As the new year quickly approaches, one of the most dramatic changes in employment law involves the Office of Federal Contract Compliance Programs (“OFCCP”). Employers who were not previously affected by the OFCCP may now face audits or record-keeping requirements in 2010. Increases in budget, changes in organization and political transformation will result in an overall increase in OFCCP activity, making it an employment law issue employers cannot afford to ignore in the coming year.

The OFCCP is to receive a 25% budget increase and more than 200 additional compliance officers in 2010. Besides budgetary changes, the OFCCP has undergone a significant political and organizational transformation. Until November 8, 2009, the OFCCP was a sub-part of the Employment Standards Administration (“ESA”), and several steps removed from the Secretary of Labor. The ESA, however, was abolished, which means that the OFCCP now reports directly to the Secretary of Labor, Patricia Shiu. These organizational changes will result in political pressures to increase audits and reporting. Moreover, during reorganization, OFCCP regional and district offices are likely to receive less guidance on enforcement, leaving stronger regions, like Chicago, greater latitude and authority in investigations and enforcement.

As the OFCCP expands its jurisdiction in 2010, it will also expand investigation and enforcement of veterans’ rights in response to military build up and large numbers of reservists returning from active duty. More desk and on-site audit time will be devoted to Vietnam Era Veterans Readjustment Assistance Act issues. Investigations of on-site contractor outreach and accommodation efforts relating to returning veterans and veterans seeking employment will likely be a focus of desk and on-site audits.

Changes for Contractors Receiving Funds under the American Recovery and Reinvestment Act of 2009

The OFCCP is making it clear that if an employer benefits from American Recovery and Reinvestment Act (“ARRA”) money, it must be in full compliance with its affirmative action and equal opportunity obligations. A large group of employers who were not previously subject to OFCCP audits will now fall under the OFCCP authority if they receive federal stimulus funds under the ARRA. A significant portion of ARRA recipients are involved in the construction industry, and thus will be subject to the OFCCP regulations pertaining to Construction Contractors. The OFCCP has stated that it expects to conduct at least 450 construction audits by September 2010.

The OFCCP is asserting authority over construction contractors who have received grants under ARRA. Previously, the OFCCP jurisdiction was triggered by federal contracts or subcontracts, but not grants. However, construction contractors who have received grants under ARRA are now subject to full audits, including desk audits, on-site inspections and off-site investigations whether or not the OFCCP finds “indicators” of potentially unlawful discrimination in the desk audit phase. The more aggressive OFCCP position is based on the fact that most federal stimulus money is taking the form of federal financial assistance or grants for construction. There has not yet been a court test concerning OFCCP extension of jurisdiction over supply and service or construction recipients of federal grants or financial assistance, rather than contracts.

In addition, full three-part audits will be conducted prior to the award of contracts of $10 million or more of stimulus funds. The two year moratorium on audits for companies on the pre-award registry and contractors who have been reviewed within two years, as well as the current cap on multi-facility employers of no more than 25 audits per company will no longer apply.

A positive side effect of the increased OFCCP jurisdiction is that the distinction between supply and service as opposed to construction contractors has been clarified somewhat, along with their respective obligations. The OFCCP considers contractors to be either “supply and service” or “construction,” but not both. In practice, if more than half of a company’s business involves the performance of construction work, the OFCCP considers it to be a construction contractor. The OFCCP will continue to define affirmative action obligations for construction contractors through 16 “Affirmative Action Steps” set fourth in 41 CFR 60-4.3(a) 7 and will continue to enforce the goals it has developed for all construction crafts.

Changes for Health Care Providers

Recent OFCCP activity is signaling the agency’s desire to establish authority over hospitals and other health care providers even when the hospital does not have a direct contract with a federal agency. If the OFCCP continues to prevail in its arguments, many hospitals and health care providers will be required to maintain Affirmative Action Plans (“AAPs”) and adhere to all other OFCCP requirements.

The OFCCP has prevailed in a recent case that may allow it to assert jurisdiction over health care providers as subcontractors. In a recent case, the Administrative Review Board (“ARB”) upheld an Administrative Law Judge’s (“ALJ”) decision finding three hospitals that received payments from an HMO for providing medical services to individuals covered by the HMO, including federal employees, were federal subcontractors subject to the OFCCP. See OFCCP v. UPMC Braddock, ARB No. 08-048 (2009). The ARB upheld the ALJ’s grant of authority even though the hospitals involved did not consent to be federal subcontractors and the language of their contracts with the HMO specifically excluded them from the definition of subcontractor. In the future, the OFCCP will likely argue that even under insurance rather than HMO arrangements, provision of medical services is necessary for the performance of a contract, subjecting providers to coverage as subcontractors.

Changes in Recruiting Recordkeeping Responsibilities

As technology evolves, the OFCCP and contractors continue to struggle with recordkeeping and reporting obligations concerning both internet applications received by the contractors and the contractor’s use of external recruitment databases. The OFCCP has issued data management techniques as part of its internet applicant regulations at 41 CFR 60-1.3. These regulations should be reviewed by contractors utilizing recruitment which includes either consideration of internet applicants or searches of external databases.

When a contractor maintains or uses an internal electronic resume database to identify or consider applicants in filling a particular position, the contractor must maintain electronic or paper records identifying:

• Each resume added to the internal database
• The date each resume was added
• The position for which each search of the database was made
• Substantive search criteria used
• The date of the search
• The identity of the applicants contacted regarding their interest in the position

When a contractor searches an external resume database, the contractor must maintain electronic or paper records identifying:

• The position for which each search was made
• The date of the search
• Substantive search criteria used
• Copies of the resumes of those job-seekers who met the basic qualifications for the position in question who were considered by the contractor

If you do not know if your company is covered by the OFCCP, or you do not understand your OFCCP obligations, please contact one of the authors of this alert, or your Michael Best attorney for guidance on these issues.