The United States Department of Labor’s Office of Federal Contract Compliance Programs (“OFCCP”) recently sent 1,000 Corporate Scheduling Announcement Letters (“CSALs”) to 515 federal government contractors. The CSALs provide advance notice that contractor establishments may be audited by the OFCCP during the scheduling cycle, which ends September 30, 2018, to ensure compliance with the contractors’ non-discrimination/affirmative action obligations.

The CSALs were sent on February 1, 2018, to the attention of the Director of Human Resources of the contractor establishments appearing on the FY2018 Scheduling List. Scheduling Letters will be sent to contractor establishments, beginning March 19, 2018, to commence the compliance review process.

According to the OFCCP, the purpose of the CSAL is fourfold:

  • To provide personnel at each establishment with at least 45 days’ advance notice to obtain management support for compliance and self-audit efforts;
  • To encourage contractors to take advantage of compliance assistance offerings;
  • To encourage contractors to focus on self-audit efforts that, if problems are identified and addressed, will save the OFCCP time and resources when doing its review; and
  • To help contractors manage/budget the amount of time required for the review. Contractors receiving CSALs should take advantage of the advance notice to ensure their affirmative action programs are in compliance and that any potential issues have been addressed in advance of the audit.

Contractors subject to a compliance review need to be vigilant in responding to the audit. It appears that the OFCCP continues to take a “deep dive” approach, which includes in-depth, time-consuming reviews of contractors’ hiring, compensation, and other employment data for statistical indicators of possible discrimination.  In recent years, the number of audits conducted by the OFCCP has dropped, while the enforcement approach has expanded.

According to a report by Bloomberg Law, through the third quarter of FY2017, the number of audits closed by the OFCCP was 915, down from 1,700 the prior year; yet the OFCCP collected $23.1 million in settlements in FY2017 – more than double the prior year when it collected $10.5 million. This should certainly get the attention of all federal government contractors.  While the number of audits by the OFCCP has decreased, the costs associated with defending an audit, and the settlement payouts, for contractors have increased.

What Employers Should Do Now

Contractors need to apprise appropriate personnel at each of their facilities to monitor incoming mail for receipt of the CSAL and Scheduling Letter, with forwarding instructions if received.

Contractors that receive a CSAL should take advantage of the advance notice by conducting a self-audit to ensure that their affirmative action programs are in compliance and that any potential issues have been addressed in advance of the audit. Once a Scheduling Letter has been issued, contractors will only have 30 days within which to respond, and the OFCCP has made clear that extensions of time of no more than 15 days will not be given lightly.

Contractors subject to a compliance review need to pay particular attention to their hiring practices and compensation systems. An impact ratio analysis should be performed, examining applicants and hires to determine if there are statistical results pointing to adverse impact and, if so, what the explanation is for the hiring decisions.  A compensation analysis should also be conducted, with explanations provided if significant pay disparities exist.

The list of establishments that receive CSALs is generated by the OFCCP’s neutral-based Federal Contractor Selection System. If contractors have concerns about whether or not they received a CSAL at any of their facilities, they may make inquiry about whether an establishment was mailed a CSAL by e-mailing a written request on company letterhead to the Division of Program Operations at OFCCP-DPO-Scheduling@dol.gov.

Our colleague  at Epstein Becker Green has a post on the Health Employment and Labor blog that will be of interest to our readers in the financial services industry: “New York City Council Passes Bills Establishing Procedures on Flexible Work Schedules and Reasonable Accommodation Requests.”

Following is an excerpt:

The New York City Council recently passed two bills affecting New York City employers and their employees. The first bill, Int. No. 1399, passed by the Council on December 6, 2017, amends Chapter 12 of title 20 of the City’s administrative code (colloquially known as the “Fair Workweek Law”) to include a new subchapter 6 to protect employees who seek temporary changes to work schedules for personal events.  Int. No. 1399 entitles New York City employees to request temporary schedule changes twice per calendar year, without retaliation, in certain situations, e.g., caregiver emergency, attendance at a legal proceeding involving subsistence benefits, or safe or sick time under the New York City administrative code.  The bill establishes procedures for employees to request temporary work schedule changes and employer responses.  Exempt from the bill are employees: (i) who are covered by a collective bargaining agreement; (ii) who have been employed for fewer than 120 days; (iii) who work less than 80 hours in the city in a calendar year; and (iv) who work in the theater, film, or television industries. …

Read the full post here.

As 2017 comes to a close, recent headlines have underscored the importance of compliance and training. In this Take 5, we review major workforce management issues in 2017, and their impact, and offer critical actions that employers should consider to minimize exposure:

  1. Addressing Workplace Sexual Harassment in the Wake of #MeToo
  2. A Busy 2017 Sets the Stage for Further Wage-Hour Developments
  3. Your “Top Ten” Cybersecurity Vulnerabilities
  4. 2017: The Year of the Comprehensive Paid Leave Laws
  5. Efforts Continue to Strengthen Equal Pay Laws in 2017

Read the full Take 5 online or download the PDF.

Our colleague Steven M. Swirsky at Epstein Becker Green has a post on the Management Memo blog that will be of interest to our readers: “NLRB Reverses Key Rulings: Returns to Pre-Obama Board Test for Deciding Joint-Employer Status and for Determining Whether Handbooks, Rules and Policies Violate the NLRA – Assessment of 2014 Expedited Election Rules and Future Changes Also Announced.”

Following is an excerpt:

It should come as no surprise that recent days have seen a stream of significant decisions and other actions from the National Labor Relations Board as Board Chairman Philip A. Miscimarra’s term moves towards its December 16, 2017 conclusion.  Chairman Miscimarra, while he was in a minority of Republican appointees from his confirmation during July 2013 and as a new majority has taken shape with the confirmation of Members Marvin Kaplan and William Emanuel, has clearly and consistently explained why he disagreed with the actions of the Obama Board in a range of areas, including the 2015 adoption of a much relaxed standard for determining joint-employer status in Browning-Ferris Industries, the standard adopted in Lutheran Heritage Village for determining whether a work rule or policy, whether in a handbook or elsewhere would be found to unlawfully interfere with employees’ rights under Section 7 of the National Labor Relations Act to engage concerted action with respect to their terms and conditions of employment, and his disagreement with the expedited election rules that the Board adopted through amendments to the Board’s election rules. …

In Hy-Brand Industrial Contractors Ltd. and Brandt Construction Co., decided on December 14, 2017, in a 34-2 decision, the Board has discarded the standard adopted in Browning-Ferris, and announced that it was returning to the previous standard and test for determining joint-employer status and returning to its earlier “direct and  immediate control standard.”  …

In The Boeing Company, also decided on December 14, 2017, the Board adopted new standards for determining whether “facially neutral workplace rules, policies and employee handbook standards unlawfully interfere with the exercise” of employees rights protected by the NLRA. …

Noting that the 2014 Election Rules were adopted over the dissent of Chairman Miscimarra and then Member Harry Johnson, and the fact that these rules have now been effect for more than two years, on December 14th, the Board, over the dissents of Members Mark Pearce and Lauren McFerren, both of who were appointed by President Obama, published a Request for Information, seeking comment …

Read the full post here.

Our colleagues at Epstein Becker Green have released a Take 5 newsletter focused on the financial services industry.  Following are the introduction and links to the stories:

For this edition of the Take 5 for financial services, we focus on a number of very well-publicized issues. The tidal wave of sexual harassment allegations that followed the Harvey Weinstein revelations has drawn the attention of companies, their human resources departments, and employment lawyers. The rule on chief executive officer (“CEO”) pay ratio disclosure, which goes into effect in 2018, is a required focal point that garners significant interest in an industry that is all about money. The hyper-charged political climate has brought social activism and heated political discussions into the workplace with increasing frequency—and with potential employment law implications. A heightened legislative focus on eliminating at least one recognized source of the gender pay gap has resulted in new rules that prohibit very common inquiries about past compensation during the interview process. Finally, data leaks are a mounting threat and cybersecurity is a growing concern throughout an industry that is saturated with the highly sensitive, and sometimes personal, financial information of its clients.

We address these important issues and what financial services employers should know about them:

  1. The Weinstein Effect: #MeToo Allegations in the Financial Services Industry
  2. CEO Pay Ratio: It’s Not Too Late to Calculate!
  3. Managing Employees’ Political and Social Activism in the Workplace
  4. Equal Pay Update: The New York City and California Salary History Inquiry Bans
  5. Insider Threats to Critical Financial Services Technologies and Trade Secrets Are Best Addressed Through a Formalized Vulnerability and Risk Assessment Process

Read the full Take 5 newsletter here and download the PDF.

Our colleague , a Member of the Firm at Epstein Becker Green, has a post on the Technology Employment Law blog that will be of interest to many of our readers in the financial services industry: “Get Ready to Respond to IRS Letter 226J: Employer Shared Responsibility Payment Assessments.”

Following is an excerpt:

In a recent update to the IRS’ Questions and Answers on Employer Shared Responsibility Provisions under the Affordable Care Act, the IRS has advised that it plans to issue Letter 226J informing applicable large employers (ALEs) of their potential liability for an employer shared responsibility payment for the 2015 calendar year, if any, sometime in late 2017.  The IRS plans to issue Letter 226J to an ALE if it determines that, for at least one month in the year, one or more of the ALE’s full-time employees was enrolled in a qualified health plan for which a premium tax credit (PTC) was allowed (and the ALE did not qualify for an affordability safe harbor or other relief for the employee). The IRS will determine whether an employer may be liable for an employer shared responsibility payment, and the amount of the potential payment, based on information reported to the IRS on Forms 1094-C and 1095-C and information about the ALEs full-time employees that were allowed the premium tax credit. …

Read the full post here.

Our colleagues , at Epstein Becker Green, have a post on the Retail Labor and Employment Law blog that will be of interest to many of our readers in the financial services industry: “New Jersey’s Appellate Division Finds Part C of the “ABC” Independent Contractor Test Does Not Require an Independent Business

Following is an excerpt:

In a potentially significant decision following the New Jersey Supreme Court’s ruling in Hargrove v. Sleepy’s, LLC, 220 N.J. 289 (2015), a New Jersey appellate panel held, in Garden State Fireworks, Inc. v. New Jersey Department of Labor and Workforce Development (“Sleepy’s”), Docket No. A-1581-15T2, 2017 N.J. Super. Unpub. LEXIS 2468 (App. Div. Sept. 29, 2017), that part C of the “ABC” test does not require an individual to operate an independent business engaged in the same services as that provided to the putative employer to be considered an independent contractor.  Rather, the key inquiry for part C of the “ABC” test is whether the worker will “join the ranks of the unemployed” when the business relationship ends. …

Read the full post here.

For the second time in as many years, California Governor Jerry Brown has vetoed “wage shaming” legislation that would have required employers with 500 or more employees to report gender-related pay gap statistics to the California Secretary of State on an annual basis beginning in 2019 for publication on a public website. Assembly Bill 1209 (“AB 1209”), which we discussed at length in last month’s Act Now advisory, passed the Legislature despite widespread criticism from employers and commerce groups.  This criticism included concerns that publication of statistical differences in the mean and median salaries of male and female employees without accounting for legitimate factors such as seniority, education, experience, and productivity could give a misleading impression that an employer had violated the law.  Opponents also decried the burden the bill would place on employers to do data collection and warned that it would lead to additional litigation.  In vetoing the measure, Governor Brown noted the “ambiguous wording” of the bill and stated he was “worried that this ambiguity could be exploited to encourage more litigation than pay equity.”

However, the same pen that vetoed AB 1209 signed another pay-equity law last week: Assembly Bill 168 (“AB 168”).  AB 168 precludes California employers from asking prospective employees about their salary history information.  “Salary history information” includes both compensation and benefits.  Like similar laws passed recently in several other states and cities, the policy underlying the inquiry ban is that reliance upon prior compensation perpetuates historic pay differentials.  Opponents have argued that such a ban will make it more difficult for employers to match job offers to market rates.  Go to our Act Now Advisory on AB 168 for a comprehensive review of this new law.

It is highly likely that the National Association of Insurance Commissioners (“NAIC”) will adopt a model data cyber security law premised largely on the New York State Department of Financial Services (“NYSDFS”) cyber security regulations.  Recently, we discussed the NYSDFS’ proposed extension of its cyber security regulations to credit reporting agencies in the wake of the Equifax breach.  New York Governor Andrew Cuomo has announced, “The Equifax breach was a wakeup call and with this action New York is raising the bar for consumer protections that we hope will be replicated across the nation.”  Upon adoption by the NAIC, the NYSDFS regulations requiring that NYS financial organizations have in place a written and implemented cyber security program will gain further traction toward setting a nationwide standard for cyber security and breach notification.  Indeed, although there are differences, the NAIC drafters emphasized that any Licensee in compliance with the NYSDFS “Cybersecurity Requirements for Financial Services Companies” will also be in compliance with the model law.

The NAIC Working Committee expressed a preference for a uniform nationwide standard: “This new model, the Insurance Data Security Model Law, will establish standards for data security and investigation and notification of a breach of data security that will apply to insurance companies, producers and other persons licensed or required to be licensed under state law. This model, specific to the insurance industry, is intended to supersede state and federal laws of general applicability that address data security and data breach notification. Regulated entities need clarity on what they are expected to do to protect sensitive data and what is expected if there is a data breach.  This can be accomplished by establishing a national standard and uniform application across the nation.”  Other than small licensees, the only exemption is for Licensees certifying that they have in place an information security program that meets the requirements of the Health Insurance Portability and Accountability Act.  According to the Committee, following adoption, it is likely that state legislatures throughout the nation will move to adopt the model law.

The model law is intended to protect against both data loss negatively impacting individual insureds, policy holders and other consumers, as well as loss that would cause a material adverse impact to the business, operations or security of the Licensee (e.g., trade secrets).  Each Licensee is required to develop, implement and maintain a comprehensive written information security program based on a risk assessment and containing administrative, technical and physical safeguards for the protection of non-public information and the Licensee’s information system.  The formalized risk assessment must identify both internal threats from employees and other trusted insiders, as well as external hacking threats.  Significantly, the model law recognizes the increasing trend toward cloud based services by requiring that the program address the security of non-public information held by the Licensee’s third-party service providers.  The model law permits a scalable approach that may include best practices of access controls, encryption, multi-factor authentication, monitoring, penetration testing, employee training and audit trails.

In the event of unauthorized access to, disruption or misuse of the Licensee’s electronic information system or non-public information stored on such system, notice must be provided to the Licensee’s home State within 72 hours.  Other impacted States must be notified where the non-public information involves at least 250 consumers and there is a reasonable likelihood of material harm.  The notice must specifically and transparently describe, among other items, the event date, the description of the information breached, how the event was discovered, the period during which the information system was compromised, and remediation efforts.  Applicable data breach notification laws requiring notice to the affected individuals must also be complied with.

The IRS recently released the Tax Exempt and Government Entities FY 2018 Work Plan (the “2018 Work Plan”) which provides helpful information for sponsors of tax-qualified retirement plans about the focus of the IRS’ 2018 compliance efforts for employee benefit plan.  While the 2018 Work Plan is a high-level summary, it does address IRS compliance strategies for 2018 and should assist plan sponsors in administering their retirement plans.

The Work Plan provides that for fiscal year 2018, the IRS compliance strategies include examination of plans that:

  1. Have transferred their assets or liabilities to another plan as a result of a merger or acquisition;
  2. Failed to comply with a non-discrimination test (such as the gateway test, actual deferral percentage test or actual contribution percentage test) or failed to comply with the safe harbor contribution rules for 401(k) plans;
  3. Failed to satisfy the minimum age and/or service requirements or met statutory requirements in form but failed eligibility in operation;
  4. Failed to make required minimum distributions or distributions in accordance with plan terms;
  5. Failed to satisfy the accrual rules under Section 411(b) of the Internal Revenue Code of 1986, as amended (the “Code”);
  6. Used an incorrect definition of compensation, resulting in incorrect contributions or forfeitures;
  7. Failed to make matching contributions in accordance with plan terms;
  8. Failed to withhold elective deferrals in accordance with plan terms (collectively, with items 1-7 above, the “Compliance Matters”).

The Work Plan also notes that the IRS will continue to pursue referrals from sources within and outside of the IRS alleging possible non-compliance by a plan.

With respect to the Compliance Matter noted in item 1 above, the IRS can easily identify a plan that experienced an asset transfer by referring to the plan’s Form 5500 and the related schedules (“Form 5500”).  Item 2(l) of Part II on Schedule H to Form 5500 requires the plan sponsor if to identify the amount of assets transferred during the year to the plan and from the plan.  Additionally, Items 4(k) and 5(b) of Part IV on Schedule H and Item 4(j) of Part II on Schedule I ask if any assets were transferred to another plan. If Form 5500 does indicate a transfer of assets to or from the plan, the IRS may consider other factors before determining whether to conduct a compliance examination of the plan.  Such factors may include:  the number of participants, as compared to prior years and the amount of the asset transfer relative to the total assets of the plan as the IRS may want to examine the plan to determine if a partial termination has occurred.

It may be more difficult for the IRS to identify plans impacted by the other Compliance Matters.  Except as noted above regarding  item 1, it is not clear if information on the other Compliance Matters will be available on Form 5500.  Part VII on Schedule R does consist of six questions on various Compliance Matters ranging from nondiscrimination in a 401(k) plan, to compliance with the coverage requirements under Section 410(b) of the Code, and the date of the plan’s most recent favorable determination letter.  Items 15-17 of Part IX on Form 5500-SF contain similar questions on the Compliance Matters.  Yet, this information will not be provided to the IRS for the 2016 plan year because the 2016 Instructions for Form 5500 and for Form 5500-SF state that the IRS has decided not to require plan sponsors to respond to these questions for the 2016 plan year.

At this time, it is not known if plan sponsors will be required to respond to these questions for the 2017 plan year or a later plan year.  If responses are required, then the IRS will have additional information relating to the Compliance Matters that the IRS can use to determine if a compliance examination of the plan is appropriate.

In any event, the IRS may also receive information on a plan relating to the Compliance Matters from referral sources that could cause the IRS to undertake a compliance examination.  For example, the IRS could receive a referral from one of the benefit advisers at the Employee Benefits Security Administration who was contacted by a plan participant about a Compliance Matter or a related matter.  Or, the source of a referral could be the IRS team that reviews Form 5500 submissions.  For example, a Form 5500 that is significantly different from the prior year Form 5500 could cause a referral to the IRS employee plans team.

Suggested Actions for Plan Sponsors

While there is little that plan sponsors can do to prevent a compliance examination, they can take steps designed to mitigate the impact of an IRS examination.   For example, if a plan is involved in a transfer of assets, sponsors should consider the potential consequences of the transfer, including whether the transfer will result in a partial plan termination or whether the transfer requires protection of certain forms with its terms, and then take steps to ensure compliance with IRS requirements relating to those consequences. If a plan sponsor is aware of plan operational failures, the sponsor should consider correcting the operational failures under the IRS Employee Plans Correction Resolution System, which generally provides protection to the plan in the event of an IRS examination.  Finally, plan sponsors should check Form 5500 before filing for inadvertent errors and for responses that are significantly different from the responses on the prior year’s Form 5500 to ensure that the current year responses are correct.