• The Latest in Frito-Lay, Inc.: "Objective Deficiency" Allows Expansion of OFCCP Desk Audit
  • May 15, 2012
  • Law Firm: Holland Hart LLP - Denver Office
  • If a federal contractor's 2006 and 2007 affirmative action plans (AAP) reveal adverse impact in hiring during a desk audit of those plans, can the Office of Federal Contract Compliance Programs (OFCCP) expand the desk audit to hiring data for 2008 and 2009 to determine if adverse impact continued in those years? In July 2010, an Administrative Law Judge (ALJ) said, no, the OFCCP lacks such authority. However, on May 8, 2012, the Administrative Review Board (ARB) said, yes, in limited circumstances. An appeal to the United States District Court is likely.

    In response to a July 2007 Scheduling Letter, Frito-Lay submitted its calendar-year 2006 AAP data, and the first half of its 2007 AAP data. Frito-Lay subsequently agreed to provide data for the remainder of 2007. OFCCP concluded the data revealed adverse impact (3.26 standard deviations) affecting women in hiring between June 13, 2006 and December 31, 2007. In November 2009, while still in the desk audit phase, OFCCP requested hiring data for 2008 and 2009 to determine if the adverse impact continued beyond December 31, 2007. However, Frito-Lay refused, arguing OFCCP's request exceeded its authority to audit the 2006 and 2007 plans.

    In July 2010, an ALJ concluded that Executive Order 11246 and its regulations, as well as the Federal Contract Compliance Manual (FCCM), "contemplate that the temporal scope of the desk audit phase of a compliance review cannot be extended beyond the date that the contractor received its Scheduling Letter." The ALJ reasoned that Frito-Lay was clearly obligated to maintain and preserve the 2008 and 2009 hiring data, but is only obligated to permit OFCCP access to materials "as may be relevant to the matter under investigation . . ." 41 C.F.R. § 60-1.43. Because the "matter under investigation" was defined by the Scheduling Letter calling for Frito-Lay's 2006 and 2007 AAPs, the 2008 and 2009 hiring data was not relevant. Likewise, although not binding, the ALJ found several provisions of the OFCCP's own manual for conducting audits, the FCCM, contemplate that audits are limited to the current and prior plan years, not any period forward.

    In a carefully-worded and brief opinion, the ARB instead relied on broad regulatory language giving OFCCP authority to seek compliance. 41 C.F.R. §§ 60-1.20(a)(1)(i) and (b), and 60-2.10(2). "To enable OFCCP in its mission, the regulations empower it with discretion to conduct various types of compliance reviews 'to determine if the contractor maintains nondiscriminatory hiring and employment practices and is taking affirmative action . . . .' ... When OFCCP finds 'deficiencies,' it may make reasonable efforts 'to secure compliance through conciliation and persuasion.' A significant statistical disparity can indicate a 'deficiency,' for example, proof of discriminatory disparate impact. Ultimately, there is no question that seeking 'compliance' with the affirmative action mandate in Executive Order 11246 is a primary duty of OFCCP."

    The ARB further justified the OFCCP's request because it "was narrow and motivated by the objective deficiency discovered during the 2007 Desk Audit," namely, the 3.26 standard deviations affecting women in hiring. Thus, the ARB concluded, "this is not a case where OFCCP simply extended a desk audit; it is a case where a deficiency motivated the request for more information... Consequently, OFCCP's impetus in making further inquiries and the reason for its requesting two additional years' AAP data is reasonable and consistent with OFCCP's duty to ensure Frito-Lay's compliance with Executive Order 11246."

    While the ARB's opinion appears facially reasonable, if allowed to stand, it fundamentally changes the scope of OFCCP audits. The opinion simply ignores years of OFCCP practice, as reflected in the FCCM, limiting audits to a contractor's current and prior year's plans. The finding would exacerbate contractor burdens, without corresponding benefit, by allowing OFCCP audits, which may already span several years as reflected in the Frito-Lay case, to leapfrog from year to year. Rather than motivating compliance by focusing on current issues during the conciliation process, as contemplated by the FCCM, OFCCP would be permitted to sustain uncertainty and increase burden during the initial desk audit phase for years to come.

    While the ARB's decision in Frito-Lay may be overturned, it is a good reminder that the best defense is a good offense: prepare a compliant AAP and be prepared to address and resolve any issues identified.