Adverse Impact Analyses: Making Sure the Government Follows Its Own Regulations
As attendees at any ILG National Conference can tell you, the OFCCP routinely reiterates its expectation (sometimes rather forcefully) that federal contractors know and comply with the regulations. Well, here is a case that contractors can use to remind the OFCCP that what is good for the goose is good for the gander!

An Administrative Law Judge recently handed the OFCCP an embarrassing defeat in OFCCP v. VF Jeanswear Limited Partnership, 2011-OFC-00006 (ALJ Aug. 5, 2013). Although the Recommended Decision & Order issued by ALJ Kenneth A. Krantz must be reviewed by the Administrative Review Board before becoming the Department of Labor's final administrative order, it is a well-reasoned opinion that provides a welcome reminder of the rules relating to adverse impact analyses.

First – The Case

The OFCCP filed an administrative complaint against VF Jeanswear Limited Partnership alleging that the contractor discriminated against non-Asian applicants when hiring Operatives. VF Jeanswear manufactured clothing at a plant in Winston-Salem, North Carolina. (The facility has since closed). The jobs at issue were entry-level positions involving laundering jeans; pressing, sewing, or tacking labels onto pockets and waistbands; and inspecting finished jeans.

The OFCCP asserted that during 2005, VF Jeanswear hired 15.8% of its non-Asian applicants as compared to 43.5% of its Asian applicants for the relevant job group. The agency concluded that this hiring data resulted in statistical significance at 6.79 standard deviations with a shortfall of 31 for non-Asians. Non-Asians included Whites, African-Americans, and Hispanics. This sounds just fine and dandy, right? The OFCCP is claiming that this contractor discriminated in favor of Asians at the expense of all other racial groups. What could be wrong with that argument?

Well, the ALJ discussed the Uniform Guidelines on Employee Selection Procedures (UGESP) and astutely noted that nowhere in these regulations are "non-Asians" identified as a racial or ethnic group for which contractors are required to keep records or perform analyses. That's what is wrong with the OFCCP's argument. In ruling that the OFCCP's case should be dismissed, the ALJ held:
  • The regulations put contractors on notice of what is required of them in order to comply with the Executive Order. They are prohibited from employee selection procedures with a disparate impact on a "race" or "ethnic group." The "non-Asian" category upon which [the OFCCP] has proceeded is neither a race nor an ethnic group, either by regulatory definition or as used in common parlance.
Because the OFCCP's case failed to compare the selection rates between groups identified in the regulations, the ALJ held that the contractor was entitled to summary judgment.

Next – The Rules

The ALJ's analysis serves as an important reminder for both the OFCCP and contractors to remember the underlying rules by which we all must live. So, let us take a closer look at these rules.

The UGESP prescribe the records that contractors must keep on the race, sex, and ethnic groups of their applicants:
  • The records called for by this section [concerning adverse impact] are to be maintained by sex, and the following races and ethnic groups: Blacks (Negroes), American Indians (including Alaskan Natives), Asians (including Pacific Islanders), Hispanic (including persons of Mexican, Puerto Rican, Cuban, Central or South American, or other Spanish origin or culture regardless of race), whites (Caucasians) other than Hispanics, and totals…
41 C.F.R. § 60-3.4(B). (Note that these categories have still not been updated to reflect the current racial and ethnic groups required for the EEO-1 Report).

The Guidelines set forth how discrimination in the selection process is defined:
  • The use of any selection procedure which has an adverse impact on the hiring, promotion, or other employment or membership opportunities of members of any race, sex, or ethnic group will be considered to be discriminatory and inconsistent with these guidelines, unless the procedure has been validated in accordance with these guidelines, or the provisions of section 6 of this part [use of selection procedures which have not been validated] are satisfied.
41 C.F.R. 60-3.3(A).

Finally, we must look at how adverse impact is defined:
  • A selection rate 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 the Federal enforcement agencies as evidence of adverse impact…
41 C.F.R. § 60-3.4(D) (emphasis added).

Note that the terms "race" and "ethnic group" are singular; there is no implication that more than one race or ethnic group should be combined at any point in the adverse impact analysis. This rule provides very simply that we should compare "the group" with the highest selection rate to each of the other groups, and if the selection rate for "any" of those groups is less than 80 percent of the selection rate for the most favored group, then evidence of adverse impact exists. (We will save a discussion on the use of the 80 percent rule as opposed to a statistical analysis for another day).

Finally – The Lesson

So, what is the "take away" from all this? Stop analyzing your employment activity by comparing whites to all minorities! (You can – and should – still prepare the analyses in your AAP for goal setting purposes with all minorities combined, though). And more importantly, do not settle cases with the OFCCP where the agency alleges disparate impact against all minorities or some other fabricated racial group.

When conducting your adverse impact analyses, you should determine which racial group is the "most favored," i.e., has the highest selection rate for a positive personnel activity or has the lowest selection rate for a negative personnel activity, and compare each other represented individual racial group to the most-favored group. Yes, it may be easier to conduct an analysis by grouping all minorities together, but that is not the process plainly articulated by the regulations. "Minorities" is not a racial or ethnic group identified in the regulations.

Quite frankly, the OFCCP has already moved away from the type of analysis criticized in the VF Jeanswear case, and, because it was based on 2005 data, that may simply have been an older case the agency was still attempting to prosecute under prior methodologies. See Federal Contractor Compliance Manual, Chapter 1, § 1O00 ("When an analysis of the personnel activity data comparing race or ethnicity, or both, indicates that a group is selected at a substantially lower rate than the favored group, a subgroup analysis by individual race and ethnic categories is necessary") (July 2013).

However, as recently as 2012, OFCCP settled a case with Leprino Foods Co. based on alleged discrimination against "minorities" in the use of a job skills assessment test. Now, I have no personal knowledge about that case, and possibly the statistics showed adverse impact against each minority racial group when compared to whites (or there was some other reason the contractor chose not to challenge it). One cannot tell from the Consent Decree entered by the parties. A review of some past Conciliation Agreements with the agency similarly describe alleged discrimination against "minorities."

My advice to the contractor community is two-fold:
  1. Follow the UGESP when performing your own analyses, especially when your establishment is being audited by the OFCCP. Determine the most-favored group and compare the rest of the groups individually to the most-favored group. Also, do not assume that when the most-favored group is a minority group that you do not have to worry about adverse impact. The agency has pursued, and will continue to pursue, cases where the allegedly adversely affected group is white.

  2. Make sure the OFCCP is following the UGESP. If the agency issues a Notice of Violation contending that your organization's selection process discriminated against "minorities" or some other "made up" racial group, consider pointing out the flaw in the agency's logic. The Compliance Officer or other agency official with whom you are dealing may not be as familiar with the UGESP as you now are. After all, shouldn't we be able to expect that the OFCCP knows and follows its own regulations?