The Fox OFCCP Report

May 2012

The Frito-Lay ARB Decision: Trouble Ahead for Contractors

OFCCP v. Frito-Lay, Inc., ARB Case No. 10-132 (May 8, 2012), Appeal to Federal District Court coming

ISSUE: "This case involves the question whether *** OFCCP has authority to request certain data relating to *** Frito-Lay, Inc's *** AAP as part of a 2007 Desk Audit."

ALJ HAD HELD: On July 23, 2010, "[e]ssentially, the ALJ concluded that there was a temporal scope to the 2007 Desk Audit that precluded OFCCP from requesting 2008 and 2009 AAP data."

ARB HELD: "We reverse and order Frito-Lay to comply with the OFCCP data request." *** "We find that OFCCP clearly has discretion to request AAP data covering activity occurring after the Scheduling Letter in the specific circumstances of this case (fn omitted.)" *** "We conclude that OFCCP has regulatory authority to request the 2008 and 2009 AAP data in furtherance of its 2007 Desk Audit."

This ARB has now revealed itself to be:
  1. Results oriented to favor OFCCP

    (Final Order was repeatedly disingenuous) by:

    • not addressing whether the Administrative Procedure Act prevents a "sudden change" to "longstanding" OFCCP audit procedures;

    • not holding OFCCP to its own published Desk Audit procedures;

    • reversing an Administrative Law Judge in a Final Order it published 7-8 months late (1 year (only) appeal period runway allowed since the Clinton Administration);

    • adopting ends-justifies-the-means conclusions: "First, Frito Lay had an ongoing duty from***2007 through 2009 to comply with EO 11246, the equal opportunity clause in the federal contracts, and the implementing regulations," the ARB wrote. [Fox: No one disputes that, but does that end objective justify the process. OFCCP will now deploy as to Frito-Lay since it is, almost unique to Frito-Lay and not OFCCP's routine audit process.] "There is an indication in the record that Frito-Lay had federal contracts exceeding $200M from 2005 – 2010," the ARB wrote. [Fox: So what? Does a bigger contract create more and special duties different from other contractors?]

    • characterizing OFCCP's withdrawn 60-day audit regulation as authority to permit endless Desk Audits which the Court read to imply authority for OFCCP to constantly update its Desk Audit. [Fox: This is twice in error since the at-issue regulation had required the entire audit to conclude in 60 days and not just the Desk Audit, as the ARB wrote. Moreover, OFCCP withdrew the 60-day regulation because audits had not finished in fact, ever, within 60 days so it needed to relieve a lot of unnecessary paperwork burden behind the scenes at OFCCP to extend the audits through memos to file]; and

    • interpreting OFCCP's "no-new-audit-for-2-years practice" as authority to have allowed OFCCP to commence a new audit of Frito-Lay for 2009 [Fox: So the ARB notion was: What's the big deal anyway, Frito-Lay? So, process be damned, ARB concludes, since OFCCP could have gotten at this data in a new audit. Apart from denigrating OFCCP's historic and regulatory-governed audit process, the conclusion is also wrong because OFCCP cannot just pick a contractor to audit, at least not so long as the 4th Amendment remains in place.]

  2. Unschooled in basic hornbook EEO Law

    , including Chief Judge Paul Igasaki (former EEOC Vice-Chair):

    • characterized OFCCP's case vs Frito-Lay as a "disparate impact" case, when it is in fact a "disparate treatment" "class-type" case; and

    • stated: "A request for two subsequent years (of data) is consistent with a proper disparate impact analysis" [Fox: but ignoring that this is true, if ever, in a small applicant pool case, not as here with thousands of applicants.]

  3. Undisciplined:

    • even while the case was on appeal over a year and a half, the ARB could not draft its Final Order in workmanlike fashion: "First,…" but does not follow with "Second" (occurred twice in ARB Final Order); and

    • the ARB issued an untimely decision (7 months after regulatory deadline).

  • The United Space Alliance and Frito-Lay case decisions have now buoyed OFCCP to cause it to change audit processes even pending the Frito-Lay appeal

  • OFCCP is taking the position it can get anything it wishes at Desk Audit upon showing a contractor has failed a test for an "indicator", even if most contractors fail the indicator test OFCCP designs ("Gotcha!")

  • OFCCP has silently discarded the Clinton Administration's innovative "tiered-review" process: everything is at issue, as in the Reagan Administration

MANY CONTRACTORS HAVE ASKED ME: Does OFCCP still need its new proposed Service and Supply Audit Scheduling Letter?

Fox Answer: Not really, since OFCCP is currently beating out of contractors what it wants…but, for its convenience, OFCCP would like more:
  • OFCCP still lacks the contractor's compensation files in their native format;

  • OFCCP still lacks contractor compensation files in electronic (i.e. manipulatable) format; and

  • A new OFCCP Scheduling Letter would obviate contractor Paperwork Reduction Act challenge to whatever compensation filter tests OFCCP may choose to deploy, even if the new Scheduling Letter would not quiet contractor challenges to OFCCP's changes in audit protocols without changes to its regulations predicated on alleged violations of the Administrative Procedures Act.

  • Option 1: Make Love, Not War: Contractors can knuckle under to OFCCP's exertion of power during Desk Audits and allow the agency to wander beyond the document demands set out in the OFCCP audit Scheduling Letter and in its attached Itemized Listing, even while decrying the cost burden, inefficiency of it all and the enormous "running time" it now takes (typically now measured in years) to resolve a typically non-problematic (on-the-merits) OFCCP audit.

  • Option 2: Let's talk: Alternatively, contractors may attempt to negotiate with OFCCP to reduce the number of documents demanded. However, there is no guarantee of success in this approach, especially if the contractor draws a particularly unreasonable OFCCP Compliance Officer or the contractor community as a whole starts to "cave in" to OFCCP's pressure and sets a standard of generous response. If, however, OFCCP Regional Directors start to see that their audits are getting bogged down in chronic document fights, they will quietly relent and reduce the burdens of their audits. OFCCP managers are very practical and know that most of the documents they want lead to findings of compliance (92% historically: Clinton and Bush) and even 80% in this Administration which has increased the number and volume of "paperwork violation" citations even as substantive discrimination claims hover around only 2% of all audits. OFCCP managers know from hard-won experience that contractors don't get it right all of the time, but they do get it right almost all of the time. So, OFCCP managers know that it does not advance the cause of civil rights to bludgeon contractors with onerous and expensive document demands. But, at the same time, OFCCP managers have to insure that the contractor is not unlawfully discriminating and to apply rules uniformly across all contractors they audit. So, there is a needed balancing of interests. Where that teeter-totter balance point will be placed is what is currently in discussion and in play between contractors and OFCCP as the Obama Administration tries to leverage contractors and move the balance point away from it and more toward the contractor.

  • Option 3: Make War, Not Love: Despite the losses in USA and Frito-Lay, I do not believe the law is settled on OFCCP's ability to willy-nilly change its audit protocols, either in general, or for a specific contractor like Frito-Lay in a specific audit of that contractor. Frito-Lay should have won on appeal to the ARB and, I predict, will win on appeal to the Federal District Court (in a year or two). Who knew that the ARB would suddenly become a political shill after 16 years of administering justice fairly and equitably to uphold ALJ decisions when they should have done so, and reversed them when appropriate. With the loss of that even-handedness, both Frito-Lay and contractors now know they must prepare for long-haul siege litigation taking OFCCP into the federal courts to curb an ARB charged by political advocacy rather than by a uniform and unified vision of the law.
Conclusion: None of these three options are terribly satisfying. Option 1 appears to be costing contractors in audit, on average, $30,000 - $50,000 more than contractors in audit in the Clinton and Bush Administrations. The audit costs these days for a non-problematic audit can swell to $100,000+ but seem to now average $50,000 - $80,000. Option 2 costs will be less than Option 1 costs, to the extent negotiating with OFCCP proves successful. Option 3 costs are typically less than Option 2 costs, but only because OFCCP "access cases" come up quickly, and move almost always on cross-motions for summary judgment (i.e. summary judgment trial without "live" witnesses on the witness stand). But then, Option 3 comes laden with trial risk, and to date, no contractor has yet been successful (but only upon two outings).

So, pick your poison! What do you value, and what do you fear?

Thanks…John C. Fox