OMB COMPLETES REVIEW OF OFCCP'S PROPOSED VETERANS' AAP REGULATIONS UPDATE; NPRM TO BE PUBLISHED SOON

by Fred Satterwhite, Senior Consultant, DCI Consulting Group

Almost nine months after OFCCP submitted to the Office of Management and Budget's (OMB) Office of Information and Regulatory Affairs (OIRA) a proposed rule updating the regulations implementing affirmative action requirements for veterans, the OIRA completed its review of the rule on March 30, 2011.

The proposed rule, titled "Affirmative Action and Nondiscrimination Obligations of Contractors and Subcontractors; Evaluation of Recruitment and Placement Results Under the VEVRAA of 1974, As Amended," was received by the OIRA on July 2, 2010, and the review had been extended beyond the maximum 90-day period required by Executive Order 12866. The Notice of Proposed Rulemaking (NPRM) will be published in the Federal Register sometime in the near future, with a public comment period to follow.

According to the Fall 2010 Unified Agenda and Regulatory Plan, this NPRM will update the AAP regulations for covered veterans, requiring contractors to "conduct more substantive analyses of recruitment and placement actions taken under VEVRAA and would require the use of numerical targets to measure the effectiveness of affirmative action efforts."

The NPRM was carried over from the Spring 2010 agenda (which listed an original target date of December 2010). The Fall 2010 agenda showed a target publication date of January 2011, with the public comment period to end in April 2011.

DCI STAFF ATTEND ORAL ARGUMENT FOR THE LARGEST TITLE VII CLASS-ACTION SUIT IN HISTORY

by David Morgan and Eileen Curtayne, Ph.D., DCI Consulting Group

DCI staff visited the U.S Supreme Court (USSC) on Tuesday, March 29, 2011. At approximately 5:40 a.m., there were already well over 90 people in line hoping for a ticket to hear the oral argument for Dukes v. Wal-Mart. The facts surrounding the case began in 2001 when Betty Dukes, a Wal-Mart cashier, filed a claim of discrimination based on sex. Dukes claimed that her promotional opportunities were limited and that she was paid less than her male counterparts because of her sex. Additional female employees offered statements similar to the allegations of Dukes, leading to the plaintiffs’ argument that Wal-Mart’s corporate culture contributed to discrimination against women in pay and promotion.

Wal-Mart argues that employees who hold different jobs in different stores, under the supervision of different managers do not share sufficient commonality to be resolved on a collective basis. It is important to note that the particular merits of the case are not under question; rather, the USSC must determine whether or not to allow class certification potentially covering over 1.5 million female workers—the largest in U.S. history—who were employed by Wal-Mart at any point since December 1998.

According to the Petitioner's Brief, Wal-Mart’s company-wide policy “expressly bars discrimination based on sex (p. 3).” In addition, the Brief states that, “The class members—potentially millions of women supervised by tens of thousands of different managers and employed in thousands of different stores throughout the country—assert highly individualized, fact-intensive claims for monetary relief that are subject to individualized statutory defenses (p.1).” Wal-Mart contends that the Ninth Circuit en banc ruling discussed in a previous post, which certified the class “…cannot be reconciled with the requirements of Rule 23(b)(2)…” as plaintiffs “…seek to evade the additional procedures required for fair adjudication of monetary claims, including notice and opt-out rights for absent class members (p. 1).”

According to the Respondent's Brief the plaintiffs contend they have met the standard for commonality in establishing a class as outlined by Rule 23 and Title VII. In particular, the certification standard for a class in discrimination cases addressing subjective selection systems in employment is “whether there are questions of law or fact common to the class” (p. 23). The plaintiffs contend the standards for commonality outlined by Wal-Mart far exceed what has been supported in case law and if adopted would ultimately be detrimental to parties seeking legal remedy in employment discrimination cases.

There may be far-reaching implications of the Supreme Court’s final ruling in this case. Large organizations, particularly those with many local nation-wide establishments, may be affected. A favorable ruling for Wal-Mart may translate into greater emphasis on local accountability in the eyes of the courts, depending on the circumstances. In addition, a favorable ruling for Wal-Mart may yield more restrictive standards for class certification and thereby limit who can file a systemic employment discrimination case.

A favorable ruling for the plaintiffs may mean larger classes of potential victims when systemic discrimination is alleged, but may also signal a need for greater accountability amongst corporate entities when using subjective personnel systems, and encourage proactive measures when formulating principled personnel systems.

Notably in this case, the final ruling will provide insight into whether or not the Ninth Circuit’s class certification was consistent with Rule 23(a) (i.e., commonality, typicality, and adequacy); and whether or not claims for monetary relief can be certified under Federal Rule of Civil Procedure 23(b)(2)(i.e., the party opposing the class has acted or refused to act on grounds that apply generally to the class, so that final injunctive relief or corresponding declaratory relief is appropriate respecting the class as a whole) and, if so, under what circumstances. Although the final ruling is not expected for some time, an audio feed of yesterday’s argument is expected to be uploaded on the USSC’s Argument Audio webpage very soon. The written transcript is also available on the Arguments Transcripts webpage.

GRANGER V. AARON’S: A MISFILED SEXUAL HARASSMENT SUIT TOLLED BY THE 5TH CIRCUIT COURT

by Art Gutman Ph.D., Professor, Florida Institute of Technology

Ordinarily, we are not interested in misfiled cases, but this one involves a claim misfiled with the OFCCP that could have been dropped because of the Title VII statute of limitations. Fortunately for the plaintiffs, a case in which their attorney made a mistake was discounted in favor of the fact that the OFCCP made a subsequent mistake.

Angel Granger and Casey Descant, employees at Aaron’s, accused their supervisor (and store manager) Kennard Williams of a pattern of sexual harassment. Descant resigned on September 23, 2007, and Granger resigned on June 30, 2007. The case should have been filed with the EEOC, and the statute of limitations for that filing was 300 days from the point of resignation for both women. The attorney for the women filed a claim on November 27, 2007, well within these limits.

However, the claim was filed with the OFCCP, which had no jurisdiction because Aaron’s is not a federal contractor. Over the next several months, the attorney’s staff made at least 6 phone calls to the OFCCP, mistakenly believing they were interacting with the EEOC. The OFCCP assured the attorney's staff that it was investigating the claims. The OFCCP also did not follow its own regulations requiring it to notify an employer after receiving a discrimination complaint. Then, the OFCCP closed the case on September 4, 2008, and forwarded it to the EEOC on September 8, 2008. The EEOC, in turn, issued a charge against Aaron’s on September 16, 2008, well beyond the statute of limitations.

Ordinarily, courts will not toll a claim because of attorney error. However, in this case, the plaintiffs were fortunate because of the failure on the part of the OFCCP to communicate the filing error to the attorney. The district tolled (and hence preserved) the claim, and the 5th Circuit affirmed, ruling as follows:

In this case, the circumstances favor permitting Granger and Descant's claims to proceed. They were diligent about pursuing their rights and their attorney diligently and repeatedly followed up on their claims within the 300-day period, notwithstanding his filing in the wrong forum. In light of their actions, the government's considerable errors and neglect, and the lack of demonstrated prejudice to Aaron's, this case presents sufficiently rare circumstances (we trust) to support the district court's application of equitable tolling.

The text of the 5th Circuit ruling may be found here.

TWO JURY AWARDS IN SECTION 1983 RACE DISCRIMINATION LAWSUITS

by Art Gutman Ph.D., Professor, Florida Institute of Technology

The first case is Matusick v. Erie County Water Authority (ECWA) decided in front of Judge Richard J. Arcara in the District Court of the Western District of New York [2011 U.S. Dist. LEXIS 20049, 3/1/11]. Matusick, a white male, alleged that he was subjected to racial harassment as well as a physical assault after dating (and ultimately marrying) Anita Starks, a black woman. Matusick complained to his supervisors to no avail, and was ultimately terminated for infractions which, Matusick admittedly committed. However, Matusick alleged that similarly situated employees committing similar infractions were less harshly treated, and that his termination was in retaliation for his harassment complaints. Matusick, a customer service representative, filed a Section 1983 (14th Amendment) lawsuit against ECWA, and also sued several others in both their official and individual capacities. After a trial, the jury awarded Matusick $364,825 in back pay, lawyer fees and costs, and $5,000 each against four of the individual defendants for punitive damages in their individual capacities. However, the jury declined to award compensatory damages for non-economic loss. Judge Arcara upheld these awards.

The second case is Hernandez v. Metropolitan Atlanta Rapid Transit Authority (MARTA) [N.D. Ga., No. 1:08-cv-1852-TCB, 3/2/11]. Hernandez, a white police lieutenant, alleged there was a pattern or practice of discrimination against white employees, as well as retaliation for complaining about discrimination. Hernandez alleged that he was passed over for promotions on three occasions, each time in favor of less qualified black applicants. He also alleged that he was given a poor performance evaluation in retaliation for complaining. Hernandez sued MARTA and Police Chief Wanda Dunham in her personal capacity under Section 1983. There were also Title VII charges. After a trial, a jury declined to find that MARTA had intentionally discriminated against Hernandez. However, the jury did find in favor of Hernandez on retaliation and award to him $100,000 in lost wages and benefits, $450,000 in compensatory damages for emotional pain and anguish, and $150,000 against Chief Dunham for retaliation in her personal capacity.

There are two important points to note about these cases.

First, Section 1983 permits monetary awards from individual defendants, whereas Title VII does not. Thus, in both cases, there were punitive damages against defendants in their individual (or personal capacity). It should be noted that punitive damages are not permitted against government agencies under any conditions in either Section 1983 or Title VII.

Second, although both Title VII and Section 1983 permit compensatory damages (for non-economic remedies) against municipal agencies, it is more difficult to extract these damages in Section 1983. In the MARTA case, a policy making official was deemed responsible for the retaliation, and therefore exposed the agency to damages. It should be noted that the amount of damages against MARTA ($450,000) exceeds the maximum for such damages under Title VII ($300,000). However, in the ECWA, damages were not awarded against the agency because the individual defendants were not high policymakers.

EEOC FINALIZES ADA REGULATIONS IN LIGHT OF THE ADA AMENDMENTS ACT OF 2008

by Art Gutman Ph.D., Professor, Florida Institute of Technology

The EEOC published the regulations for the ADA in light of the ADAAA on March 25, 2011 with an effective date of two months thereafter. Along with the new regulations, the EEOC published a set of 33 questions and answers relating to these new regulations, a set of 28 questions and answers relating to small businesses, and a fact sheet associated with the new regulations. The final document published in the Federal Register contains an extensive introduction in which the EEOC overviews key issues within the ADAAA, information relating to queries submitted during the comment period, and other information such as the manner in which it estimated the number of disabled people in various categories.

The major issues discussed in the regulations related to the definition of being disabled, which the EEOC notes will be interpreted “broadly.” The major definition addressed is that of a current physical or mental impairment that substantially limits a major life activity. The ADA has two other definitions, namely a history of physical or mental impairment that substantially limits a major life activity, and being falsely regarding as being disabled. It is now easier to prove that an individual is disabled within the meaning of the ADA, particularly with respect to current impairment, but also with respect to being falsely regarded as being disabled. To accomplish this goal, the EEOC notes the following.

First, the EEOC deletes from its prior regulations, the terms “condition, manner, or duration” for being “severely” or significantly restricted with respect to a major life activity. Previously, the EEOC considered a physical or mental impairment as being non-severe if there was the prospect of recovery. Thus, if an individual had surgery, and the period of recovery was even lengthy (e.g., a year or more), the impairment was nevertheless considered transitory. Heading the directive of Congress, impairment is temporary if the expected period of recovery less than 6 months. Therefore, expected periods of recovery that are longer than 6 months are no longer considered transitory.

Second, the EEOC provides two “non-exhaustive” lists of major life activities. Critically, including in the first list are “caring for oneself” and “manual tasks”, and including on the second list is “working.” All three of these were threatened in the Supreme Court’s ruling in Toyota v. Williams (2002), which the ADAAA reverses.

Third, in conjunction with the ADAAA’s partial or total reversal of key rulings in three 1999 cases (Sutton v. United Airlines, Albertson v. Kirkingburg & Murphy v. UPS), the EEOC emphasizes that the severity test shall be conducted in the “non-mitigated” state other than “ordinary eyeglasses.” That means impairments such as diabetes, hypertension and depression must be assessed without considering the corrective effects of medication or the ability for one to make up for impairment by self-mitigating measures (e.g., using monocular cues for depth perception if one is blind in one eye).

Fourth, the EEOC endorses the ADAAA’s definition of an “episodic” illness. For example, if an individual has Tuberculosis, and the disease is in remission, the severity test must be conducted assuming what the status is when the disease is active.

Fifth, the EEOC notes that the test for “regarded” as being disabled is modified to exclude the provision that the employer also perceived a “substantial limitation.” Thus, just believing there is a physical or mental impairment grants a free pass to being defined as being disabled, unless the impairment itself is both “transitory and minor.” However, individuals falsely regarded as being disabled are not entitled to reasonable accommodations.

Finally, although ordinary eyeglasses are not among the covered mitigating measures, the EEOC qualifies that “qualification standards, employment tests, or other selection criteria based on an individual’s uncorrected vision shall not be used unless shown to be job related for the position in question and consistent with business necessity.” This regulation is in reference to the plaintiffs in Sutton v. UAL, who were both legally blind, but who had 20-20 vision with corrective lenses. Although their visual status must be evaluated with the corrective lenses, the airline in that case used a criterion for uncorrected vision that was far more restrictive than that established by the Federal Aviation Administration. Thus, an employer who requires more than what is required by the job, or more than what is protected by federal agency regulation, risks regarding the applicant or employee as being disabled.

The foregoing summary is not exhaustive, but merely highlights major features of the new regulation. It is recommended that readers also examine the two sets of Q&As as well as the fact sheet. Also, readers may be interested in a webinar entitled “Disabilities – What’s an Employer to do?” conducted by the author for DCI on November 16, 2010 in which all of the aforementioned issues (and more) are discussed.

WAS CHARLIE SHEEN REGARDED AS BEING DISABLED?

by Art Gutman Ph.D., Professor, Florida Institute of Technology

Charlie Sheen’s “adventures” have dominated the popular press and Internet blogs in recent weeks. We do not normally feature such stories in this space. However, last week, his lawyers filed suit in Los Angeles Superior Court against Chuck Lorre, the show's co-creator and executive producer, and Warner Brothers., claiming breach of contract, employment discrimination, retaliation, and failure to pay wages to people who work on the show, among other allegations [, Cal. Super. Ct., No. SC111794, complaint filed 3/10/11]. Among the various allegations, the one that is most intriguing is a claim of disability discrimination under the California Fair Employment and Housing Act.

A key issue in any disability claim is establishing disability within the meaning of the law (state or federal). The most common route is to claim a current physical or mental impairment that substantially limits a major life activity. Obviously, Sheen, by his own recent statements (that he is ready, willing, and capable of going back to work), does not fit this definition. Nor did he claim to have a history of a physical or mental impairment. On the other hand, based on the language in the lawsuit, Sheen may have been regarded as being disabled, which also satisfied the definition of being disabled.

Specifically, the lawsuit claims that Warner Brothers “accused Mr. Sheen of having physical and mental disabilities” in a letter it sent him prior to his termination”, suggesting that Mr. Sheen has an “alleged illness and need for medical care and/or treatment when it terminated his employment contract.” The lawsuit also claims that “[Warner Brothers] failed to reasonably accommodate Mr. Sheen”, and that the argument that he could “not perform the essential duties of his position” was a pretext for discrimination.

While members of the popular press might scoff at such a lawsuit, if the content of the letter to Sheen is as represented, Warner Brothers did regard him as being disabled, and Sheen would have the opportunity to explain why is ready, willing, and able to go back to work. In short, what might seem frivolous to consumers of the nightly news, is not necessarily frivolous under the law.

SEXUAL HARASSMENT CLAIM DENIED FOR WOMAN WHO QUITS AFTER MAKING SEXUAL HARASSMENT COMPLAINT

by Art Gutman Ph.D., Professor, Florida Institute of Technology

The alleged facts in Kurtts v. Chiropractic Strategies Group [2011 U.S. Dist. LEXIS 22144, 3/4/11] are that Crystal Kurtts, a receptionist at a chiropractic clinic in Alabama complained that her supervisor, Dr. Johnnie Morgan, exposed her to hostile sexual harassment by feeding her a steady diet of unwanted sexually explicit text messages and repeated attempts at physical contact. Kurtts complained to Deborah Gonzalez, the clinic administrator, after which she quit her job. District Court Judge Bert W. Milling Jr. ruled that Morgan subjected Kurtts to unwelcome sexual harassment that was “sufficiently severe or pervasive to alter the terms and conditions of employment and create a discriminatorily abusive working environment.” Judge Milling also ruled that Kurtts suffered a constructive discharge, or that “a reasonable person would have resigned under the factual circumstances as they have been presented herein.” Nevertheless, Milling granted summary judgment for the employer because there was a sexual harassment policy in place to prevent and promptly correct sexual harassment and Kurtts unreasonably failed to take advantage of any preventive or corrective opportunities provided by the employer or to avoid harm otherwise.

Two aspects of this ruling make sense. First, based on the Supreme Courts 1999 rulings in Burlington v. Ellerth [524 US 742] and Faragher v. City of Boca Raton [524 US 775], it is clear that Kurtts suffered hostile sexual harassment by a supervisor for which the employer has vicarious liability. However, second, the employer had a strong affirmative defense because Kurtts failed to allow the employer to take corrective action. For example, in Shaw v. AutoZone [(CA7 1999) 180 F.3d 806] the harasser (Noble) was a store manager and the victim (Shaw) was an assistant store manager. AutoZone had a sexual harassment policy that was distributed to all employees in a handbook, there was extensive training for Shaw and all other managers. Shaw never complained to upper-level management, but instead quit and filed a Title VII claim. Shaw also refused to participate in an exit interview, and ignored three subsequent invitations to explain what happened. The 7th Circuit favored AutoZone, ruling:

This anti-harassment policy made clear AutoZone's stand that sexual harassment will not be tolerated, and provided for multiple mechanisms for the prompt resolution of complaints. It is both specific and detailed… In addition to distributing this policy to its employees, AutoZone regularly conducted training sessions on sexual harassment.

What is questionable in the present case is whether, based on the Supreme Court’s 2004 ruling in Pennsylvania State Police v. Suders [542 US 129], Kurtts was constructively discharged. In Suders, Justice Ginsburg ruled:

This affirmative defense will not be available to the employer, however, if the plaintiff quits in reasonable response to an employer-sanctioned adverse action officially changing her employment status or situation, for example, a humiliating demotion, extreme cut in pay, or transfer to a position in which she would face unbearable working conditions

Ginsburg also cited examples of “how the ‘official act’ … should play out when constructive discharge is alleged.” For example, in Robinson v. Sappington (CA7 2003) 351 F.3d 317], Robinson, a judicial secretary, was harassed by Sappington, a county judge. Robinson requested a transfer that was granted by the presiding judge (Granias). However, upon approving the transfer, Granias warned Robinson that the “first six months … would probably be hell” and that it would be in Robinson’s “best interest to resign,” which she ultimately did. The 7th Circuit ruled that Granias’ actions were “official” and invoked strict employer liability (i.e., no affirmative defense).

Compare this to Reed v. MBNA [(CA1 2003) 333 F.3d 27], in which Reed, a 17-year-old telemarketer was harassed at work by Appel, her 34-year-old supervisor. One evening, Appel assaulted Reed while she was babysitting in his home. He then threatened Reed, telling her they would both be fired if she complained to management. Despite the physical assault and the threat of retaliation, the 1st Circuit ruled that Appel’s conduct was “exceedingly unofficial,” terming it “exactly the kind of wholly unauthorized conduct for which the affirmative defense was designed.”

In short, the facts in Kurtts v. Chiropractic Strategies are more similar to Reed v. MBNA than Robinson v. Sappington, suggesting there was no official change in employment status, and hence, no constructive discharge. Either way, the ruling points to the value of having a strong anti-harassment policy.

CCE SUBMITS COMMENTS ON PROPOSED RESCISSION OF OFCCP COMPENSATION STANDARDS AND GUIDELINES

VIA: http://www.regulations.gov/ &
U.S. Mail, First Class

Ms. Debra A. Carr
Director
Division of Policy, Planning, and Program Development
Office of Federal Contract Compliance Programs
U.S. Department of Labor
Room N3422
200 Constitution Ave., NW
Washington, D.C.20210

RE: Interpretive Standards for Systemic Compensation Discrimination
and Voluntary Guidelines for Self-Evaluation of Compensation
Practices Under Executive Order 11246; Notice of Rescission
Reference: 1250-ZNE

Dear Ms. Carr:
This letter is submitted in response to the Notice of Proposed Rescission with respect to the Interpretive Standards for Systemic Compensation Discrimination (“Standards”) and Voluntary Guidelines for Self-Evaluation of Compensation Practices (“Guidelines”) Under Executive Order 11246 (“Executive Order”) by the U.S. Department of Labor (the “Department” or the “DOL”) published January 3, 2011 with respect to 41 CFR Parts 60-1 and 60-2. The underlying Standards and Guidelines relate to certain nondiscrimination requirements of the Executive Order, those designed to ensure that federal contractors do not discriminate in compensation against employees on the basis of race, color, national origin, religion, and sex. More broadly, the Executive Order also provides that federal contractors shall take affirmative action to ensure that vestiges of discrimination are removed from their employment practices. To achieve the affirmative action objective, contractors must engage in an effort to affirmatively recruit minority and female candidates and develop affirmative action plans (“AAPs”) that analyze the composition of the workforce and prescribed human resource activities that occur during a one-year period.

These comments are submitted on behalf the (1) Center for Corporate Equality (“CCE”); (2) College and University Professional Association for Human Resources(“CUPA-HR”); (3) Fortney & Scott, LLC; (4) Mercer ORC Networks (“ORC”); and (5) Society for Human Resource Management (“SHRM”).

CLICK HERE FOR A FULL COPY OF THE COMMENTS

CCE RELEASES SURVEY RESULTS FROM LEADING EXPERTS AND CONTRACTORS REGARDING RESCISSION OF THE COMPENSATION STANDARDS AND GUIDELINES

Shortly after the publication of OFCCP’s Notice of Proposed Rescission, the Center for Corporate Equality (CCE) conducted two surveys to determine the reactions of the contractor community to OFCCP’s proposal. The first survey was sent to contractors and the second was sent to compensation experts (e.g., attorneys, consultants, academicians) whose clients are or have been federal contractors. One hundred thirteen contractors and 33 “experts” responded to the two surveys. As can be seen in the following sections, it is clear that the contractor community uses the current Guidelines, does not favor the rescission of the Guidelines and Standards, and believes compliance efforts will suffer from a lack of formal guidance. In fact, these results indirectly suggest that rescission could weaken the OFCCP’s effort to eliminate the gender wage gap by making it difficult or even impossible to identify and eliminate potential discrimination.

Survey Participants-The Experts
Areas of expertise for the 33 responding experts included industrial-organizational psychology, labor economics, employment law, HR compliance, and HR statistics. The majority of experts were external consultants (54.5%) and attorneys (21.2%), internal practitioners (12.1%), academics (6.1%), and government employees (6.1%) were also represented. The experts had experience in a variety of roles including working on the defendant (81.8%) and plaintiff (30.3%) sides of litigation/audits, helping organizations proactively conduct compensation analyses (78.8%), working on behalf of an EEO agency (21.2%), and for the court as an independent expert (9.1%).

Survey Participants-The Contractors
The primary role for the majority of responding contractors was compliance (61.3%) followed by human resources (17.1%), compensation (10.8%), and legal (10.8%). The respondents represented both large employers with over 20,000 employees (41.4%) and well as smaller contractors with fewer than 1,000 employees (18.9%).

The full results of the experts' survey and the contractors' survey are now available.

ALJ RULES ON OFCCP'S DESK AUDIT SCREEN OF ITEM 11

by David Cohen, President, DCI Consulting Group

A recent ruling by an Administrative Law Judge (ALJ) regarding Item 11 requests has some important implications for both contractors and the OFCCP. The case, OFCCP v. United Space Alliance LLC, DOL, OALJ, No. 2011-OFC-00002, 2/28/11, can be found here.

Before discussing the case, it might be useful to briefly explain the process by which a federal agency obtains approval to request information from employers. When a federal agency such as OFCCP wants to collect information from employers, the agency is required to seek approval from the Office of Management and Budget (OMB) in accordance with the Paperwork Reduction Act (PRA). The purpose of the PRA is to ensure that the request does not create an unreasonable burden on the employer. Federal agencies are required to show OMB the time, money, and resources that will be required for the employer to generate the information being requested. OMB must evaluate the request and determine if the burden of the request is reasonable based upon the utility of the information.

Since 1999, OFCCP has been allowed to collect summary compensation data as part of the standard scheduling letter (Item 11). OFCCP is legally bound to the specific items listed on the scheduling letter and cannot ask for information outside the scope of those items prior to the completion of a desk audit. Once OFCCP conducts a desk audit and identifies a potential violation (i.e., some evidence of a potential pay disparity, which is ambiguous) the agency proceeds to a detailed investigation. During this investigation, OFCCP is given broad authority to request and evaluate any and all information as it relates to the potential violation.

The focus of the United Space Alliance ruling was on what OFCCP’s burden is in order to determine a potential violation based on item 11 data. Many in the federal contractor community had recently heard that OFCCP developed an internal directive (circa 2007) for its field staff on the protocol for evaluating Item 11. This was an internal directive that was not subject to the terms of the Freedom of Information Act (FOIA) and thus did not have to be publically disclosed. The OFCCP took the position that this screening device was an internal investigative tool, and as such, did not have to be disclosed to contractors. A good analogy would be how the IRS uses a “classified” algorithm when analyzing tax returns to determine which individuals to select for an audit. Therefore, this screening was, and remains, a black box. In recent months, we have learned that the OFCCP has scrapped the old Directive and replaced it with a new directive that identifies any difference in pay of 2% or $2,000 as a potential violation.

The United Space Alliance ruling considered whether OFCCP can send the 12-Factor request for additional compensation data to a contractor that did not fail OFCCP's internal screening mechanism. Because the audit in question occurred in 2009, OFCCP would likely have used the 5-30-3 ‘three-pronged screen’ to identify a potential violation. That screen required the following to identify a potential violation:

(1) For at least one pay division there is a difference of five percent or more in average compensation between the groups being compared and at least one group appears to be adversely affected.

(2) After combining the pay divisions meeting condition (1), the number of employees in the non-favored group is at least 30 and represents at least 10 percent of the total employees in that group in the overall workforce.

(3) The overall percentage of the group most adversely affected in the combined pay divisions must be at least three times greater than the overall percentage of the other groups adversely affected.

United Space Alliance proactively conducted this three-pronged screen on their Item 11 compensation data and determined that it did NOT fail the screen. That is to say, there was no evidence of potential violation using this screen. However, OFCCP proceeded to request the 12* factor data so it could conduct a more meaningful analysis. United Space Alliance objected to the both the additional data request and the on-site investigation on the grounds that it did not fail the initial screen. OFCCP filed an administrative complaint based upon a denial of access. Next stop, a court hearing before ALJ Daniel A. Sarno Jr.

ALJ Price set out to answer two issues:

1. Following Defendant's initial consent to the desk audit, did OFCCP establish a reasonable suspicion of a violation of the Executive Order sufficient to request more information during the desk audit and was that request limited in scope (author emphasis).

2. Did OFCCP establish a reasonable suspicion of a violation of the Executive Order sufficient to ask for an on-site compliance review under not only the Executive Order but also the Rehabilitation Act and Vietnam Era Veterans Readjustmet Act Amended (VEVRAA).

I will attempt to briefly explain the judge's ruling on these very important issues. For those of you who are OFCCP junkies (like me) I highly recommend that you read this ruling; there are a number of interesting aspects of Judge Sarno’s decision.

Background

On August 7, 2009, OFCCP sent United Space Alliance a scheduling letter notifying them of the compliance evaluation. United Space Alliance submitted the contents of its affirmative action plan as well as Item 11 compensation data. OFCCP conducted its "analysis" and sent a 15-item data request. United decided not to send the compensation data to OFCCP and an on-site review was scheduled. The on-site review letter specifically stated that the on-site review would not be limited to possible violations of the Executive Order; it would include VEVRAA and the Rehabilitation Act investigations as well.

What did the ruling say?

1. The OFCCP is not bound by one method in which to analyze Item 11 data. In fact, OFCCP used three different tests to determine whether there was an indicator. The OFCCP stated that it ran the three pronged screen (which United Space Alliance passed) but also ran a "pattern analysis" and a "30 and 5" test. I am not sure what the last two tests actually are, but OFCCP did state that there was no formal threshold for failing these two additional tests. In other words, there is no clear standard for what is a potential violation. The bottom line is that ALJ Sarno gave OFCCP the green light to either follow their internal directives or create new standards, perhaps until the contractor fails. Once the contractor fails something, there is now an indicator of potential discrimination that warrants the collection of additional compensation data.

2. ALJ Sarno ruled that even though the OFCCP posted a FAQ on its website stating that it had a standard procedure for evaluating Item 11, it was not bound by the FAQ. More specifically, Sarno stated:

..the OFCCP never published this statement in the Federal Register, again suggesting the OFCCP did not intend this statement to be binding.

Interestingly enough, I have been involved in some recent audits in which the OFCCP has pointed to something on its FAQ section and inferred that it was in fact a binding regulatory requirement. However, ALJ Sarno has clarified that nothing on OFCCP's FAQ section of its website is binding. As Sarno stated: "the FAQ does not constitute a binding norm, but rather is a mere policy statement intended to provide the OFCCP and the regulated community with guidance".

3. ALJ Sarno ruled that OFCCP did not have reasonable suspicion after the desk audit screen that would warrant or necessitate an on-site evaluation of information related to 503 and VEVRAA. This may be the most significant part of the ruling. In effect, the judge said that there was no indicator of a potential violation of 503 and VEVRAA found during the desk audit that would warrant further investigation. More specifically, ALJ Sarno said "Plaintiff has made no attempt to show that expanding its requested on-site compliance review beyond acquiring data and/or documentation related to possible violations of the Executive Order. Nor do I find such an extension to be reasonable or limited in scope." In other words, OFCCP is obligated to tell you what they have found during the desk audit screen and will then be limited post-desk audit to those material facts that relate to the possible violation.

4. The OFCCP and United's experts agreed that the additional data was needed to conduct a meaningful analysis. Both parties agreed that the best method to determine whether there is a pay discrimination violation is multiple regression analysis. In fact, the judge agreed that collecting the additional data for the purpose of conducting a regression analysis to be "prudent and quite reasonable". I find this part of the ruling interesting because OFCCP once again has agreed in litigation that a multiple regression analysis is the best method in which to evaluate compensation discrimination. The testimony by OFCCP in this case seems to contradict the statements made in the current proposed rescission to the Compensation Standards and Guidelines.

5. The OFCCP did not violate the Paperwork Reduction Act (PRA) or the Administrative Procedure Act (APA) by requesting additional compensation data.

One final thought is worth considering. Based on the combination of this ruling and our previous blog article on the new "trigger" test showing a 100 percent potential violation rate, it is clear that contractors should expect to receive the 12, 15, 18, etc. item request for additional compensation data in ALL of their audits. My advice to contractors is to be proactive and conduct an analysis prior to any OFCCP compliance evaluation. That would include:

• Protecting your analysis under attorney-client privilege
• Developing reasonable employee groupings (SSEGS)
• Utilizing multiple regression analysis to account for explanatory variables
• Identifying and investigating any unexplained statistical indicators
• Making appropriate salary adjustments if differences cannot be explained


*OFCCP actually asked for 15 items and then eventually 18 items as this case progressed.

IMPLICATIONS OF RUDEBUSCH V. HUGHES (2002) FOR OFCCP PLANS TO RESCIND ITS 2006 COMPENSATION STANDARDS

by Art Gutman Ph.D., Professor, Florida Institute of Technology

As noted in several recent DCI Blogspots, the OFCCP is proposing to rescind the Standards written in 2006 for evaluating systematic discrimination in compensation cases. As noted in prior Blogspots, most notably an August 2010 post by DCI President David Cohen, These Standards incorporate three major criteria for evaluating such cases that all of us feel are absolutely necessary for a continued proper analysis of compensation cases. These include:

1. Job titles grouped into similarly situated employee groupings (SSEG)

2. Statistically significant differences in pay between protected classes after controlling for legitimate and non-discriminatory variables (multiple regression analysis)

3. Anecdotal evidence of discrimination to bring those statistics to life.

Absent the OFCCP’s proposed action, cases such as Rudebusch v. Hughes (CA9 2006) [313 F.3d. 506] belong in the dustbin of voluntary compensation actions gone sour. Indeed, if you Shepardize Rudebusch, you will find only 32 citations, 29 of which are 9th Circuit Court cases or district court cases within the 9th Circuit, and one of which is a California state court case (also within the 9th Circuit). The two outliers are Cullen v. Indiana University (CA7 2003) and McClaurin v. Amtrak (DC District Court 2004), and both rulings support the need to satisfy Criteria 1 and 2 as noted by Cohen. However, the proposed rescission of the 2006 OFCCP Standards, particularly Criteria 1 and 2, breathes new life into the Rudebusch case, making it both “too sweet” (for minorities and females wrongfully thought to be victims of compensation discrimination) and “too sour” (for employers who act upon insufficient grounds for adjusting salaries for minorities and females).

The issues here are complex, and readers will have to bear with me as I detail the dangerous confluence of events posed by combining rescission of the OFCCP Standards and the Rudebusch ruling. I will start with a summary of the facts in the Rudebusch case, followed by the court rulings. Then I will conclude with the implications of these rulings in light of the OFCCP’s move to rescind the 2006 Standards.

Facts of the Rudebusch Case

Eugene Hughes, the president of Northern Arizona University (NAU), a state institution, approved a plan to adjust salaries of female and minority male faculty whose salaries were thought to fall below those of males and non-minority faculty. He did so based on two factors: (1) a multiple regression analysis (i.e., the “Chambers Study”) that was later shown to be flawed by a subsequent study (the “Gantz/Miller Study”), and (2) the “flight” of minority faculty as noted in an OFCCP affirmative action (AA) report. The second factor was ultimately deemed insufficient, by itself, to require AA. For present purposes, the focus is on the two studies.

The Chambers study, a 1993 “annual equity report”, used a multiple regression analysis that controlled for factors such as rank, years of service, and discipline. Chambers concluded there were "statistical differences in gender and ethnic equity" that were removable with $278,966 in adjustments for 72% of the female faculty with adjustment in the $1,001 to $3,000 per year range depending upon how far a female’s salary fell below the predicted salary of similarly situated white male professors. A similar analysis for minority faculty resulted in recommended adjustments ranging from $250 to $6,945 for about half of the minority male faculty. Women and minorities at or above the predicted values received no adjustments.

Gantz and Miller challenged several aspects of Chambers study. First, assuming Chambers methodology was appropriate (i.e. controlling, Gantz and Miller reported that adjustments should be made for smaller number of faculty (93 male minority and female professors) for a smaller grant total ($164,410). More importantly, they (1) found non-significant differences using Chamber’s methodology (controlling only for rank, years of service & discipline). Indeed, among 493 faculty in the Chambers study, 85 female and minority faculty members were deemed underpaid, but so were 192 non-minority males, prompting the 9th Circuit to suggest:

Though this may show that almost everyone at NAU was being underpaid, the existence of across-the-board disparities would seem to undercut the study's ability to demonstrate that minorities were discriminated against simply because their salaries fell below predicted. This evidence falls far short of showing conspicuous imbalance along ethnic or gender lines.

A key factor exposed in the Gantz/Miller study was that merit and performance factors (such as publications and grant funding) were not controlled for. For example, in one cohort analysis, a minority faculty member was given an adjustment of $3,353 relative to a non-minority cohort who had more publications (including several books) and who had brought in more money in grants.

Enough on the facts --- the Chambers study illustrates a poorly conceived regression analysis, whereas the Gantz/Miller study illustrates a best practices approach to compensation evaluations. One would think this would have been sufficient to end the case --- unfortunately, there were several thorny issues in the case at the district court and circuit court levels.

The Court Rulings in Rudebusch

The charges in this case included a “personal capacity” suit against the president of NAU (permissible in constitutional claims, but not Title VII claims) and Title VII reverse discrimination charges by non-minority males (such as Rudebusch). The district court concluded that 14th Amendment rules permits “ample room for reasonable error” on the part of a public official, which reduces to actions that are not “plainly incompetent.” (based on Supreme Court’s ruling in Saucier v. Katz, 2001). The district court granted summary judgment to the president on this issue and 2 of 3 circuit court judges agreed. Interestingly, the 3rd judge dissented on this issue, stating that “Any competent university president would know that he can't pay people more or less than others based on their sex and race.” More on this later.

The reverse discrimination claim was decided under Title VII rules based on the Supreme Court’s ruling in Johnson v. Transportation (1987). In Johnson, a female (Dianne Joyce) and a male (Paul Johnson) were among seven finalists for promotion in a state agency that had 238 skilled craft workers, all male. Also, females were underrepresented throughout the agency and were segregated into five of seven job categories. Therefore, an Affirmative Action Plan (AAP) was developed to achieve “a statistically measurable yearly improvement in hiring, training and promotion of minorities and women” in the suspect job categories. Johnson, was rated slightly higher than Joyce, and was recommended by the three supervisors who provided the ratings. But the agency director, with input from an AA officer whom Joyce had petitioned, ordered his subordinate to choose any of the seven finalists. Joyce was selected and Johnson filed a Title VII claim alleging that sex was the "determining factor in [Joyce's] selection." Ultimately, the Supreme Court favored Joyce based on three criteria: (1) there was a “manifest imbalance” in the workforce favoring men; (2) Johnson’s rights were not “trammeled” (he was promoted not too long thereafter); and (3) the AAP was designed to achieve balance, not maintain it. I have some issues with applying Johnson v. Transportation to the Rudebusch case, but that’s a matter for another Blogspot.

The reverse discrimination charges were tried to a jury, which found for NAU on all three Johnson criteria, and the district court approved. Interestingly, the district court permitted into evidence a letter by the OFCCP concluding, among other things, “that Hughes' actions in March 1993 were in compliance with the university's affirmative action program and its obligations as a recipient of federal funding.” In other words, the salary adjustments were appropriate. The plaintiffs objected on grounds of “hearsay” and “relevance”, and the 9th Circuit ruled that it was a mistake on the part of the district court judge to consider this evidence, but nevertheless deemed it “harmless error” (more on that later too).

Tackling the three criteria in order, the 9th Circuit, though siding with the Gantz/Miller report that there was insufficient evidence of a “manifest imbalance”, nevertheless had its hands tied because the plaintiff’s never appealed this part of the ruling. The 9th Circuit also ruled in favor of NAU on the second criterion, seeing no evidence of “trammeling” (which is usually reserved for layoffs and terminations). However, the 9th Circuit overruled the district court on criterion 3. Ultimately, on remand in 2006 in Rudebusch v. Arizona [436 F. Supp. 2d 1058], the district court order 22% increases (as opposed to one-time payments) for 18 non-minority male professors who had administrative responsibilities that others (e.g., females & minority males) did not have.

Implications

Let’s begin with the implications of rescinding the 2006 Standards. The OFCCP is on record as stating the following:

[U]nder Title VII, a pattern or practice class-wide disparate treatment case may be proven by statistics. See, e.g., Int'l Brotherhood of Teamsters v. United States, 431 U.S. 324, 339-40 (1977); Palmer v. Shultz, 815 F.2d 84, 90-91 (DC Cir. 1987). Cf. OFCCP v. Greenwood Mills, Inc., No. 89-OFC-39, Decision and Order of Remand, slip op. at 14 (Sec'y of Labor Nov. 20, 1995); OFCCP v. Jacksonville Shipyards, 89-OFC-1, Decision and Remand Order, slip op. at 5 (Sec'y of Labor May 9, 1995).

This is not a correct interpretation of the cases cited, but that too will have to wait for a future Blogspot. The correct interpretation is that a “gross disparity” or “manifest imbalance” (take your choice … they are synonyms) may be rebutted by multiple regression statistics showing that the disparity evaporates upon controlling for key confounding variables (e.g., merit and performance factors). Under Title VII law, if rebutted, there is no prima facie case --- case dismissed. Even if a prima facie case is assumed, the defendant still has the opportunity to explain, without having to prove, why the disparity exists, and it’s up to the plaintiff to prove that the explanation is pretext. The problem, therefore, with rescinding the 2006 Standards is that the OFCCP is free to conclude that a violation exists based on weak evidence (such as the Chambers study), and, the agency can choose to simply reject the defendant’s explanation without applying clear Title VII standards. Thus, the OFCCP can force a “settlement” on a defendant that would not be enforced by a federal judge.

In this scenario non-affected parties can file reverse discrimination claims and win in federal court despite what the OFCCP decides (hence …. “sweet and sour”). In other words, if there is weak evidence of discrimination and a federal contractor decides to make salary adjustments based on race or gender in order to settle with the OFCCP, those salary adjustments may later be deemed discriminatory acts against those whose salaries were not adjusted.

Note that all of this occurred well before the highly publicized Supreme Court ruling in Ricci v. DeStefano (2009) in which, under Title VII rules, a majority of Justices demanded a “strong basis in evidence” for believing an employer would lose against minorities in order to counter reverse discrimination charges from non-minorities. There are core differences between Rudebusch and Ricci. For example, Rudebusch employed a 14th Amendment standard and Ricci involved discarding test results for fear of losing a Title VII adverse impact case. In addition, the Ricci Court explicitly rejected the “reasonableness” standard cited in the Rudebusch case. However, both cases highlight that there is potential vulnerability to employers that make race- or gender-based decisions in response to evidence that cannot meet strong legal scrutiny. As a result, federal contractors need to consider the potential vulnerability of reverse discrimination claims as a function of pay adjustments in OFCCP settlements if there are no clear standards for defining what pay discrimination looks like. The proposed rescission of the Standards and Guidelines would create precisely such a scenario.

There are many other issues to discuss here. Hopefully this post starts some dialogue. Consider this a starting point and look for additional Blogspots on these and related issues in the near future.