Richard D. Alaniz

Companies with federal government contracts or subcontracts may soon risk losing their contracts if they do not meet quotas to hire more disabled workers.

The U.S. Department of Labor is considering changes to Section 503 of the Rehabilitation Act of 1973 that would require private employers with federal government contracts and subcontracts to set a hiring goal that 7 percent of their employees are qualified workers with disabilities. According to the Office of Federal Contract Compliance Programs (OFCCP), the proposed rule changes would also spell out actions that contractors would be required to take when recruiting, training, keeping records, and implementing affirmative action policies, along with specific guidance on how to comply with the law.

According to the Department of Labor, the unemployment rate for people with disabilities is 1.5 times the rate of those without disabilities. Nearly 80 percent of those with disabilities are outside the labor force completely, compared to 30.5 percent of those without disabilities.

The Obama administration is marketing these changes as an issue of fairness. “This proposed rule represents one of the most significant advances in protecting the civil rights of workers with disabilities since the passage of the Americans with Disabilities Act (ADA),” said Secretary of Labor Hilda L. Solis in a December press release. She continued, “President Obama has demonstrated a commitment to people with disabilities. This proposed rule would help federal contractors better fulfill their legal responsibility to hire qualified workers with disabilities.”

Patricia A. Shiu, director of the OFCCP, added, “For nearly 40 years, the rules have said that contractors simply need to make a ‘good faith’ effort to recruit and hire people with disabilities. Clearly, that’s not working. Our proposal would define specific goals, require real accountability, and provide the clearest possible guidance for employers seeking to comply with the law. What gets measured gets done. And we’re in the business of getting things done.”

However, the ramifications for employers would be expensive and time-consuming and new requirements could potentially conflict with existing regulations. Nearly 200,000 companies could be impacted by the proposed changes. Federal contractors and subcontractors would either be forced to comply with the changes or walk away from their government contracts.

The Proposed Changes

Section 503 prohibits discrimination and requires employers with federal contracts or subcontracts of more than $10,000 to take affirmative action to hire, retain, and promote qualified individuals with disabilities. It also requires covered contractors and subcontractors to include a specific equal opportunity clause in each of their nonexempt contracts and subcontracts. Additionally, contractors with a federal contract or subcontract worth $50,000 or more, and 50 or more employees, would be required to adopt a new affirmative action program that would force them to comply with a lengthy list of new requirements regarding their outreach and recruiting efforts, and to track how effective those efforts were each year. Employers would need to perform extensive documentation and implement new procedures and self-assessments.

Some of the specific proposed requirements would require employers to:

• Conform to one mandatory nationwide goal that 7 percent of every job group be comprised of qualified individuals with disabilities. The OFCCP is also considering requirements that 2 percent of the workforce be comprised of severely disabled workers, such as those who are totally blind;

• File annual reports for employees with disabilities;

• Perform an annual review of each mental or physical job qualification for each and every position within the company, and write an explanation of why each qualification is job-related and consistent with business necessity;

• List job openings and enter into “linkage agreements” with one-stop career centers or other appropriate employment delivery systems;

• Develop and implement written procedures to process requests for reasonable accommodation for individuals with disabilities and create detailed descriptions of those processes, including stringent deadlines by which requests must be processed;

• Send written notification of their company policies regarding affirmative action efforts to subcontractors;

• Issue an invitation to allow all applicants to self-identify as disabled, before and after an employment offer is made;

• Institute annual, anonymous surveys so all employees can self-identify as disabled;

• Revise their current Section 503 Affirmative Action Plan;

• Undertake extra data collection, including a requirement to retain records for five years;

• Maintain and analyze disability-related data for applicants; and

• Write annual reviews and evaluations of the effectiveness of outreach and recruitment efforts.

As currently written, the proposals would also greatly broaden Section 503’s definitions of “disability” similar to the ADA Amendments Act. This would greatly increase the number of individuals with disabilities who are covered by the OFCCP’s rules. While contractors must already comply with the ADAAA, they would have to apply the definition under the more burdensome rules and record-keeping that OFCCP is proposing.

While OFCCP officials have said they will work with contractors to help them abide by any new proposals, the agency can also use punitive measures for those it deems noncompliant. OFCCP enforcement procedures include obtaining conciliation agreements from contractors and subcontractors that violate regulatory requirements, as well as recommending enforcement actions to the Solicitor of Labor. The OFCCP also has the authority to debar employers from federal contracts, and to order other forms of relief to discrimination victims, including back pay for lost wages.

Challenges and Issues

It is not yet clear whether all the proposed changes will be adopted, but there are several areas of particular concern for contractors and subcontractors. These include the potential conflict between conducting surveys that are supposed to be anonymous while also being required to provide data about utilization goals.

The issue of voluntary self-identification could also be extremely problematic for employers. If employees choose not to self-identify as disabled, then contractors may have a difficult time accurately completing the data required under the proposed rule changes. If a contractor asks a job candidate to self-identify as disabled before a job offer is made, then it could also violate the ADA, which forbids such questions. The OFCCP has insisted that there is no conflict, but contractors should be wary that such questions could leave them vulnerable to lawsuits and regulatory action.

Costs are another serious concern. While the OFCCP claims that the total cost of the changes would be $81.1 million, the HR Policy Association, in its comments on the proposed rule, pegged the costs at $1.8 billion for the first year alone. That includes $1.1 billion to modify IT and human resources systems, $461.3 million per year to conduct an annual review of all physical and mental job qualifications, $172 million to train employees and new hires, and $16.9 million annually to survey employees. The association also estimates that the new linkage agreements will cost $33.5 million more than OFCCP estimates.

Daniel V. Yager, the association’s chief policy officer and general counsel, wrote, “Rather than blindly propose a costly regulation, the Department might want to first consider sitting down with the contracting and disabilities communities on a collaborative basis to figure out what the issues are and how best they can be addressed in a cost-effective way.”

What to Do Now

While it is laudable to encourage more disabled people in the workforce, implementing a quota for federal contractors and subcontractors would be expensive, burdensome, and could potentially expose companies to lawsuits and regulatory actions. In fact, the federal government itself has failed to come close to the numbers it is proposing to mandate for businesses. According to the Equal Employment Opportunity Commission (EEOC), of the nearly 2.6 million permanent federal government employees, fewer than 1 percent are individuals with targeted disabilities.

While the federal government considers how to revise Section 503, contractors and subcontractors should begin preparing now. Employers should be working with their human resources personnel and attorneys to understand the issues involved and educate management about the consequences of the potential new regulations.

Employers should also be working closely with their trade associations and counsel to stay informed about the progress of the revisions and to begin developing plans to implement any necessary changes as quickly as possible.

Publication date: 6/18/2012