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Important to determine if your company needs to certify all its entities

The OFCCP Contractor Portal deadline is drawing near. Covered federal contractors and subcontractors (collectively referred to as contractors) must certify whether they are meeting their requirement to develop and maintain annual Affirmative Action Programs (AAPs) by June 30, 2022. Specifically, contractors must certify whether they have developed and maintained an affirmative action program for each establishment and/or functional unit, as applicable.

Are you clear, though, about who needs to certify – and what you’re certifying? If your organization is a federal contractor, you probably realize that you need to certify, but not everyone realizes that if their company is affiliated with other companies, these related parent, subsidiary, and affiliate companies may need to certify as well under the Single Entity Test.

What are you certifying?

In DIR 2022-02, OFCCP clarified that when covered contractors use OFCCP’s Contractor Portal to register and annually certify compliance with their AAP obligations, they are certifying that they have developed and maintained “complete” AAPs. For further details on the AAP components and obligations, see generally 41 CFR part 60-2; 41 CFR part 60-300, subpart C; and 41 CFR part 60-741, subpart C. A great place to begin is with OFCCP’s Supply & Service Technical Assistance Guide1, which describes the AAP obligations in helpful detail here 1https://www.dol.gov/sites/dolgov/files/OFCCP/SupplyService/files/508_sstag_12032020.pdf

There has been some concern expressed that OFCCP’s reference to a “complete” AAP in DIR 2022-02 means that the agency may challenge a certification where a technical deficiency in a substantially compliant AAP is later found. Hopefully this is not the case, as the Contractor Portal’s best use and clear purpose was to ensure good faith compliance with the AAP obligation in order to address a 2016 recommendation from the Government Accountability Office, and thereby increase affirmative action in employment.  One thing to note is that this clarification that a “complete” AAP is needed to certify compliance was not included in the information collection request that was approved by the Office of Management and Budget under the Paperwork Reduction Act. Nevertheless, it is generally best to try to comply with OFCCP guidance to avoid problems in the future, and of course having a complete AAP is the compliance objective, so it is recommended to confer with counsel regarding the “complete” AAP reference.

When you go to certify, you will be provided three possible options:

  1. Entity has developed and maintained affirmative action programs at each establishment, as applicable, and/or for each functional business unit;
  2. Entity has been party of a qualifying federal contract or subcontract for 120 days or more and has not developed and maintained affirmative action programs at each establishment, as applicable; or
  3. Entity became a covered federal contractor or subcontractor within the past 120 days and therefore has not yet developed applicable affirmative action programs.

Assuming you have AAPs in place, you will most likely choose the first option. However, if you are a federal contractor with an establishment (for example, let’s call this Establishment A) that has a federal contract that meets the jurisdictional requirements, that doesn’t mean that only Establishment A is required to have an AAP. OFCCP considers every establishment for the company as subject to the AAP requirement, unless you have received a separate facility exemption waiver. Likewise, if you have a parent, subsidiary, or affiliate company that could be considered a single entity with the contractor, it is possible that their establishments may be subject to the AAP requirement as well.

Single Entity Test

OFCCP provides the following Contractor Portal FAQ on its website:

If either of the two scenarios below are true, each independent subsidiary assumes the status of a federal contractor, is subject to OFCCP jurisdiction and is required to prepare its own AAP and certify compliance.2

  1. The subsidiary holds its own covered federal contract(s) in which case it will remain subject to OFCCP jurisdiction; or
  2. The subsidiary does not hold its own federal contract(s) but is so closely related the parent company as to constitute a single entity for the purposes of OFCCP jurisdiction.

2https://www.dol.gov/agencies/ofccp/faqs/contractorportal#14

This scenario only focuses on the example of a parent and its subsidiary, but the single entity issue comes up with any affiliated companies. Determining if an affiliate is a single entity with a federal contractor or not is a complicated issue. It is recommended to engage legal counsel to determine the relationship between the entities and the parent company. It is also recommended that you request and receive this assessment in writing so if you are audited, you can demonstrate your due diligence if needed.

Factors Used by the OFCCP for Determination of Single Entity

OFCCP applies the following factors3, derived from case law, when determining whether a separate business or organization constitutes a single entity for the purposes of OFCCP jurisdiction. The test requires OFCCP to consider whether:

  • The entities have common ownership;
  • The entities have common directors and/or officers;
  • One entity has de facto day-to-day control over the other through policies, management or supervision of the entity’s operations;
  • The personnel policies of the entities emanate from a common or centralized source; and
  • The operations of the entities are dependent on each other, e.g. services are provided principally for the benefit of one entity by another and/or both entities share management, offices or other services.

3https://www.dol.gov/agencies/ofccp/faqs/single-entity-test

In terms of which factor is most important to OFCCP, the agency has indicated in Single Entity Test FAQ #3 that “[t]hough no single criterion is determinative under the single entity test, there is growing recognition that centralized control of employment decisions is the most important factor.” (citation omitted).

It’s important to remember that if an entity is a covered contractor, all establishments need to have affirmative action programs. There’s a caveat to that, called the Separate Facility Exemption Waiver.

Separate Facility Exemption Waiver

The Separate Facility Exemption Waiver was put into place during the George W. Bush administration and allows the OFCCP Director to exempt certain facilities or establishments from having to comply with the AAP requirements. Please be aware that these exemptions are rare. It is recommended to discuss with legal counsel before seeking one of these waivers from OFCCP.

60-1.5 exemptions: Facilities not connected with contracts.

The Director may exempt from the requirements of the equal opportunity clause any of the prime contractor’s or subcontractor’s facilities which [the Director] finds to be in all respects separate and distinct from activities of the prime contractor or subcontractor related to the performance of the contract or subcontract, provided that [the Director] also finds that such an exemption will not interfere with or impede the effectuation of the order.4

4https://www.law.cornell.edu/cfr/text/41/60-1.5

OFCCP implemented this provision through Directive 2002-015, which provides the process and factors used by the OFCCP Director in determining whether to grant the waiver.

5https://www.dol.gov/agencies/ofccp/directives/2002-01

Options for Certifying as to Non-Covered Affiliates

If you go into the Contractor Portal and see entities or establishments that are not part of a Single Entity with the federal contractor and its establishments, it is recommended to engage counsel to determine how best to proceed so that you certify properly and do not incorrectly certify for entities that are not a covered contractor and not a single entity with a covered contractor.

To reiterate, determining if a company with a parent company and subsidiaries is a single entity is a complicated issue and companies should engage legal counsel before the June 30 deadline.

Author

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Craig Leen
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