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03.03.14   |   Insights

Business Law Alert

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The U.S. Department of Labor’s Office of Federal Contract Compliance Programs (OFCCP) recently imposed new affirmative action and nondiscrimination obligations on government contractors.

The new rules set non-binding benchmarks and goals for veterans and individuals with disabilities. In addition, the rules (a) mandate specific types of information-gathering and recordkeeping, (b) provide examples of programs that companies can use to increase the hiring of veterans and individuals with disabilities, and (c) require including specific language in government subcontracts concerning the equal employment opportunity responsibilities for subcontractors.

The new rules set standards for compliance with the Vietnam War Era Veterans’ Readjustment Assistance Act of 1974, which prohibits discrimination against veterans and requires federal contractors to take steps to employ veterans; and Section 503 of the Rehabilitation Act of 1973, which prohibits discrimination against individuals with disabilities and also requires federal contractors to take affirmative steps to hire them.

The new rules take effect on March 24, 2014, but contractors and subcontractors may delay compliance with the affirmative action plan (AAP) requirements of the new rules until the first annual AAP is due following the March 24, 2014 effective date. Contractors and subcontractors should begin taking steps now to ensure compliance.

Who Must Comply?

The rules regarding individuals with disabilities apply to all contractors and covered subcontractors with federal contracts valued over $10,000. A separate threshold requires contractors and covered subcontractors who hold contracts over $50,000 and have 50 or more employees to develop detailed written AAPs and solicit disability information specified by the regulations.

The rules pertaining the hiring of veterans apply to contracts valued at $100,000 or more. Covered contractors and subcontractors with 50 or more employees must also develop and maintain a written veterans’ AAP.

New Hiring Goals

Under the new rules, contractors will be measured against a “utilization goal” for hiring individuals with disabilities and a “benchmark” for hiring veterans. The OFCCP has set a 7% goal for hiring individuals with disabilities within each established job group. Contractors with 100 or fewer employees may measure compliance across their entire workforce rather than by job group. It is noteworthy that the 7% goal is explicitly not a quota, so a company that does not meet its goal cannot be penalized for that reason alone, as long as it shows it is working in good faith to improve its census of individuals with disabilities.

With respect to veteran hiring, contractors now must set an annual benchmark for hiring. This benchmark may be established in one of two ways: (a) a benchmark equal to the national percentage of veterans in the civilian labor force, as posted in the Benchmark Database on the OFCCP website; or (b) a contractor-specific benchmark based on a complex series of factors.

Contractors must maintain records related to their benchmark for three years, allowing them to assess the success of their outreach and recruitment efforts for veterans over time.

Required Changes to Affirmative Action Plan

Although most government contractors are already required to have a written AAP that is updated annually, the new regulations revise its required content. Each company’s policy statement must indicate the top U.S. executive’s support for the affirmative action program. Also, contractors must annually review the prior year’s outreach and recruitment efforts to hire veterans and with disabilities, and “make necessary modifications” to affirmative action processes if their efforts are not effective. The new offer an expanded list of examples of actions contractors can take to recruit vetera individuals with disabilities. Contractors must document their efforts at outreach and recruitment of veterans and individuals with disabilities, and retain these records for at least three years.

New Recordkeeping Requirements

The new rules also require contractors to offer additional opportunities for job applicants and employees to self-identify as a veteran or disabled individual. Specifically:

  • each applicant must be invited to self identify as a covered veteran or person with a disability before a hiring decision is made (e.g., with the “application materials for the position”);
  • each applicant receiving an offer must be invited to self-identify as a covered veteran or individual with a disability after an offer is extended but before the applicant begins working; and
  • in the first year and at least once every five years thereafter, contractors must invite each employee to identify as an individual with a disability. Contractors must also regularly remind employees that they may update their disability status at any time.

Contractors must retain records of these disclosures. All information must be kept confidential but must be provided to OFCCP when requested.

Equal Opportunity Clause Requirements Subcontracts

Under the new rules, federal prime contractors are required to incorporate equal opportunity clauses in their subcontracts, obligating subcontractors to comply with the new affirmative action and non discrimination obligations toward veterans and individuals with disabilities.

Additional Information

The OFCCP audits thousands of companies each year to monitor affirmative action compliance. If you are a federal government contractor or subcontractor, you want to have your plan in place before being selected for audit. Critchfield, Critchfield & Johnston, Ltd. is available to answer your questions and to assist you in reviewing your existing procedures, or implementing new procedures as required by the OFCCP.

Disclaimer: This newsletter is not  intended as legal advice. No recipient of this newsletter should act or refrain from acting on the basis of content of the newsletter. For advice on the topics discussed within this newsletter, please contact appropriate legal counsel. The information herein may or may not be complete or current at the time of reading.

IRS Circular 230 Disclosure: To the extent that this communication and any attachments contain any federal tax advice, such advice is not intended or written to be used, and cannot be used, for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code or promoting, marketing, or recommending to another person any transaction, arrangement or matter addressed herein.

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