April 2012The FedEx Story: Several Important Developments to Note about OFCCP’s Compliance Processes |
Maybe I can shed a little light on the FedEx (Ground) Conciliation Agreement (i.e. settlement) with OFCCP since there seems to be much confusion and much interest among federal contractors. While this is a small settlement, it is nonetheless important to teach many different lessons about the Obama OFCCP.
First, I did not represent FedEx…the company had asked me many years ago to represent it, but I had then a conflict because one of my then retired partners (now deceased), we discovered, sat on the Board of FedEx rendering my then law firm ineligible to provide services to the company – an Ethics/Corporate Governance rule FedEx imposes on its Board members.
LESSON 1: Bundled Settlement Press Release: With that said, there were 25 separate OFCCP audits of 3 different kinds of FedEx Ground Operation facilities (including one of which was of a fourth kind of station involving its SmartPost operation) spread across 16 states involving 8 years of OFCCP audits from 2004-2011 consolidated into this one settlement instrument – a Conciliation Agreement (CA). (FedEx has divided itself into several different operating companies and this CA involved FedEx Ground). So, this is the second example of the new-style of OFCCP “bundled” settlements designed to increase the public perception about OFCCP’s apparent clout (as OFCCP struggles to get press attention around what are typically otherwise small dollar-value settlements). This is OFCCP’s largest dollar-value OFCCP settlement, or series of settlements, in almost 8 years.
We first saw OFCCP undertake bundled settlement press releases in the Clinton Administration which used to collect together numerous different audit settlements involving different companies (i.e. Conciliation Agreements) on a typically common topic (pay discrimination against women or race discrimination) to score a momentary Public Relations flash to get press attention for Secretary Reich and OFCCP. We first saw this “bundled settlement” approach in this Administration in mid-September 2011 as to Tysons Fresh Meats (meat processing company) when OFCCP settled simultaneously, via four different settlement instruments but via one press release, two cases in litigation and two open OFCCP audits collectively worth $2.3 million. So, four simultaneous settlements involving the same company revealed to the public with one press release announcing a total dollar value “settlement”.
There will be many more of these bundled settlements to come because OFCCP likes them, as noted, and because many contractors with numerous open audits like the idea of “clearing the decks” with one sweep of the arm of all the small frustrating OFCCP audits buzzing around the company like mosquitoes in the summertime.
PRACTICE TIP: Determine what you value and what you fear. If you fear publicity, then balkanize the settlements by settling them over time. If you can manage the publicity which comes with a higher value settlement, and value clean sweeps which “clear the decks”, then bundle by settling simultaneously.
LESSON 2: Company-Wide OFCCP Audits: I know from a confidential source that FedEx Ground was one of the 9 companies OFCCP had scheduled 3 years ago for a special “company-wide audit”. (Whether OFCCP’s regulations or the Fourth Amendment will allow company-wide audits in the OFCCP audit context are both open legal questions). Please understand, though, that when OFCCP reports its wishes to undertake “company-wide” audits, as it does periodically and did again in its recent Justification supporting its $105,000,000 FY 2013 budget request to Congress, it does so by auditing a large number of the establishments of the target company – and NOT by launching a single audit which is nationwide in scope as many contractors have erroneously imagined. So, rather than one audit occurring, many audits unfold in near time as occurred with FedEx. This is because contractors build Affirmative Action Plans “by establishment”, OFCCP regulations authorize audits “by establishment” and OFCCP has a longstanding practice of auditing “by establishment”.
Nonetheless, apparently, trying to be cooperative with OFCCP (as most contractors are), FedEx Ground permitted OFCCP’s simultaneous audits of many of its establishments. NOTE: As we know from both the Bank of America and (the recent) United Space Alliance case decisions, once the contractor responds substantively to OFCCP’s audit Scheduling Letter, the contractor formally “waives” its Fourth Amendment rights against unreasonable search and seizure. (Rather, if a contractor wants to contest its selection as unconstitutional, the contractor must provoke an “access” Complaint from OFCCP by declining to provide OFCCP access to its documents and declining to allow it to come on-site to investigate). As noted above, OFCCP eventually alleged that FedEx had engaged in unlawful hiring discrimination at 25 of the establishments under audit.
As to the future, OFCCP has for two years, pursuant to an initiative Secretary of Labor Solis has been championing throughout the Labor Department, been pursuing a “company-wide” audit strategy. While that strategy is in its infancy, and barely developed just yet, OFCCP’s FY 2013 Budget Justification seeks over $4 million to enhance next year OFCCP’s computer systems to allow the agency to, among other things, store and analyze on a central database information about all OFCCP audits. This new data system will allow OFCCP to undertake, for the first time, meaningful analyses of audit data and allow it to make more sober judgments about which companies are truly recidivist violators and show a pattern of common violations across its geographically far-flung establishments. OFCCP will use this coming central audit database to analyze trends and any patterns of non-compliance across an entire company across all OFCCP regions and factor its vast storehouse of historical audit information into audit selection algorithms. NOTE: This use of OFCCP’s audit history file was a key discussion point which led Beverly Enterprises to settle its Fourth Amendment lawsuit against OFCCP (OFCCP had set down for audit 42 of Beverly’s 676 nursing home companies after having undertaken over 200 audits of Beverly companies in 10 years without ever finding unlawful discrimination…a fact OFCCP officials did not know and which OFCCP had not factored into its audit selection decision-making).
PRACTICE TIP: Start tracking your client’s/your company’s compliance problems and fix them at their source, not just where the poor practice or policy is perhaps deployed and discovered. The putrid practice or policy may otherwise jump-up elsewhere like the antagonist in the famous arcade game Whac-A-Mole.
LESSON 3: Everyone is in a Protected Class: The FedEx series of audits would have been one of the very best litigation vehicles to demonstrate that there was NOT company-wide intentional discrimination against protected groups…because the series of 25 audits led OFCCP to allege that literally EVERY race, gender and national origin had suffered unlawful intentional discrimination at the hands of FedEx Ground selection managers. The alleged victims list was breath-taking, almost laughable: Whites, Blacks, Hispanics, Asians, (even) Native Americans (rarely seen in OFCCP audit remedies), and Men and Women. (OFCCP does not have age discrimination authority, so that was not among the claims; nor were disability or Protected Veteran status, although OFCCP does have legal authority over those two issues).
OFCCP alleged that FedEx Ground had engaged in intentional disparate treatment class-type discrimination demonstrating a so-called “pattern and practice” proven only by statistical disparities (no rejected Applicants had filed complaints). So, what you had were 25 separate audits and 25 different statistical pools…not one giant pool of 21,000 Applicants vying for the same open positions because FedEx Ground hires locally; said a different way, these were 25 different selection and 25 statistical pools. As a result, at one FedEx station, OFCCP’s allegation would have been, perhaps, that Hispanics were the Most Favored Group (MFG) and perhaps Blacks and Whites were the alleged victims, while at another station, Whites would have been the MFG and Asians and Hispanics might have been the alleged victims, etc. So, this was NOT “company-wide” discrimination, even though FedEx settled simultaneously 25 OFCCP audits which had erupted at 25 of its stations.
LESSON 4: Control your Applicant Flow/Beware the “Law of Big Numbers”: This is THE most important lesson of the FedEx settlement. This was not a case of unlawful discrimination. This was a series of what I call “the law of big numbers” cases defense lawyers see weekly. FedEx’s greatest crime was that it allowed its Applicant Flow to swell to too large a size. ANY employer – ANY employer – which allows an Applicant Flow of greater than approximately 1000 to occur for even a large number of jobs will trip a statistical violation meter known as 2 Standard Deviations…unless the employer hires literally “by the numbers”…meaning that the employer hires very close to the exact percentage of Protected Groups represented in their Applicant Flow. And the more Applicants the establishment in question has, the larger the statistical confidence level (the more Standard Deviations) will be. This is because the “law of big numbers” will cause a prima facie finding of unlawful discrimination ALMOST ALWAYS when you have thousands of Applicants. The US Supreme Court was not thinking about this complex law of statistics when it sanctioned the “pattern and practice” disparate treatment class-type theory of unlawful discrimination in the Hazelwood and Teamsters case decisions on May 31, 1977. Had an attack on the statistics been in one of those cases, I doubt we would today have the pattern and practice (P&P) theory. It is time for the courts to revisit the P&P theory with the advance in statistical education the last 30 years of class litigation has brought us.
Please see the “law of big numbers chart” below I have borrowed from Joan Haworth, now retired from the ERS Group. (Joan was one of the most prominent employment economists and statisticians in the country and helped me teach statistics to NELI
attendees 5 years ago from whence I borrowed this simple, but terribly important, chart).
Note the variance 2 standard deviations will permit when you have only 10 selections (i.e. 10 coin flips). You can have a “variance” (i.e. miss the expected norm of fair selections – which should be 5 with a 2-headed coin: 5 tails/5 heads) of between 2 and 8 (i.e. it would be fair if you selected only 2 heads and 8 tails, or vice versa, or any combination in between (i.e. 6&4 or 7&3)). But look how small your miss must be at 10,000 selections to avoid tripping the 2 Standard Deviation meter (i.e. at 10,000 flips of the coin): You can only miss by 100, either way (i.e. you have to select heads between 4900 and 5100 times, and vice versa as to tails). So, even though you have made 1000 times more selections, you can only be off by 1% (whereas you could have missed target at 10 selections by a whopping 30%). What happens, statistically, is that with more flips, the variance starts to level out as the “too many heads flips” balance out, eventually, the “too many tails flips”. (8+2 tails balances out 8+2 heads…eventually with enough flips you will get exactly 50% heads and 50% tails as the effects of “chance” are minimized and balance out. So, this is why contractors MUST, MUST, MUST limit their applicant flow.
Thanks…John
THIS COLUMN IS MEANT TO ASSIST IN A GENERAL UNDERSTANDING OF THE CURRENT LAW AND PRACTICE RELATING TO OFCCP. IT IS NOT TO BE REGARDED AS LEGAL ADVICE. COMPANIES OR INDIVIDUALS WITH PARTICULAR QUESTIONS SHOULD SEEK ADVICE OF COUNSEL. |