Labor Ruling Adds to Burden on Federal Contractors in Audits

by Ballard Spahr LLP

[authors: Constantinos G. Panagopoulos and Amy L. Bashore]

In a decision likely to add to the burden and length of audits for many federal contractors, the Administrative Review Board of the U.S. Department of Labor (ARB) has ordered Frito-Lay Inc. to produce an additional two years’ of data on its affirmative action plan (AAP) as part of an expanded investigation in an audit that began in 2007.

The ARB’s Final Administrative Order, issued May 8, 2012, requires Frito-Lay to provide the Office of Federal Contract Compliance Programs with two years’ of AAP data post‑dating the Scheduling Letter in the Desk Audit.

In July 2007, the OFCCP issued Frito-Lay a Scheduling Letter for a Desk Audit and requested AAP data for 2006 and 2007. Frito-Lay voluntarily produced the requested data along with data for an additional year, 2005. About one year later, the OFCCP notified Frito-Lay that there was a statistically significant disparity in the data with respect to the hiring of women.

To investigate the disparity, the OFCCP requested data for the years 2008 and 2009. Frito-Lay objected, arguing that the more recent data fell outside the temporal scope of the initial Scheduling Letter. The Administrative Law Judge agreed with Frito-Lay and concluded that the OFCCP’s inquiry was limited to activities occurring during the year prior to the Scheduling Letter and the year the scheduling letter was issued, if received six months or more into that year. The OFCCP filed exceptions to the ALJ’s decision with the ARB.

Now the ARB has reversed the ALJ and concluded that the OFCCP had the authority to request data concerning activity that post-dates the Scheduling Letter.

As a general matter, the ARB concluded that the OFCCP is not per se limited in its investigation to the time period prior to the Scheduling Letter due to (1) the ongoing duty of federal contractors to comply with Executive Order 11246 and other equal opportunity requirements and; (2) the OFCCP’s fundamental mission in ensuring compliance with those federal equal opportunity requirements.

As a practical matter, the decision has broad and far-reaching implications notwithstanding the ARB’s statement that its decision does not address the OFCCP’s ability to obtain post-Scheduling Letter data in all cases. The ARB determined that the request was justified in the Frito-Lay matter because: (1) the purpose of the request was to explore a statistically significant disparity (which the ARB characterized as of “sustained duration”); and (2) the request for two years of data was consistent with a proper disparate impact analysis. That is, the OFCCP’s request was “narrowly drawn and related to an objective deficiency” discovered during the audit.

Many federal contractors have Affirmative Action Plans that contain goals to address statistical disparities in their AAP data related to their employment practices. Because the basis for the ARB’s decision relies almost exclusively on the discovery of a statistically significant disparity, the ARB decision has the potential to affect a large number of federal contractors.

In addition, although the ARB suggests that its decision was based on a history of noncompliance, the OFCCP Desk Audit reviewed data only for two and one-half years—a relatively short period of time. Thus, despite characterizing the disparity as of “sustained duration,” the burden on the OFCCP appears to be minimal. Moreover, as the Frito-Lay matter demonstrates, an audit can continue for some period of time, potentially transforming what is styled as a limited review into what is effectively a long-term, ongoing audit of current practices.

Other recent developments at the OFCCP also heighten concerns that it can and will require contractors to track and provide high volumes of detailed data during the course of an audit. As we reported to you in a February 2011 Alert, the OFCCP has rescinded its abbreviated audit procedures in favor of a more in-depth process for all audits and instituted mandatory on-site reviews for every 25th audit. In addition, as we discussed in a November 2011 Webinar, the proposed OFCCP scheduling letter requires that federal contractors provide much more detailed data on compensation and workforce statistics.

Those developments, coupled with the ARB decision in the Frito-Lay matter, mean that federal contractors can expect exacting scrutiny from the OFCCP, particularly if their Affirmative Action Plans include goals to address acknowledged deficiencies.

Members of Ballard Spahr’s Labor and Employment Group are available to assist in analyzing AAP data, drafting Affirmative Action Plans, instituting programs to address any statistical disparities, and responding to OFCCP Desk Audits. Please contact Constantinos G. Panagopoulos at 202.661.2202 or, Amy L. Bashore at 856.761.3402 or, or the Labor and Employment attorney with whom you already work.


DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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