review process, including the criteria used in the review and the contractor’s conclusions about the effectiveness of its review process.

In this regard, the Section 503 regulation requires contractors to establish a seven percent “utilization goal” for disabled individuals in each of the contractors’ job groups.  This means that contractors must strive to achieve the goal of having individuals with disabilities constitute seven percent of the employee population in each job group.  Previously, Section 503 required federal contractors only to make “good faith” efforts to hire people with disabilities.

The VEVRAA regulations similarly require a hiring goal and establish two methods by which contractors may set a hiring benchmark for covered veterans.  Specifically, a contractor may use either (i) the national percentage of veterans in the workforce (which currently stands at eight percent) or (ii) its own benchmark, based on the best available data.  If a contractor uses the latter method, it must consider the following factors:

a)    The average percentage of veterans in the civilian labor force over the preceding three years in the state where the contractor is located, as posted in the Benchmark Database on the OFCCP website;
b)    The number of veterans who participated, over the previous four quarters, in the employment service delivery system in the state where the contractor is located, as posted in the Benchmark Database on the OFCCP website;
c)    The contractor’s applicant and hiring ratios for the previous year;
d)    The contractor’s recent assessments of the effectiveness of its outreach and recruitment efforts; and
e)    Any other factors, such as the nature or location of a job, that would affect the availability of qualified covered veterans.

As contractors adjust to the new requirements, they may prefer to use the first option, i.e., the national percentage.

The goals and benchmarks established by the regulations are aspirational and not meant to establish hiring quotas (or ceilings).  While contractors will not be penalized for failing to meet the goals or benchmarks, they may be penalized for failing to try to achieve them or for failing to respond appropriately to a missed goal.

In this regard, if a contractor fails to meet the utilization goal, the contractor must take steps to assess and address any impediments to equal employment opportunity, including assessing existing personnel processes, the effectiveness of its outreach and recruitment efforts, and the results of its affirmative action program audit.  After conducting this assessment, the contractor must “develop and execute action-oriented programs” to correct any identified problem areas.  The OFCCP is likely to penalize contractors that, after failing to meet the utilization goal, do not identify the potential reasons for the under-utilization and establish programs to address those reasons.

Penalties for failure to comply with such requirements can be significant.  The government may withhold payments due, terminate or cancel a contract, or even debar the contractor from obtaining future contracts.

Self-Identification Requirements

The OFCCP now requires contractors to invite job applicants to self-identify as covered veterans or individuals with disabilities at both the pre-offer and post-offer stages of the hiring process.  Contractors also must invite current employees to self-identify as an individual with a disability within the first year the contractor is subject to the self-identification requirement and once every five years thereafter.  In addition, at least once during the years between these invitations, contractors must remind employees that they may voluntarily update their disability status at any time.  Contractors that have in place on March 24, 2014, affirmative action plans (“AAPs”) pursuant to the previous Section 503 and VEVRAA rules may delay compliance with subpart C of the new regulations, which includes the self-identification requirement, until the beginning of their next AAP cycle.

Contractors must use the disability self-identification form, Form CC-305, that was published in January 2014.  This form is available on the OFCCP’s website.  Contractors may use an electronic online version of the form only if they include the form number and expiration date, meet strict requirements concerning font style and size, and do not alter the content of the form.

For veteran self-identification, contractors may use model invitation forms issued with the VEVRAA regulations or any form that complies with the regulations.

All veteran and disability self-identification information must be kept in a separate file from the employee’s personnel file.

Updates To EEO Statements And Contract Language

Federal contractors have long been required to include a “tagline” in all job postings stating that the contractor is an “equal opportunity employer” of females and minorities.  Under the new OFCCP regulations, contractors must add veterans and individuals with disabilities to the tagline.  The revised tagline must, at a minimum, use the words “disability” and “vet,” as opposed to “D” and “V.”

Also, under the prior OFCCP regulations, contractors were required to include, in their covered subcontracts and purchase orders, only general language incorporating the equal employment opportunity obligations of Section 503 and VEVRAA.  Under the new regulations, contractors may still include such general references to Section 503 and VEVRAA in their subcontracts and purchase orders but must also include explicit language, in bold text.  Contractors must also post and disseminate information about their equal employment opportunity policy to applicants, employees, subcontractors, suppliers, and union officials.

Recommendations For Contractors

In consultation with experienced employment counsel, federal contractors and subcontractors should take appropriate steps to ensure that they will be in compliance with the Section 503 and VEVRAA regulations when the regulations take effect in March 2014.  In particular, contractors should immediately:

  • Implement procedures for the collection and storage of the required self-identification information of applicants and employees.  Because gathering disability-related information creates risks, contractors should establish procedures that will prohibit managers and others involved in employment decisions from having access to the information;
  • Invite current employees to self-identify as an individual with a disability within the first year the contractor is subject to the self-identification requirement and every five years thereafter;
  • Disseminate required notices internally and externally;
  • Develop referral sources for qualified disabled persons and covered veterans;
  • Establish appropriate benchmarks and goals for the hiring of disabled persons and covered veterans;
  • Train human resources staff to identify impediments to equal employment opportunity and to design action-oriented programs;
  • Update EEO statements and contracts as necessary to include required language concerning covered veterans and individuals with disabilities; and
  • Designate an OFCCP compliance specialist within the organization.

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If you have any questions about the Section 503 and VEVRAA regulations or would like guidance in connection with any other OFCCP compliance issues, please do not hesitate to contact us.