United States: 3 Compliance Obligations You May Not Know You Have

Last Updated: December 27 2017
Article by Jayna Rust

Do you have agreements with the government or with anyone who does business with the government? Or are you affiliated with anyone who does business with the government? If you do not consider yourself a government contractor but your answer is yes to either of those questions, you may want to make sure that government contractor obligations have not crept into your company's portfolio of contracts.

In particular, you should consider whether you have compliance obligations arising from certain employment-related rules. If you have those obligations but are not familiar with them, you may be violating them unknowingly. Such violations might be costly, as shown by the October headlines of the $5 million settlement that State Street Corp., an asset manager, entered into with the Office of Federal Contract Compliance Programs (OFCCP).

The potential obligations and their general applicability

Three employment-related rules apply to agreements or modifications of agreements between a federal agency and another party for the "purchase, sale or use of personal property or nonpersonal services." Nonpersonal services include utilities, construction, transportation, research, insurance and fund depository. The three rules are:

  • Executive Order 11246, as amended (currently found at 41 CFR Part 60-1, Subpart A);
  • Vietnam Era Veterans' Readjustment Assistance Act of 1974, as amended (currently found at 38 U.S.C. § 4212, 41 CFR 60-300); and
  • Section 503 of the Rehabilitation Act of 1973, as amended (currently found at 29 U.S.C. § 793, 41 CFR 60-741).

Generally speaking, the three rules require that a company adhere to stated policies and affirmative actions that prohibit employment discrimination based on (a) race, color, religion, sex, sexual orientation, gender identity or national origin; (b) certain classes of veterans; or (c) a person's disability or disabilities. They further require the company to (i) provide certain safeguards for employees under these clauses; and (ii) include these requirements in its subcontracts and purchase orders that are above a certain monetary threshold.

Such policies must be more than in name only. Indeed, the government will look at statistics relating to a company's hiring and promotions history to ascertain whether a company has complied with its obligations.1

The stealth application of the obligations

An entity that does not focus its day-to-day work on government contracts may be surprised to learn that an executive order, statutes and regulations apply to its human resources and employment considerations. Indeed, earlier this year, an administrative law judge found that media weather company AccuWeather was a government contractor, subject to OFCCP jurisdiction.

The issue was in front of the judge because the company, which had at least two government contracts (worth less than $100,000 combined), refused to comply with an on-site audit, "on the belief that AccuWeather is not a federal contractor subject to Executive Order 11246."

The potential for such a surprise is compounded by the fact that these obligations may apply to an entity even if these clauses are not in any of its agreements. In particular, there are three common ways that one or all of these obligations may sneak up on a company, even if it had been diligently monitoring its agreements for federal contract clauses and potential government contractor obligations.

Indeed, to the surprise of many companies, the obligations apply when:

  • The company has an agreement with a federal agency, and the government should have included the appropriate contract clause but did not. The regulations explicitly state that the obligations apply to contracts with the government regardless of whether a clause was properly included in the contract.2
  • The company is a subcontractor to a contractor that should have included the clause in the contract between the parties. The regulations (and for the latter two rules, the statutes) also explicitly state that the obligations apply to subcontracts regardless of whether a clause was properly included in the subcontracts.3
  • The company is an affiliate of another company with government contracts, and the affiliates have such a close (or "integrated") relationship that the U.S. Department of Labor considers the two companies to be a "single entity." The Department of Labor uses a five-factor test to determine whether it will consider affiliated entities to be a single entity.4 If it determines that they are a single entity, then the employment-related obligations apply to all parts of the entity.

What a violation means

Not all violations of a company's obligations under the employment-related rules will require much remediation, but some will. Depending on the violation and the company's posture, the government's remedies can place a heavy burden on the company.

In particular, if the company is willing to correct the violation, the agency may enter into a "conciliation" agreement that provides for the company's correction of the violation.5 If, however, a company refuses to comply, the agency has a variety of enforcement mechanisms it can use. Depending on the violation, the agency may:

  • Seek back pay and other relief for the victims of discrimination.6
  • Seek to enjoin violations.7
  • Refer matters to the U.S. Department of Justice with a recommendation that the Department of Justice institute judicial proceedings.8
  • Impose administrative sanctions such as:

    • Withholding progress payments.9
    • Terminating or canceling the contract.10
    • Debarring the contractor from receiving future contracts, modifications or extensions of existing contracts.11

The current administration recently appointed Ondray T. Harris the director for the OFCCP, the person who guides the Government's approach to enforcement of these rules, and it is currently unclear exactly how he will guide enforcement. Nevertheless, the settlements announced since January 20, 2017 show why companies that are within OFCCP's jurisdiction should pay attention to the rules regardless of how that enforcement takes shape.

First, the public settlements show that many of the companies that the agency audits or investigates are not traditional government contractors that focus their work on federal contracts. Indeed, settlements have been reached with an asset manager (State Street Corp.); a retailer of imaging, audio and video equipment (B&H Foto & Electronics Corp.); an auditing firm (KPMG); and a bank (Bank of America).

Second, the settlements illustrate that OFCCP enforcement of violations crosses presidential administrations, so a current administration's stance may not guarantee protection in the future. Indeed, the Bank of America case arose from an audit that was conducted 24 years ago, and the case was pursued through four presidential administrations.

Finally, the settlements illustrate that noncompliance can be costly. As stated above, the settlement with State Street Corp. was for $5 million, including back pay and interest,12 and the settlement with B&H Foto was for $3.2 million.13

What can you do?

Given the potential ramifications that a company could face for violating the employment-related rules, companies that do business with or receive funds from the government or its contractors, or who are affiliated with government contractors, should be diligent in understanding their employment-related obligations.

If your company fits any of those descriptions, you should take steps to make sure that you are currently compliant and that you will remain compliant. In particular you should:

  • Assess your current agreements in light of the statutes and regulations and determine whether any employment-related obligations apply to your company.

    • If you determine that the rules apply to your company but you have not been following them, discuss the issue with counsel experienced in OFCCP enforcement and ascertain how you may best remedy the non-compliance.
    • If you determine that the rules do not apply to your company but you work in areas that often have government funding, monitor your future agreements for the potential of such obligations.
  • Assess your current affiliations in light of the Department of Labor's five-factor test.

    • If you determine that your company is a single entity with another company that has covered government contracts, but you have not been following the rules, discuss the issue with counsel experienced in OFCCP enforcement and ascertain how you may best remedy the non-compliance.
    • If you determine that your company is a single entity with another company that does not have government contracts but works in areas that often have government funding, ensure that the companies keep lines of communication open so that you know if and when your company does have to begin complying with the rules.If you determine that your company is not a single entity with another company, keep the rules mentioned above in mind when contemplating mergers, acquisitions or other business dealings that may lead to your company being affiliated with another.

Following these steps may result in some unexpected cost or inconvenience for your company, and those issues will undoubtedly factor into how much attention your company may pay to these rules.

What should not impact your decision, however, is any presumed posture of the new OFCCP director or the current administration. As discussed above, OFCCP has continued to address cases brought under prior administrations. Furthermore, the company's current actions may be subject to a review under a future administration.


[1] See, e.g., Conciliation Agreement between the U.S. Department of Labor, Office of Federal Contract Compliance Programs and Colonial Parking Inc., July 29, 2016, ("Specifically, during the period January 1, 2012 through December 31, 2012, Colonial failed to apply its selection procedures uniformly for all applicants, which resulted in a statistically significant difference in the rates at which Black and Whites were hired into the Project Manager position. ... The selection disparities were statistically significant at standard deviations with a shortfall of three (3).").

[2] 41 CFR 60-1.4(e); 41 CFR 60-300.5(e); 41 CFR 60-741.5(e).

[3] 41 CFR 60-1.4(e); 41 CFR 60-300.5(e); 41 CFR 60-741.5(e); 42 U.S.C. § 4212(a)(1); 29 U.S.C. § 793(a). See also, OFCCP v. Fl. Hosp. of Orlando, 2009-OFC-00002, ALJ's Recommended Decision (Dep't of Labor Oct. 18, 2010) (insurer had contract from agency and did not include in subcontract any provisions obligating hospital (its subcontractor) to comply with rules; OFCCP determined hospital still had to comply because it was "subcontractor" under regulations); UPMC Braddock et al. v. Harris, 934 F. Supp. 2d 238, 255-260 (D.D.C. 2013) (no agreements referenced the rules, but district court found that consent was not necessary for enforcement), vacated by UPMC Braddock et al. v. Perez, 584 Fed. App'x 1 (2014) (vacated due to agency's moratorium on enforcement).

[4] The Department of Labor, Office of Federal Contractor Compliance Programs describes the five factor test on its website at U.S. Dep't of Labor, elaws — Federal Contractor Compliance Advisor, Single Entity Five-Factor Test.

[5] 41 CFR 60-1.33; 41 CFR 60-300.62; 41 CFR 60-741.62.

[6] 41 CFR 60-1.26(a)(2); 41 CFR 60-300.65(a)(1); 41 CFR 60-741.65(a)(1).

[7] 41 CFR 60-1.26(b)(1); 41 CFR 60-300.65; 41 CFR 60-741.65(a)(1).

[8] 41 CFR 60-1.26(c)(1); but note that the Attorney General may initiate lawsuits without referrals from the agency. See 41 CFR 60-1.26(d).

[9] 41 CFR 60-300.66(a); 41 CFR 60-741.66(a).

[10] 41 CFR 60-300.66(b); 41 CFR 60-741.66(b).

[11] 41 CFR 60-1.27(b); 41 CFR 60-300.66(c); 41 CFR 60-741.66(c).

[12] See, e.g., Conciliation Agreement between the U.S. Department of Labor, Office of Federal Contract Compliance Programs and Colonial Parking Inc., July 29, 2016.

[13] See OFCCP v. B&H Foto & Electronics Corp., 2016-OFC-00004, ALJ's Order Approving Consent Decree (Dep't of Labor Aug. 11, 2017).

Originally published in Law360.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

In association with
Related Topics
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions