The Office of Federal Contract Compliance Programs (“OFCCP”), a division of the U.S. Department of Labor (“DOL”), has long been tasked with enforcing laws promoting equal employment opportunity and affirmative action, specifically as they affect federal contractors and subcontractors, and very likely financial institutions.
While the Trump Administration’s OFCCP tempered the more aggressive stance of prior administrations, the Biden
Administration’s OFCCP has signaled a return to more targeted compliance enforcement, particularly by introducing a new requirement for covered contractors to certify their compliance (or non-compliance) with affirmative action obligations on an annual basis.
Before we go further, you may find yourself thinking, “Affirmative action? Federal contractors? I’ve never heard of this, so surely this doesn’t apply to my financial institution.” Unfortunately, that conclusion is likely incorrect. Even though financial institutions are accustomed to government regulations, many are simply unaware of their affirmative action obligations. On the other hand, even financial institutions aware of their obligations have grown complacent because it was unlikely that the OFCCP would select them for a compliance review (i.e., audit). Instead, those financial institutions focused on other “higher priority” regulatory obligations and hoped the OFCCP would not notice their noncompliance.
That strategy is now obsolete.
Jurisdiction
The OFCCP administers and enforces three legal authorities that require equal employment opportunity and affirmative
action — Executive Order 11246 (“EO 11246”) (covering gender/race), as amended; Section 503 of the Rehabilitation Act of 1973 (“Section 503”) (covering individuals with disabilities), as amended; and the Vietnam Era Veterans’ Readjustment Assistance Act of 1974 (“VEVRAA”) (covering protected veterans), as amended, 38 U.S.C. § 4212. These
laws prohibit federal contractors and subcontractors from discriminating based on race, color, religion, sex, national
origin, disability, sexual orientation, gender identity, and protected veteran status, and require affirmative action if
certain jurisdictional thresholds are met.
Even though financial institutions are accustomed to government regulations, many are simply unaware of their affirmative action obligations.
Notably, the affirmative action obligations apply only to federal contractors and subcontractors with 50 or more employees and meet one of the criteria below. Assuming the employee threshold is met, a financial institution is covered if it:
- Has a federal contract or subcontract in excess of $50,000 (EO 11246/Section 503) and $150,000 (VEVRAA); OR
- Serves as a depository of government funds:
a. In any amount (EO 11246),
b. For $50,000 or more (Section 503), or
c. For $150,000 or more (VEVRAA).
OR - Serves as an issuing and paying agent for U.S. savings bonds and saving notes:
a. In any amount (EO 11246),
b. For $50,000 or more (Section 503), or
c. For $150,000 or more (VEVRAA).
Additionally, the OFCCP takes the position that financial institutions with federal share and deposit insurance (i.e., that participate in FDIC or NCUA programs) are also federal contractors and therefore subject to its jurisdiction. Consequently, most financial institutions have affirmative action obligations because they either serve as a depository of government funds, participate in FDIC or NCUA programs, or hold other federal contracts in excess of $50,000.
If the above criteria applies, the financial institution must prepare and implement Affirmative Action Programs (AAPs)
under the three affirmative action laws. As part of these AAPs, covered contractors must track the gender, race, disability, and veteran status of each individual who applies for a particular job, as well as analyzes other employment practices, such as transfers, promotions, and terminations, to ensure their practices reflect race- and gender-neutral employment processes. Covered contractors must also aim to meet certain disability utilization goals, and veteran hiring benchmarks. In other words, this is not just a written policy, but workforce-specific statistical analyses which must be prepared every year.
The OFCCP has focused intently on these analyses, and held that ignorance of the requirement to maintain and/or analyze the data is not an excuse for non-compliance.
The OFCCP has also recently focused on employer compensation practices that have a disparate impact on women and minorities. Covered contractors, therefore, must annually evaluate their compensation practices to determine the
existence of any current or potential disparate compensation concerns. Indeed, the OFCCP now conducts detailed
evaluations of employer compensation practices during all compliance reviews.
Annual Certification via the OFCCP Contractor Portal
Unfortunately, a financial institution can no longer hope to avoid OFCCP scrutiny. Beginning in 2022, the OFCCP now
requires covered contractors to annually certify, on an annual basis, that they have compliant AAPs in place.
Specifically, contractors must attest to one of the following options:
- It has developed and maintained affirmative action programs at each establishment, as applicable, and/or for each functional or business unit. See 41 CFR Chapter 60.
- It has been party to a qualifying federal contract or subcontract for 120 days or more and has not developed and maintained affirmative action programs at each establishment, as applicable. See 41 CFR Chapter 60.
- It became a covered federal contractor or subcontractor within the past 120 days and has not yet developed
applicable affirmative action programs. See 41 CFR Chapter 60.
Contractors must also sign the following declaration:
I attest that this Affirmative Action Program (AAP) certification is true and correct to the best of my knowledge. I understand that the penalty for making false statements with respect to this certification is prescribed in 18 U.S.C. 1001.
I affirm this declaration.
The annual certification deadline was June 30. While this 2022 deadline has expired before the publication date of this
article, financial institutions should take steps now to ensure compliance with their affirmative action obligations moving forward. This means gathering the employment data necessary to prepare AAPs and setting up processes to comply with any other required affirmative action obligations.
Risks of Noncompliance
The OFCCP will use contractors’ responses in the certification (or their failure to certify) to prioritize contractor establishments for audit. With that in mind, an entity that selects Option 2 (see previous page), or fails to certify at all, is
more likely to be selected for audit. The flip side, however, is not true, as the OFCCP makes clear that selecting Option 1 will not exempt a contractor from an audit. In any case, “flying under the radar” regarding affirmative action compliance will be more difficult moving forward.
Indeed, even before this certification requirement was enacted, several banks have been subject to OFCCP scrutiny
with negative outcomes. It can happen to you! In 2010, an Administrative Law Judge (“ALJ”) ruled that Bank of America
discriminated against African-American job applicants for entry-level positions in Charlotte, North Carolina, in 1993
and from 2002 to 2005. In 2013 (after decades of legal battle), the ALJ ordered the bank to pay 1,147 African-American job applicants $2,181,593 in back wages and interest. The ruling further ordered the bank to extend job offers, with appropriate seniority, to 10 class members as positions become available.
In another case, the OFCCP alleged that Simmons First National Bank discriminated against Black applicants for entry-level positions from 2004 to 2005, and against Black applicants for skilled clerical positions in 2005. The bank entered into a Consent Decree to settle the claims. In doing so, the bank agreed to pay $360,187 plus interest to all Black class members who responded to certain notices. Any remaining uncashed funds, if less than $20 per person, were to be used to train current employees about their rights and responsibilities under nondiscrimination statutes. Additionally, if any of the entry-level or skilled clerical positions at issue in the review became available, the bank was required to offer those positions to interested class members until it hired 30 class members or the interested list was exhausted. Finally, the bank had to provide the OFCCP with semi-annual progress reports for two years.
Finally, a 2012 OFCCP compliance evaluation of JPMorgan Chase (JPMorgan) resulted in a civil enforcement action alleging gender-based pay discrimination. In 2020, JPMorgan’s motion of summary judgment was denied, and JPMorgan eventually entered into an Early Resolution Conciliation Agreement to pay at least $9.8 million ($800,000 in back pay and interest; $9 million in pay equity adjustments) across its workforce.
As you can see, organizations who fail to maintain adequate AAPs, and/or those who fail to remedy possible indicators of discrimination face stringent penalties from the OFCCP, including monetary penalties, back pay awards, mandated hiring, and even debarment.
Next Steps
Unfortunately, preparing AAPs and compensation analyses are only part of a covered contractor’s compliance obligations. Other responsibilities, such as posting open jobs with the local workforce development office, including specific nondiscrimination clauses in subcontracts, and making outreach to underrepresented groups, are also required. Financial institutions should take these obligations seriously, and consult with legal counsel promptly to discuss their path toward compliance.
Kelli P. Lieurance is a partner at Baird Holm LLP. She focuses on labor and employment law compliance, assisting employers with proactive, rather than just defensive, compliance efforts. Her practical approach not only offers clients a realistic view of their legal obligations, but also assists clients in implementing such obligations in a way that best suits their business needs.
