WINDS OF CHANGE: AN UPDATE ON THE NEW CSAL LETTER

by Eric Dunleavy, Keli Wilson and Joanna Colosimo, DCI Consulting Group

During the week of December 19th, the OFCCP issued Corporate Scheduling Announcement Letters (CSALs) to the federal contractor community. The letters were sent to those federal contractors that have an establishment(s) identified for a potential compliance evaluation by the OFCCP during the current scheduling cycle. It is important to note that this was the first time CSALs were sent to ALL federal contractors on the scheduling list, not just contractors with two or more establishments identified for potential evaluation. On the surface, the new CSAL letter seems relatively routine since the OFCCP typically sends them to contractors in December. However, DCI has noticed three unexpected trends related to the recent CSALs. We believe that these changes may represent a seismic shift in OFCCP audit strategies.

The three changes that caught our attention include:

  1. A majority of the CSAL letters only have one or two total establishments listed for review. In fact, so far we have seen only one letter that listed more than two locations. That is a significant change from CSALs that were sent in the past. Typically, for mid- to large-sized contractors, many establishments would be listed on the CSAL.
  2. Corporate headquarters are being listed as an establishment that is eligible for review, and, in many cases, is the only establishment on the CSAL. Historically, corporate headquarters for large contractors would not be selected by the FCSS, or listed on the CSAL. Instead, corporate headquarters would usually be selected from a separate pool of establishments for a Corporate Management Compliance Evaluation (CMCE).
  3. There are establishments on some of the CSALs that are currently open or have recently been audited. As a note, the OFCCP cannot audit an establishment within 24 months of undergoing a compliance evaluation, with a few exceptions (i.e. – a contractor is not complying with reporting requirements, an individual or class complaint is received, etc.). Please see the OFCCP’s FCSS Q&A, or the ACE directive, for additional information on this issue.

These three trends may have significant implications for contractors. First, the fact that a majority of the CSAL letters are only listing one or two establishments signals a clear reduction in the total number of reviews that OFCCP is planning on conducting.

Second, and more significantly, the fact that corporate headquarters is being listed as an establishment review is a major change in OFCCP audit protocol, and there must be a reason behind this trend. As described above, reviews of corporate headquarters were conducted as a CMCE, per a directive released by OFCCP to the public (Directive Number 202). The goal of a CMCE is to determine whether there are artificial barriers to advancement into mid-level and senior corporate management positions. Furthermore, the regulations state that if OFCCP discovers problems at the corporate headquarters as part of a CMCE then the agency may expand the review to other establishments (CFR 60-2.30).

However, the new CSAL makes it clear that CMCE reviews are NOT included in the listing of potential compliance reviews, which implies that the corporate headquarters currently listed in the CSAL letter would undergo a routine evaluation. Specifically, the letter states:

In addition, the enclosed list does not include any establishment of your company that has been selected for an evaluation because of a contract award notice (i.e., pre-award review); monitoring activity during a conciliation agreement; credible reports of an alleged violation of a law or regulation, including complaints filed with the agency; or as part of the agency’s Corporate Management Compliance Evaluation (CMCE), Functional Affirmative Action Program (FAAP), or other agency initiative approved by the Director of OFCCP.

Why the change in audit direction? One possibility is that OFCCP is now changing its audit strategy and focusing on corporate compensation practices, with the idea of expanding this review to ALL of the contractors’ establishments if any issues are identified. Expanding a compliance review beyond one establishment would be a substantial change for not only OFCCP, but for the vast majority of federal contractors. Having worked on some audits that expanded to multiple establishments, we can say with confidence that these expanded audits could ultimately lead to very complicated and time consuming geographic and nationwide compliance reviews. In addition, potential contractor liability is greatly expanded. This may not be so farfetched considering the Secretary of Labor’s statement last summer after the Supreme Court’s ruling in Dukes v. Wal-Mart, “The Walmart decision won't affect our ability to address pay disparities on a broad scale — even if our lawyers have to tweak some of their legal arguments based on the reasoning used in that case.

If this speculation is accurate and OFCCP proceeds down this path we can only assume that the legal community will challenge this issue under the 4th Amendment. The question will be whether OFCCP has the authority to expand a routine compliance evaluation more broadly and to other locations that were not selected using the FCSS system. Expansion to other locations may only be authorized when a headquarters establishment is selected as a CMCE, as described in CFR 60-2.30. OFCCP and Office of the Solicitor (SOL) may need to get creative (as recommended by the Secretary) and provide sufficient justification for audit expansion under Executive Order 11246.

One other issue to consider is whether OFCCP has officially altered the method in which an establishment is being selected for an audit by including corporate headquarters in selection for routine compliance evaluations. In other words, has the FCSS formally been changed? Since corporate headquarters are now being selected via the FCSS algorithm for the first time, it is logical to assume that something has changed. As such, it is also worth considering whether a refined FCSS is still admissible under the 4th Amendment’s requirement of administratively neutral establishment selection. Could an administratively neutral process select all corporate headquarters for compliance reviews? We doubt it.

We note one last and less controversial point; if there are establishments listed on the CSAL that have had another compliance evaluation of any kind in the prior 24 months from the date of closure, the location may be exempt from additional compliance evaluations. Stay tuned.

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