Posted on 07/30/2019 at 01:22 PM by Russell Samson
The July 17, 2019, Recommended Decision and Order of a Department of Labor Administrative Law Judge in OFCCP v. Enterprise RAC Company of Baltimore, LLC, Case No.: 2016-OFC-00006 had three special messages which I believe are worth reinforcing to federal government contractors with affirmative action plan (AAP) obligations. The case itself was brought by the Office of Federal Contract Compliance Programs against the operations of Enterprise car rental company based in Maryland. (That is, the complaint did not look at company conduct nationwide, but only in one particular geographic area.)
Case Background and Decision
Enterprise was required to have an affirmative action plan and update it annually under Executive Order 11246. On May 1, 2008, the OFCCP scheduled a compliance review of the Maryland office covering Enterprise’s AAPs for two fiscal / plan years – August 1, 2006 through July 31, 2008. The review determined Enterprise was in violation of its obligations under E.O. 11246 by statistically failing to hire African-American applicants for management trainee positions in a non-discriminatory manner. Ongoing discussions and conciliation failed to resolve the matter; OFCCP issued an Administrative Complaint against Enterprise in Maryland in June 2016—some eight years after the compliance review began. A hearing on the complaint began on June 19, 2018 and ended on June 27, 2018. The ALJ issued his decision on July 17, 2019. The wheels of government grind exceedingly slow sometimes.
While the matter began as a review of a two-year period, the decision of the ALJ made determinations for each of the eleven plan / fiscal years from the one that began on August 1, 2006 through the one that ended July 31, 2017. He determined that for every plan / fiscal year, except the one that ran from August 1, 2012 through July 31, 2013, there was a shortfall in offers made to African-Americans for management trainee positions. More specifically, over the eleven year period under study, there was a shortfall of 182 offers to African-American applicants.
When fashioning the remedy for the finding of liability, the ALJ first addressed monetary damages. The expert used by the OFCCP and the one used by Enterprise apparently agreed, in general, on the method to be used to calculate monetary damages. The total as of December 31, 2017, was a whopping $6,645,444.00. ( “[T]he parties will need to have their experts verify the figures and bring them forward to present value.”)
When fashioning the injunctive remedy for the finding of liability, the ALJ determined that requiring Enterprise to make offers to all 182 African American applicants in a single year might result in more offers being accepted than there are openings, and might result in a class of management trainees that was 100% African-American. He therefore recommended that the offers be extended over two successive plan / fiscal years (91 offers each year) – the first for the year ending in 2020 and the second, for the year ending in 2021. He broke the eleven years into three groups, and directed that a specific number of the 91 yearly offers be extended to persons from each group. There will be a significant change in the make-up of management trainees in the Maryland office of Enterprise Rent-A-Car.
Learning Point #1 – Debarment Sanctions Can and Do Happen
I have worked with clients over decades, and explained to them that the ultimate sanction that can be imposed for failure to comply with affirmative action obligations of federal government contractors is debarment. For some of those clients, those with significant government work, the thought of losing that work provides some real motivation. Others did not believe that would happen to them.
In this case, the ALJ did, in fact, recommend debarment of Enterprise. Prior to making that determination, he noted that the purpose of debarment as a sanction is to induce a company to bring itself into compliance with EO 11246, and not to punish past violations. He continued:
Having listened to and observed the current and former Enterprise employees that testified at the hearing, it was not my impression that any of them were bad people with bad motives. On the other hand, it was clear that Enterprise was on notice from the results of the impact ratio analysis that it generated on a regular basis that there were disproportionately bad outcomes for African-American applicants for the management trainee program, yet no changes were implemented to address the disparities. The racial disparity continued unabated and unaddressed even after OFCCP issued the Notice of Violation in 2013.
The ALJ not only recommended debarment, but indefinite debarment from current and future government contracts, until the issues are addressed and rectified. Providing the OFCCP with that hammer, the ALJ stated that the parties were in a much better position than he to determine the concrete course of action to prevent the situation from continuing into the future. Giving them time to work out a plan, he recommended the debarment be delayed for 90 days. If they are successful in negotiating a plan, the ALJ recommended the debarment be suspended further, through the end of the fiscal / plan year in 2021, after which time it will expire unless, prior to that date, the OFCCP files a motion for an order of debarment. So Enterprise can avoid debarment if they cooperate with the OFCCP.
Learning Point #2 – Take Action on Out-of-Whack Adverse Impact Ratios
The ALJ’s basis for ordering debarment, quoted above, brings me to the second of my special messages. For those who work with affirmative action plans, the notion of “impact ratios” and “impact ratio analysis” is not new. For those who lack such experience, the OFCCP expects an acceptable AAP to demonstrate that there has been an “in-depth analyses of [the contractor’s] total employment process,” including an analysis of the selection, recruitment, referral and other personnel procedures to determine whether any of them result in disparities in employment or advancement. The OFCCP regulations under EO 11246, 41 CFR § 60-2.17(b) also require an analysis of “personnel activities (applicant flow, hires, terminations, promotions, and other personnel activity) to determine whether there are selection disparities.”
Calculating an impact ratio requires a three-step process. Under the EEOC’s regulations for “Uniform Guidelines on Employee Selection Procedures,” the first step is determining the selection rate for each group (men/women, white/non-white), and for each personnel decision. Take for example, hiring as a personnel decision, and race as the group. The number of white hires is divided by the number of white applicants. Say four of sixteen white applicants were hired – that would come out to a hiring rate of 25% for white applicants.
The second step then requires computing the hiring rate for each of the non-white groups of applicants. Assume that one out of six African-American applicants was hired. The African-American selection rate would be 16.7%.
For the third and final step under the EEOC’s impact ratio regulation, 29 CFR § 1607.4(D), the selection rate for a particular group is divided by the selection rate for the “group with the highest rate.” In a perfect world, the result of the third step would be “1.” (That is, in a perfect world, every group has the same hiring rate.) In our example, the third step would be 16.7 / 25 = 0.668. The EEOC’s regulation states that an impact ratio, “for any race, sex, or ethnic group which is less than four-fifths (4/5) (or eighty percent) of the rate for the group with the highest rate will generally be regarded by Federal enforcement agencies as evidence of adverse impact.” It must be emphasized that the “4/5 rule” is a general rule of thumb; it does not have any statistical significance. When companies get into litigation, statisticians are hired to perform much more complex and statistically significant calculations. For an approximately normal data set, the values within one standard deviation of the mean account for about 68% of the set; while within two standard deviations account for about 95%.
Returning to the OFCCP v. Enterprise matter, Enterprise had conducted an impact analysis for each of the eleven fiscal / plan years examined by the ALJ. For all but one of the years considered by the ALJ, the “impact ratio” for white hires, as compared with African-Americans, in the job group including management trainees, was approximately two standard deviations—meaning it was well outside the allowable 4/5 rule of thumb. The human resources manager for the Enterprise Baltimore region testified that the numbers were “cause for conversation,” but he could not recall ever making an adjustment in hiring practices as a result of the two-standard deviation racial disparity. Ruh roh.
Other facts about the management trainee jobs at Enterprise added fuel to the fire of the adverse impact ratios. The management trainee job is what Enterprise called an evergreen position – in other words, Enterprise is constantly recruiting for new management trainees. Because of that, applicants are considered individually, rather than against each other or against any particular pool of applicants. Enterprise had a series of core competencies (which were modified over the course of the years examined) that successful applicants for the management trainee position were expected to meet. Some competencies were simple yes-or-no, and could be determined by a computer (e.g., possession of driver’s license). Others called for subjective judgments as to whether or not an individual’s experiences met the criteria. Enterprise’s statistical expert witness testified that his analysis identified three competencies – work experience, communication skills, and compatible career and direction -- where the African-American applicants were rejected in a statistically significantly higher ratio than whites. The ALJ noted that, “There were no non-discriminatory reasons offered for the statistically significant racial disparities in the application of the three disposition codes Dr. White identified.”
Additionally, a former recruiting administrator for Enterprise at a Maryland location was called by the OFCCP to testify at the hearing. She began working for Enterprise in Maryland in 2002 as a management trainee, and while working at Enterprise, she worked toward a master’s degree in human resources, which she received one month after she was laid off in 2008. She testified she had not received any training from Enterprise on implicit bias, unconscious bias, or subconscious bias – but she had been educated on it in her graduate degree coursework. The witness said that “two applicants could have held the exact same job, had the exact same job title, and worked for the exact same company, and one could get credit for sales or customer service experience and the other rejected for a lack of the same depending upon how they articulated their experiences during their telephone conversations with her.” This witness also acknowledged that the impact ratio for African-American versus white hiring for the management trainee position for the two years the witness conducted the screening was 0.66 followed by 0.47. If one is “grading on the curve,” each of those grades is an F!
This witness, and a number of others who held similar positions for Enterprise at various points in time, were questioned during the hearing about why they made certain decisions on particular individuals in terms of screening in or out. Based on their testimony, as well as the general agreement that there was a statistically significant disparity in the numbers of African-Americans as opposed to whites who were screened in for the management trainee positions, the ALJ determined that, while “on paper” the experience competency appeared to be objective, it actually became a tool for “subjective assessment of an applicant’s future potential based on a present sense impression rather than an objective verification of” an objective competency.
Employers are expected to “conduct in-depth analyses [note the plural] of [your] total employment process to determine whether and where impediments to equal employment opportunity exist.” 41 CFR § 60-2.17(b). This obligation is separate from the process of 41 CFR § 60-2.15 that requires a comparison of your workforce, job group by job group, against computed availability in the relevant recruiting area. Enterprise demonstrated to the ALJ that the percentage of African-Americans in the job group which included management trainees was actually higher than the computed availability of African-Americans in the relevant recruiting area. Because of that, Enterprise never established any placement goals for African-Americans in that job group. The ALJ held that was no defense to Enterprise’s separate failure to select African-Americans for management trainee jobs at a ratio closer to the selection rate of whites.
Learning Point #3 – Analyzing Sub-Job Groups
In conducting the in-depth analyses discussed above as part of an employer’s AAP, one might need to look at smaller groupings than the usual job groups. In this Enterprise case, the impact ratios for the entry-level management trainee position were well below the 4/5 rule-of-thumb in ten out of eleven years, but the OFCCP and the ALJ focused on one job within the job group being analyzed. Still, each time that job group’s impact ratio calculation was adverse to African-Americans, sirens should have gone off for Enterprise. Someone should have conducted an even deeper analysis as to why the numbers were so low, and looked more closely at the management trainee job. The decision of the ALJ teaches that it is not merely enough to accept an employer’s defense that it uses objective factors to make employment decisions, so it must just be getting a statistically higher percentage of unqualified minority applicants. Instead, Enterprise should have identified the low impact ratio number in the following year’s AAP, and accompanied it with an explanation of what the problem was and how it would be remedied in the future year.
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