Federal Contractor or Not: Issues to Be Considered

by Legal Department

Compliance and Risk Management,  Member Matters

Affirmative action imposes numerous obligations on federal contractors. The Office of Federal Contract Compliance Programs (OFCCP) enforces these requirements, and there are two common coverage areas that sometimes surprise contractors. Employers Council is happy to show you how to find basic coverage requirements online. The complexity lies with affiliated organizations and the use of staffing agencies.

A. Staffing Away the Problems
Many federal contractors engage staffing agencies to find job applicants. But what data are required to be maintained, and by whom? The questions have not been litigated up to now. OFCCP has suggested what
it expects from employers in the form informal guidance for the Internet Applicant Recordkeeping Rule. While this guidance is not binding, it does provide insight into OFCCP’s likely enforcement approach. Specifically, OFCCP states that “it would be prudent” for federal contractors to address record maintenance in their contract with staffing agencies when the staffing agency screens and refers job seekers to the federal contractor. OFCCP further clarifies that a contractor cannot pass this obligation on to the staffing agency. The contractor is liable if it fails to meet recordkeeping obligations, even if it uses a staffing agency.

While it states the “Executive Order does not impose separate recordkeeping obligations upon recruitment firms,” the OFCCP suggests that federal contractors and staffing agencies have a specific discussion about recordkeeping practices. Therein lies the dilemma. The staffing agency is not required to maintain records relating to applicant flow unless it is a federal contractor itself. The OFCCP has taken the position, in some instances, that when a temporary-to-hire transformation occurs, it should be reported as the contractor’s applicant flow. Federal contractors and staffing agencies alike are encouraged to monitor this for guidance or further clarity.

B. Piercing the Corporate Veil
The next issue is whether organizations are required to have an affirmative action plan for affiliated companies that are not federal contractors. Typically, one company is a federal contractor while a parent
or sister company is not. Is the parent or sister (affiliated) company required to have an affirmative action plan? If the companies are determined to be a single entity, all will generally have the same affirmative action obligations.

A five-element test is used to determine whether affiliated companies are a single entity for coverage purposes:

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.
The OFCCP website guides contractors through a 27-point questionnaire that expands on the five elements listed above. The most important aspect, however, is whether there is centralized control over labor relations and personnel functions. Federal contractors who are affiliated with other entities should determine their respective obligations before facing an audit. Questions? Call MSEC at 800.884.1328.

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