Bloomberg Law
Oct. 26, 2017, 4:23 PM

Labor Dept. Discrimination Settlements Hit Record in Fiscal 2017

Bloomberg Law - Staff Reports

By Jay-Anne B. Casuga and Jasmine Ye Han, Bloomberg BNA

Federal contractors forked over a record $23 million in the past fiscal year to settle workplace discrimination charges from the Labor Department, according to a Bloomberg Law analysis of publicly available government data.

Since last October, the DOL’s Office of Federal Contract Compliance Programs has settled hiring and pay discrimination claims with more than three dozen companies, including Bank of America, B&H Foto, International Paper, KPMG, LabCorp, Leidos, LexisNexis Risk Solutions, Palantir Technologies, Splunk, and State Street. The total figure of at least $23.1 million calculated by Bloomberg Law doesn’t include the agency’s settlement with Qualcomm, which was tied to a $19.5 million private class action settlement.

“I think this may be, financially, the best year OFCCP has ever had,” David Cohen, president of DCI Consulting in Washington, told Bloomberg Law. “And who would have thought that the OFCCP would have the best year financially under the first year of the Trump administration?”

The agency’s record haul comes as the number of audits it conducts and closes has dropped in the wake of an expanded enforcement approach adopted under the Obama administration that focuses on “deep dive” contractor reviews, especially into companies’ pay practices. The office regularly audits roughly 1 percent to 2 percent of about 200,000 contractor establishments annually for workplace affirmative action and nondiscrimination compliance.

Practitioners debate whether this year’s settlement total indicates the enforcement approach under the Obama administration is now showing results, if it’s a one-off occurrence, or if other factors are at play.

“It’s a pretty impressive number,” Pamela Coukos, a former OFCCP senior program adviser during the Obama administration, told Bloomberg Law. Coukos is now a co-founder and principal of Working IDEAL, a consulting firm in Washington. “This is the trend that’s been happening below the radar now becoming much more visible.”

The current total more than doubles the settlement dollars recovered by the OFCCP in fiscal year 2016, when it tallied about $10.5 million in back pay and interest for applicants and employees who allegedly experienced discrimination. It’s also about $6 million higher than the agency’s previous record high of $17.1 million in fiscal 2008, the last full year of the George W. Bush administration.

It’s possible that the $23.1 million total could grow even higher, as the office has yet to officially release its final enforcement numbers for fiscal 2017, the transition year between the Obama and Trump administrations. A Labor Department spokesman didn’t immediately respond to Bloomberg Law’s request for comment.

Contractor representatives cautioned against reading too much into the financial results.

“One data point doesn’t make a line, let alone a pattern,” John Fox, a former OFCCP official during the Reagan administration, told Bloomberg Law. Fox is now a management-side attorney at Fox, Wang & Morgan in San Jose, Calif. “We don’t know if this is a predictor of things to come or a one year aberrational blip.”

The OFCCP, which weathered a possible merger with another civil rights agency and faces a potential budget cut, still awaits political leadership in its national office. The Trump administration could change the office’s enforcement policies and procedures going forward. But some stakeholders believe the agency will continue to focus on pay discrimination.

“I think it is a bipartisan issue and I just don’t see a new director pulling back on compensation enforcement,” said Cohen, also a co-chair of the Institute for Workplace Equality in Washington. “I think they will evaluate compensation under a different lens.”

Some contractor-side representatives have been critical of the audit process under the Obama administration, which included in-depth reviews of contractors’ hiring, compensation, and other employment data for statistical indicators of possible discrimination.

That was a controversial change from Clinton- and Bush-era procedures that sought to close audits quickly if no bias indicators were found during an initial review of contractor data. Annual financial remedies during those years, if accounting for only back pay and interest, hovered between $8 million and $17 million, according to a previous Bloomberg Law analysis.

Critics viewed the Obama approach as inefficient because it led to lengthier audits of fewer contractor facilities and lower monetary recoveries.

Enforcement statistics appeared to back up those claims. For example, in fiscal 2007, the agency closed more than 4,900 audits of supply and service, and construction contractors. It collected $15.3 million in financial remedies that year. By fiscal 2015, the number of closed audits dropped to about 2,600, and monetary recoveries hit a low of $6.1 million.

The number of technical and discrimination violations alleged by the agency also dropped over those years, Fox said.

But then the money recovered started to tick back up in fiscal 2016, when the agency collected $10.5 million while closing just under 1,700 audits.

Now the agency is looking at a record collection in fiscal 2017 despite opening and closing even fewer audits. It completed 915 audits through the third quarter of fiscal 2017.

With a few exceptions, most of the 2017 settlements stemmed from audits that began during the Obama years, which also saw the agency expanding the scope of its enforcement.

In the past, the office focused on hiring discrimination for entry-level, blue-collar jobs, usually in manufacturing or clerical fields. During the Obama administration, agency investigators began to “take a broader look” at employer practices beyond entry-level hiring, Coukos said.

This included an examination of hiring and pay data across industries, including white-collar professional positions in the finance and information technology sectors.

“Historically, 90 percent of settlement dollars came from hiring,” Cohen said. “Last year, about half of the settlement money was compensation.”

So do the higher settlement dollars mean that the seeds planted during the Obama administration’s expanded, deep-dive approach are now bearing fruit?

“I feel like this does reflect the work that’s been done to support enforcement,” Coukos said. “You don’t close cases that are major enforcement actions on a time table. They take time to investigate and resolve.”

She added that audit numbers and financial recoveries are just “part of the story” in measuring the agency’s success in having a “healthy and strong enforcement policy.” It’s also about the OFCCP’s “overall impact” in protecting workers and encouraging contractors to conduct proactive analyses of their employment data.

“Most of the work is done through voluntary compliance,” she said. “But behind that is a robust enforcement piece.”

Cohen agreed that the fiscal 2017 results are a carryover from the Obama administration. But he added that it’s interesting that the agency had its best financial year without a political director in the national office.

“Under the Obama administration, all settlements had to get approved by the national office,” he said. “Now, the authority is back down to the regions, which have a lot more room to negotiate.”

Contractor representatives also aren’t convinced the Obama approach was necessarily the best enforcement model.

For the small percentage of contractors audited, the OFCCP would “dig in” during reviews, Fox said. It would say “there’s a problem,” whether in hiring or pay, based on “erroneous” statistical analyses that don’t conform to settled employment law, and then confront contractors with settlement demands, he said.

Cohen shared similar thoughts, observing as an example that the agency’s approach to analyzing compensation can make contractors face a tough choice.

“Employers have to make a decision: Do I settle or do I litigate?” Cohen said, adding that compensation cases are highly technical, complex, and expensive to litigate. “And if I litigate, I’ve got a public relations issue.”

Fox said in some cases, a contractor will just write the settlement check because that’s the easier and cheaper option in comparison to fighting the agency in litigation. Using State Street as an example, a company that brings in more than $10 billion in annual revenue, a $5 million settlement with the OFCCP is small change.

Some companies currently are battling the agency in administrative proceedings. Google, for example, has pushed back against what it views as overly burdensome pay data requests by the office. JPMorgan Chase and Oracle America also are defending discrimination claims brought by the agency.