After several years of delay, the Department of Labor's Office of Federal Contract Compliance Programs (OFCCP) issued highly anticipated final rules interpreting Section 503 of the Rehabilitation Act (Section 503) and the Vietnam Era Veterans' Readjustment Assistance Act of 1974 (VEVRAA).

The final rules are part of the Obama administration's policy initiative to increase employment of disabled and veteran workers. The existing compliance regime has been largely ineffective, despite increased scrutiny in the audit and enforcement context. Proposed regulations were issued in 2011, and were met by intense scrutiny from the employer community. Following a period of political delay, the regulations have now been issued in final form with a 180-day compliance timeline.

The rules make significant changes to the current compliance environment for covered federal contractors, and demonstrate an overarching regulatory intent to gather more information on the number of disabled and veteran workers at the applicant stages. The rules also create, for the first time, hiring benchmarks for disabled and veteran workers.

Major Changes to the Self-Identification Process

Under the new rules, employers are now required to use a "three-stage" approach to self-identification of disability and veteran status. First, employers are now required to solicit disability and veteran self-identification at the offer stage for all applicants for employment. This is the first time OFCCP, or any other agency, has mandated pre-offer solicitation of disability information. Historically, the vast majority of covered employers have not conducted pre-offer solicitations because of the compliance burden, perceived conflict with the ADA's pre-employment inquiry prohibitions, and a general desire to avoid organizational knowledge of medical information during the hiring process. In the preamble to the final disability rule, OFCCP vigorously disputed these concerns, and even obtained a letter from the EEOC's General Counsel confirming the lack of conflict with the ADA.

Second, although employers are now required to conduct pre-hire solicitation, the final rules continue to require a post-offer solicitation. The OFCCP acknowledged that applicants are much less likely to identify a disability, compared to their race or sex. This "double-up" procedure is designed to increase reporting.

Finally, employers are now required to survey their entire incumbent workforce for disability status when the regulations become effective and every five years thereafter. Moreover, OFCCP also requires employers to "remind" employees to self-identify at least once during the five year period.

OFCCP has indicated that it will be creating an approved self-identification form that can be used for soliciting this information. OFCCP stated that the form will be available on its web site, and that OFCCP will seek feedback from the EEOC.

National 7% Disability Hiring Goal and Veterans Hiring Benchmarks

The final rules retain the highly controversial 7% disability hiring goal created by OFCCP. Employers must now collect and maintain employment data related to the hiring and employment of disabled workers and compare representation in each job group to the 7% goal, which applies to all job groups, regardless of the type of job, geographical location or actual applicant pool.

The 7% hiring goal was heavily criticized by the employer community as arbitrary and lacking empirical foundation. OFCCP acknowledges that the 7% target is not perfect and is based on incomplete data. Nonetheless, the 7% national goal does have the advantage of being a bright line rule, and the final rules do not require employers to develop their own individualized hiring goals for each location and job group.

The final rules also establish, for the first time, benchmarks for the hiring of veterans. Employers must now develop a veteran availability "benchmark" each year, using aggregate national data published by OFCCP each year, or a more customized availability benchmark based on state-specific data and other factors. The national benchmark is currently at 8%.

OFCCP was careful to acknowledge that the hiring goals are not "quotas" and the failure to meet a goal will not result in a violation. Instead, the final rules state that when underutilization is found, the employer must examine whether any impediments to equal employment exist. If they reasonably determine there are no impediments, no further action is necessary. However, if "problem areas" are discovered, then the employer must design and implement action-oriented programs in a manner similar to that required under Executive Order 11246.

"Data Files" and Recordkeeping

The final rules require employers to maintain disability self-identification in separate "data files" that must be kept confidential and cannot be included in an employee's personnel file or medical file. Instead, the preamble discussion suggests that all self-identification forms should be kept in a separate file that can be handed over to a Compliance Officer during an audit.

Although the final rules stopped short of requiring adverse impact analyses for disabled and veteran applicants and hires, employers are now required to maintain raw data including: 1) the number of applicants who self-identified as disabled or veteran; 2) the total number of job openings; 3) the total number of applicants for all jobs; 4) the number of disabled or veteran applicants hired; and 5) the number of applicants hired. This data, along with the employer's outreach efforts, must be reviewed annually. The final rules also extend the general records retention period for the maintenance of this data to three years.

Planning Starts Now

The good news for employers is that the OFCCP determined that a 180-day compliance period was justified in light of the significant changes to the existing regulations, which means compliance will not be required until early spring 2014. Employers also do not need to update AAPs until the year following the effective date. Therefore, for employers using calendar year plans, AAP compliance will not be required until 2015. However, given the significant changes necessary to hiring and recordkeeping processes starting in early 2014, employers should start planning now. Apart from the major changes mentioned above, the final rules also require technical changes to policy statements, job postings, subcontracts and vendor agreements, all of which will need to be reviewed and amended.

If you have any questions about the final rules or affirmative action compliance in general, please feel free to contact Patrick W. Spangler, Thomas G. Abram, J. Kevin Hennessy or any other Vedder Price attorney with whom you have worked.