For contractors with multiple locations, the first step in developing an affirmative action program under the Department of Labor’s Office of Federal Contractor Compliance Programs (OFCCP) regulations implementing the affirmative action requirements of Executive Order (E.O.) 11246 is to develop the program’s “structure.” Although the OFCCP’s regulations generally require contractors to develop an AAP for each “establishment,” there are exceptions that can be utilized to develop AAPs that better reflect the employer’s actual organizational structure and/or to mitigate potential legal risk. 41 C.F.R. § 60-2.1.

For employers with a single location, AAP structure is not a concern as the employer will only prepare one AAP for that location.

The OFCCP’s regulations do provide contractors with the option to prepare AAPs by business function, rather than brick-and-mortar locations, but contractors must first apply and be granted approval by the OFCCP. In the meantime, such contractors are required to maintain establishment-based AAPs. Below we discuss developing an establishment-based AAP structure. For more information regarding functional affirmative action plans (FAAPs) visit the BCGi Resources topic page here.

Developing an establishment-based AAP structure means identifying separate legal entities, identifying employees, identifying establishments with 50 or more employees, and deciding what to do with the employees at locations with fewer than 50. 

For larger, more complex organizations consisting of two or more separate companies under the same corporate “umbrella” or in the same corporate “family,” the first question to answer is whether or not all associated companies are subject to the OFCCP’s jurisdiction, or just the one(s) holding qualifying federal contracts.

The OFCCP’s jurisdiction stems from contracts entered into between a private employer and a federal government agency or entity (or qualifying subcontracts with another federal contractor employer). The OFCCP’s default position is that a contract with one company confers jurisdiction over every company under a shared corporate umbrella unless the subsidiary or otherwise related organization (not itself holding a qualifying federal contract) can demonstrate that it is sufficiently separate enough that the organizations do not constitute a single employer.

The OFCCP evaluates jurisdiction over related organizations using a “single entity” test similar to the one used under the National Labor Relations Act and other employment laws. The test includes five broad factors:

1.  Whether there is common ownership;
2. Whether there are common directors and/or officers (control);
3. Whether one entity has de facto day-to-day control over the other entity's operations;
4. Whether the personnel policies of the various entities emanate from a common or centralized source; and
5. Whether the operations of the entities are dependent on each other.

Even if you determine that a portion of the organization is not subject to the OFCCP’s jurisdiction—and therefore not required to prepare formal, written AAPs—many such organizations nonetheless choose to prepare voluntary AAPs for a variety of reasons. For one, your analysis may be different from the OFCCP’s and, if challenged, the OFCCP could prevail. In such circumstances, the organization is not starting from scratch if it chooses to submit materials for agency review in an audit. For another, voluntary affirmative action programs are allowed under the law and many organizations choose to engage in the exercise as part of their broader diversity efforts.

If separate corporate entities are deemed separate enough to be considered separate employers, separate AAP structures should be developed for each such entity that is required to prepare AAPs, and the AAPs should be clearly marked with the separate company names (not the name of the overarching corporate parent). Otherwise, the exercise of preparing AAPs itself could erode the organization’s future position regarding separate legal entities in this and other legal contexts.

Even if separate corporate entities are not deemed separate enough to be considered separate employers, consider whether and to what extent developing separate AAP structures for each entity makes sense given the way the organization actually operates. Keep in mind, the purpose of the AAP is to determine whether or not the organization’s employment practices—such as hiring, promotion, termination, compensation, etc.—are leading to artificial barriers being put in the way of people with protected characteristics. Therefore, to the extent possible, the AAP reports and analyses should be able to isolate and analyze discrete employment selection processes. Although Company A and Company B might not be considered separate employers, if the entities nonetheless operate independently regarding employment selection decisions, there is a strong argument for developing separate AAPs. However, in an audit of a location with employees from both Company A and Company B, OFCCP could demand to evaluate both AAPs if there is not a functional AAP agreement in place.

A major contributing factor to whether or not the OFCCP will treat separate legal entities as different employers is whether or not the organization files separate EEO-1 reports for the different entities. 

Do not navigate these waters alone. You should seek the advice of legal counsel with regard to your organization’s position on separate legal entities and make sure that your legal counsel understands that you should be informed promptly when/if the organization’s position changes. Ideally, Compliance would be included in discussions regarding any corporate restructuring plans.

Although the OFCCP’s regulations are clear that all employees must be included in an AAP, there are some exceptions. All covered employers must decide what to do with employees who are not “active” at the time the AAP snapshot is taken. Many employers will have to deal with non-traditional employment relationships such as independent contractors and student workers. For some employers, seasonal workers might be an issue. And for some employers, there might be U.S. employees working at locations outside the United States and/or foreign nationals working at locations inside the United States.

     “Inactive” Employees

The OFCCP does not provide any guidance regarding how to treat employees who are “inactive” due to some sort of short- or long-term leave. As a technical matter, these employees should be included in the AAP snapshot whether or not their status is “active” in the Human Resources Management System (HRMS). However, as a practical matter, including these employees in the AAP can skew availability analyses for placement goal-setting purposes as well as impact ratio analyses of the promotion and termination processes. As a general rule, many employers will exclude inactive employees who are on long-term leaves of absence due to injury, illness, military service, etc., on the theory that they are not really available to be impacted by the employment selection decisions being monitored or the affirmative action efforts in which the employer engages.

     Independent Contractors

Oddly, the OFCCP’s regulations do not define the term, “employee.” Rather, the agency tends to adopt definitions used in other employment law contexts. The OFCCP often draws from definitions from other, related legislation and/or federal case law, often relying on definitions used by the Equal Employment Opportunity Commission (EEOC) in its enforcement and regulatory reporting functions.

For EEO-1 reporting purposes, “employee” is simply defined as “any individual on the payroll of an employer who is an employee for purposes of the employers withholding of Social Security taxes,” with an exception for insurance sales agents. As a result, many contractors simply apply a broad, “W-2 rule” for identifying employees in which workers for whom the organization completes a W-2 tax form are considered employees and all others are not. Such a simple rule assumes that the organization has applied current case law to its determinations of independent contractor status, which is often not the purview of the affirmative action compliance department.

Historically the OFCCP has not generally expressed much interest in whether and to what extent employers are counting “employees” correctly, absent a specific allegation in which this is an issue. When pressed, however, the OFCCP will employ the “Darden factors,” established by the 1992 U.S. Supreme Court decision in Nationwide Mutual Insurance Co. v. Darden, 503 U.S. 318 (1992). In essence, the Darden test is meant to determine who is ultimately responsible for any potential negative impact stemming from the employment selection processes by which the worker is governed. 

     Student Workers

Higher education institutions often “employ” students in a variety of contexts and the question arises as to whether and to what extent it is proper to consider such student workers “employees” for employment law purposes. The determination of whether or not a particular student worker meets the legal test for employees (see discussion of the “Darden factors” above) is difficult and burdensome both for employers and the OFCCP. Accordingly, the OFCCP has issued guidance defining “student workers” who can, and arguably should, be excluded from the AAP.

The OFCCP defines “student worker” as “a student, undergraduate or graduate, engaged in research, teaching, work-study, or another related or comparable position at an educational institution.  The individual’s primary relationship with the institution is educational, and the student’s working relationship has been obtained as a result of or in conjunction with his or her studies.”

The OFCCP’s guidance is silent regarding other, non-educational employers that might participate in work/study programs, but the reasoning behind the agency’s guidance holds in other contexts and it may be reasonable for other employers to exclude student workers from their AAPs as well. To the extent that they are included, consider segregating them in separate AAP job groups to be analyzed separately regarding placement goals and employment transaction monitoring (hiring, promotion, termination, etc.).

     Foreign Workers in the U.S.

Foreign workers employed inside the United States are subject to U.S. employment law, including the laws and regulations enforced by the OFCCP. Citizenship status might come into play when determining whether or not a particular job-seeker meets the OFCCP’s definition of an “Internet Applicant,” but otherwise citizenship status generally does not come into play when determining whether or not a worker is an “employee” who must be included in the AAP snapshot.

     U.S. Workers on Foreign Soil

The issue of U.S. citizens employed at locations outside the United States can be complicated. Whether and to what extent U.S. citizens working abroad are protected by U.S. employment law can depend on a number of factors including the particular law in question, whether the employer is “American” (where the employer is headquartered/domiciled), whether the employer is nonetheless controlled by an American entity, and even international treaties.

For example, the Fair Labor Standards Act (FLSA), the Equal Pay Act (EPA), and the Family Medical Leave Act (FMLA) generally do not apply to employees working overseas. However, Title VII of the Civil Rights Act, the Americans with Disabilities Act (ADA), and the Age Discrimination in Employment Act (ADEA) often can apply. Although the OFCCP has not provided any meaningful, formal guidance regarding the laws it enforces (Executive Order 11246, Section 503 of the Rehabilitation Act, and Section 4212 of the Vietnam Era Veterans’ Readjustment Assistance Act (VEVRAA)), the agency is likely to follow precedent regarding similar laws such as Title VII and the ADA.

The more workers an organization has working overseas, the more likely those foreign workers are to become an issue for the OFCCP regarding whether or not they are/should be included in an AAP. As a general rule, most contractors will determine whether or not to include such workers in their AAPs based on factors such as the length of the assignment and whether and to what extent the worker’s employment decisions are made by someone in the U.S.    

The heart of affirmative action for federal contractors involves comparing the demographics of the existing workforce at an isolated point in time to the demographics of those in the labor force who are qualified to be in that particular workforce. This is the primary way to identify areas within the company in which there may be “artificial barriers” standing in the way of people with protected characteristics, and then develop and implement appropriate affirmative action efforts to eliminate such barriers.

The AAP development process begins with a class picture of sorts, a “snapshot” of the employment landscape, meaning a list of U.S.-based employees, active in the workforce as of the snapshot date. If your organization consists of multiple companies, you should prepare separate snapshots for each corporate entity. For each employee in each snapshot, you will need to the employee’s “work location” and identify the person to whom they report.

Using your AAP snapshot(s) you will then apply the rules laid out in 41 C.F.R. § 60-2.1(d) (external link). This particular section of the OFCCP’s regulations, titled, “Who is included in affirmative action programs,” is somewhat complicated. It begins with two relatively simple premises:

1. Contractors must develop and maintain a written AAP for each "establishment;" and
2. Every employee in the contractor's workforce must be included in an AAP.

Note that the OFCCP's regulations do not actually define the term, "establishment." Historically, the OFCCP has adopted the definition used by the Equal Employment Opportunity Commission (EEOC) for EEO-1 reporting purposes. The EEOC, in turn, has adopted their definition from the North American Industry Classification System, which defines "estalishment" generally as "a single physical location where business is conducted or where services or industrial operations are performed (e.g., factory, mill, store, hotel, movie theater, mine, farm, airline terminal, sales office, warehouse, or central administrative office)."

As a general rule, an establishment will have a physical mailing address. However, a single address might house more than one employer.

The OFCCP's regulations state that each employee must be included in an AAP for the establishment at which they work, with four possible exceptions:

1. Employees who work at establishments other than that of the manager to whom they report, must be included in the affirmative action program of their manager;
2. Employees who work at an establishment where the contractor employs fewer than 50 employees may be included under any of the following three options: in an affirmative action program which covers just that establishment; in the affirmative action program which covers the location of the personnel function which supports the establishment; or in the affirmative action program which covers the location of the officiao to whom they report;
3. Employees for whom selection decisions are made at a higher level establishment within the organization must be included in the affirmative action program of the establishment where the selection decision is made; and
4. If a contractor wishes to establish an affirmative action program other than by establishment, the contractor may reach agreement with OFCCP on the development and use of affirmative action programs based on functional or business units. The Deputy Assistant Secretary, or his or her designee, must approve such agreements. Agreements allowing the use of functional or business unit affirmative action programs cannot be construed to limit or restrict how the OFCCP structures its compliance evaluations.

Unfortunately, the OFCCP has not provided guidance on whether or not contractor employers should identify their “50+” locations (for which an AAP must be developed) based on the number of employees who “report-in” to the location regardless of where they are physically located, or on the number of employees who physically work at the location regardless of where or to whom they report. Either choice is a reasonable one to make. However, basing the identification of 50+ locations on the number of employees who report-in to the location based on exceptions 1 or 3 above avoids situations in which the contractor is obligated to prepare an AAP for a location where 50 or more employees physically work only to have that AAP gutted when exceptions 1 and 3 are applied. Basing the determination on the number of employees who report-in to each location may be more in line with the purpose of the regulations.

Note that in some circumstances, the application of exceptions 1 and 3 could lead to a single employee being assigned to two different AAPs. Although the OFCCP has not provided guidance directly on point, it is unlikely that OFCCP intends for that to be the outcome. To the extent that an employee physically works at Location A, reports to a manager at Location B, but selection decisions are actually made for that employee by someone at Location C, it is reasonable to choose to apply either exception 1 or exception 3, but not both. To avoid any misperception regarding intent, be consistent in whatever you choose. Applying exception 1 in some circumstances and exception 3 in others could give the impression that you are trying to “game the system” somehow.

Once your “50+” locations are identified, you know that you will prepare a separate AAP for each of those locations. The only thing remaining is to decide what to do with any “under-50” locations. 

The OFCCP’s regulations provide contractors with a fair degree of elbow room to decide how to include employees at locations with fewer than 50 employees. Exception 2 (above) provides that employees who work at an establishment where the contractor employs fewer than 50 employees may be included in:

1. In an affirmative action program which covers just that establishment;
2. In the affirmative action program which covers the location of the personnel function which supports the establishment; or
3. In the affirmative action program which covers the location of the official to whom they report

Some employers will choose to prepare individual “under-50” location AAPs because those AAPs are effectively “audit-proof.” The OFCCP has traditionally closed audits administratively (without engaging in any investigation) when they learn that it is an under-50 location, but they are not required to do so and have, on occasion, gone ahead with such an audit. However, even if the OFCCP audits an under-50 AAP, it is unlikely that the headcounts in each AAP job group will be sufficient for meaningful statistical analysis, which is where “the money” is. Preparing under-50 AAPs can be a way to mitigate the organization’s potential legal risk. 

For organizations with lots of under-50 locations, preparing a separate AAP for each one might not be feasible. Moreover, doing so might restrict the organization’s ability to engage in meaningful affirmative action. Officially, there are two other options involving what is commonly referred to as “rolling-up” employees to another, larger AAP.

Option 2 above allows contractors to roll-up an entire under-50 location to a larger, related location following the “personnel function.” Rather than follow the management or decision-making chain for each employee, you identify the location that is responsible for providing the Human Resources function for the entire location. While it might be tempting to read in a requirement that the under-50 location not have HR personnel working there in order to apply option 2, that is not actually a requirement.

Option 3 above allows contractors to roll-up on an individual employee basis, following the management chain. Rather than roll-up the entire location, each employee rolls-up to the AAP where their manager sits. If their manager sits at the same location, or at another under-50 location (that does not become a 50+ location due to roll-ups), contractors will often look one link up the management chain at a time until an appropriate AAP location is identified. This can be a more complicated, iterative process in which some employees are rolled-up using just one level of management while others are rolled-up several levels.

Nothing in the OFCCP’s regulations prohibits contractors from choosing different under-50 options for different circumstances, but if you do, be prepared to explain your rationale to the agency in the event of an audit.

Traditionally, the OFCCP has looked favorably on contractors that choose to combine AAP locations, even absent explicit permission to do so in the regulations (such as combining 50+ locations). For instance, retailers often prepare regional or district plans covering multiple locations regardless of the number of employees when this reflects the way the retailer actually manages its operations. Another example might be a corporate headquarters “location” that is actually spread across several different buildings on a corporate “campus,” or a hospital complex. In these cases, the OFCCP is unlikely to complain about a contractor’s decision to combine locations into larger AAPs.

Just as traditionally, the OFCCP is skeptical of contractors’ efforts to “split-out” larger AAPs into smaller ones, even when the agency’s regulations explicitly allow for it. Take again the example of a corporate headquarters campus with several buildings. The OFCCP might actually prefer that the contractor prepare a single AAP for the entire campus, and might even assert that they must in a compliance review. But it is perfectly compliant for the contractor to prepare separate AAPs for each physical location, as per the OFCCP’s regulations, and the agency does not have the authority to require contractors to do otherwise.

This often becomes an issue when the OFCCP selects a contractor establishment for audit and discovers that the company in question shares office space in the same building with another, related contracting entity. In other words, when there are two or more separate but related legal entities with the same mailing address. In such instances, the OFCCP is likely to want to “expand” the audit of Company A employees at Location 1 to include Company B employees at Location 1. Whether and to what extent the agency actually has the authority to do so is a matter of some debate and heavily dependent on the specific circumstances, such as whether or not the different entities “pass” the “single entity” test discussed above. In such circumstances, it is helpful to demonstrate that the different entities have different Employer Identification Numbers (EINs) for tax purposes and that the entities in question file separate EEO-1 reports. If the agency insists on expanding the scope of an audit in this way, you should seek the assistance of legal counsel.