Got your attention there, didn’t I? No? Well, maybe a little…Seriously, let’s pick up from last week. We know that certain businesses with certain contracts with federal agencies are federal contractors and are therefore subject to certain affirmative action requirements. We did a very nutshell-version of the requirements in last week’s post (Click here for review). Before we get just a bit more in-depth about some of those requirements though, we should step back and answer a key question: Are you a federal contractor? Now, you may be thinking that should be an easy and straightforward question. Well, maybe not. After all, if it was, would I really bother devoting a whole post to it? Is it possible you are — and might not even know it? Well, yes, maybe, sort of…Want to know more? You know what you’ve got to do. So I’ll see you after the jump…
(image from investopedia.com)
We know from last week that to be a direct federal contractor one must have one or more contracts to provide goods or services to with one or more federal government agencies. We also learned about the “50-50 rule, i.e. know one must have 50 or more full-time employees, and a contract valued at or above $50,000 (in a one-year time period) to be subject to affirmative action requirements. A company that does not have any type of contract with a federal agency, or that does not meet that 50-50 rule, might still be subject to Affirmative Action requirements, and, consequently, Office of Federal Contract Compliance Programs (OFCCP) jurisdiction, though.
Suppose your company does not meet the 50-50 rule, but has a contract with a company that does, and the services you provide that company a) are necessary for that company to perform the ultimate contract with the federal agency, OR b) fulfill a part of the direct contractor’s agreement with the federal agency it is likely a federal sub-contractor. For example: You have a client that contracts with the US Department of Energy and agrees to supply electric and steam service from all its power plants to all federal facilities. (For purposes of this example, let’s also assume that these are services that the Department of Energy seriously needs.) Your client in turn enters into a contract with your company, which transports coal from the mines to one of your client’s power plants. Your company is not a direct contractor. Is it a sub-contractor? Under similar facts, the Office of Administrative Law Judges answered in the affirmative in Monongahela Railroad Company. The OALJ reasoned that transporting coal is necessary to the direct contractor’s performance of its contract to supply electricity, even though the direct contractor continued producing and providing electricity whether or not the railroad actually transported coal to it. As you can see, the OALJ, and consequently, the OFCCP interpret “necessary services” very broadly.
Suppose you are neither a direct contractor nor a sub-contractor. You may still end up on the OFCCP’s radar. Does your company own one or more subsidiaries? What if one or more of your subsidiaries is a federal contractor or sub-contractor? You might fall under OFCCP jurisdiction. What if you are a federal contractor or sub-contractor but your subsidiaries aren’t? They might still be subject to Affirmative Action requirements. Suppose your company, Wayward Company, Inc, a subsidiary of Doting Mother Company, Inc is neither a direct nor a sub-contractor, and neither is Doting Mother Company, but another subsidiary of Doting Mother, Solicitous Siblings Inc, is a federal contractor. Your company, along with Mother Company and all of Mother Company’s subsidiaries might fall under OFCCP jurisdiction under what is known as the Single-Entity Rule.
Under the Single Entity Rule, separate businesses that do not themselves have a federal government contract or do business with a company that does may be treated along with affiliate, parent or subsidiary companies as a single entity that does have such a contract or sub-contract thereby falling under OFCCP jurisdiction if their relationship with each other is sufficiently integrated? If you have this type of relationship with a parent/subsidiary/affiliate, you are effectively a federal contractor. When are otherwise separate companies sufficiently integrated to warrant such treatment? The OFCCP uses the following five-factor test:
- Common ownership of entities;
- Common directors and/or officers;
- De facto day-to-day control by one entity over the other through policies, management or supervision of operations;
- Entities’ personnel policies emanate from a common or centralized source;
- Entities’ operations are dependent on each other (e.g. 1 entity principally providing services for the other and/or the entities share management, offices or services);
The common them: interplay between entities sufficient to suggest that they act essentially as a single unit. Not all five factors are necessary for the companies to be a single entity. Centralized control over labor relations and personnel functions appears to be the most important factor. Therefore, if one of the entities is issuing and implementing personnel policies for both, but their operations in no way depend on each other, they will likely be found to operate as a single entity. As long as one of those entities is a federal contractor or sub-contractor and they appear sufficiently intertwined, both will be subject to Affirmative Action requirements.
So, if you are a parent, subsidiary or affiliate of a contractor or sub-contractor, you can either take steps to comply with Affirmative Action requirements, or you can try to avoid a single entity finding (and stay under the OFCCP’s radar) by doing one or more of the following:
- Adhere to all corporate formalities: Each entity should satisfy state corporate law requirements in all state(s) where they do business and/or employ people, regarding formation, capitalization, election of officers/directors, majority vote, resolutions authorizing corporate actions, maintaining required records, and documenting such compliance in corporate minutes. Also, keep each entity’s funds separate.
- Avoid centralized personnel and labor relations: Two or more related entities should each make their own decisions about their own personnel, and in particular, each entity should hire its own personnel.
- Establish separate written policies regarding hiring practices and procedures for each entity, designate specific personnel who will have hiring responsibilities, whenever possible, give hiring authority to persons who are NOT common officers or directors.
- Establish and maintain separate employee handbooks for each entity with their own policies and procedures that address the working environment and business of the company in question.
- Consult with in-house or competent outside employment counsel—This goes without saying, right?
Let’s end here for now. We’ll talk about some other Affirmative Action issues next week. Bye for now!
Contents of this post are for educational/informational purposes only, are not legal advice, and do not create an attorney-client relationship. Consult with competent employment counsel in the state(s) in which you employ people with your specific questions.
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