ESA Proposed Rule

Affirmative Action and Nondiscrimination Obligations of Contractors and Subcontractors Regarding Individuals With Disabilities [02/14/1996]

[[Page 5902]]

DEPARTMENT OF LABOR

Office of Federal Contract Compliance Programs

41 CFR Part 60-741

RIN 1215-AA84

Affirmative Action and Nondiscrimination Obligations of
Contractors and Subcontractors Regarding Individuals With Disabilities

AGENCY: Office of Federal Contract Compliance Programs, Labor.

ACTION: Proposed rule.

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SUMMARY: The proposal published today would establish regulatory
standards for granting ``separate facility'' waivers from the
requirements of section 503 of the Rehabilitation Act of 1973. Section
503 requires Government contractors and subcontractors to take
affirmative action to employ and advance in employment qualified
individuals with disabilities. The Rehabilitation Act Amendments of
1992, among other things, amended section 503 to permit contractors and
subcontractors to seek a waiver from the requirements of the
regulations implementing section 503 for their facilities that are not
connected with the performance of a Government contract or subcontract
(i.e., ``separate facilities''). The 1992 amendments also required the
issuance of regulations that set forth the standards to be used for
granting such a waiver. The Office of Federal Contract Compliance
Programs proposes amending its regulations implementing Section 503 to
list those factors that OFCCP will consider when determining whether a
``separate facility'' waiver might be granted.

DATES: To be assured of consideration, comments must be in writing and
must be received on or before April 15, 1996.

ADDRESSES: Comments should be sent to Joe N. Kennedy, Deputy Director,
Office of Federal Contract Compliance Programs, Room C-3325, 200
Constitution Avenue NW., Washington, D.C. 20210.
As a convenience to commenters, OFCCP will accept public comments
transmitted by facsimile (FAX) machine. The telephone number of the FAX
receiver is (202)219-6195. To assure access to the FAX equipment, only
public comments of six or fewer pages will be accepted via FAX
transmittal. Receipt of FAX transmittals will not be acknowledged,
except that the sender may request confirmation of receipt by calling
OFCCP at (202)219-9430 (voice), 1(800)326-2577 (TDD).
Comments received in response to this proposed rule will be
available for public inspection in OFCCP, Room C-3325, from 9 a.m. to 5
p.m., Monday through Friday, except legal holidays. Persons who need
assistance to review the comments will be provided with appropriate
aids such as readers or print magnifiers. To schedule an apppointment,
call (202)219-9430 (voice) or 1(800)326-2577 (TDD).

FOR FURTHER INFORMATION CONTACT:
Joe N. Kennedy, Deputy Director, Office of Federal Contract Compliance
Programs, Room C-3325, 200 Constitution Avenue NW., Washington, DC
20210. Telephone: (202) 219-9475 (voice), 1(800)326-2577 (TDD). Copies
of this notice of proposed rulemaking, including copies in alternate
formats, may be obtained by calling OFCCP at (202)219-9430 (voice) or
1(800)326-2577 (TDD). The alternate formats available are large print,
electronic file on computer disk and audio-tape.

SUPPLEMENTARY INFORMATION:

I. Background

Section 502 of the Rehabilitation Act of 1973, as amended (29
U.S.C. 793) (section 503 or the Act), requires parties holding
Government contracts and subcontracts in excess of $10,000 to take
affirmative action to employ and advance in employment qualified
individuals with disabilities. The Department of Labor's Office of
Federal Contract Compliance Programs enforces section 503 and has
published implementing regulations at 41 CFR part 60-741.
Prior to a recent amendment, section 503(a) provided that
Government contracts and subcontracts ``shall contain a provision
requiring that, in employing persons to carry out such contract, the
party contracting with the United States shall take affirmative action
to employ and advance in employment'' qualified individuals with
disabilities. (Emphasis added.) OFCCP implemented this provision by
applying section 503 requirements to all of the contractor's work force
unless the contractor sought, and was granted, a waiver. To clarify the
scope of section 503 coverage, including the phrase ``to carry out such
contract,'' OFCCP issued a regulation in 1974 that authorized OFCCP to
waive the applicability of section 503 for those facilities that were
not connected to Government contracts. 39 FR 20566, 20568 (June 11,
1974) (originally codified at 20 CFR 741.25(a)(5)). Such waivers
required an advance contractor request and findings by OFCCP that the
activities in question were in fact unrelated to Federal contracts.
Specifically, the waiver regulation provided as follows:

Facilities not connected with contracts. The Director may waive
the requirements of the affirmative action clause with respect to
any of a prime contractor's or subcontractor's facilities which he
or she finds to be in all respects separate and distinct from
activities of the prime contractor or subcontractor related to the
performance of the contract or subcontract, provided that he or she
also finds that such a waiver will not interfere with or impede the
effectuation of the Act. Such waiver shall be considered only upon
the request of the contractor or subcontractor.

41 CFR 60-741.3(a)(5).
Applying section 503 requirements in this manner was consistent
with the scope of coverage under the other two Government contract-
based civil rights laws administered by OFCCP. The section 503 separate
facility waiver regulation mirrored the waiver provision in section 204
of Executive Order 11246, which imposes nondiscrimination and
affirmative action obligations on Federal contractors with regard to
race, color, religion, sex, and national origin. 30 FR 12319, 12321
(Sept. 28, 1965). See also 41 CFR 60-1.5(b)(2). In addition, the OFCCP
regulations implementing the Vietnam Era Veterans' Readjustment
Assistance Act of 1974 (VEVRAA), as amended, 38 U.S.C. 4212, which
imposes nondiscrimination and affirmative action obligations on Federal
contractors with regard to qualified special disabled veterans and
Vietnam era veterans, contain an identical separate facility waiver at
41 CFR 60-250.3(a)(5).
The section 503 separate facility waiver regulation was
invalidated, however, by a Federal district court in Washington
Metropolitan Area Transit Authority (WMATA) v. DeArment, 55 EPD para.
40,507 (D.D.C. 1991). The court ruled that because the waiver
regulation brings all contractor employees within the scope of the Act
absent a waiver, the waiver provision was inconsistent with the express
language of section 503 that only those employees who ``carry out''
Federal contracts are covered by the Act. Contra E.E. Black, Ltd. v.
Marshall 497 F. Supp. 1088, 1092 (D. Haw. 1980).
In response to the WMATA decision, Congress enacted section
505(a)(2) of the Rehabilitation Act Amendments of 1992, Pub. L. 102-
569, 106 Stat. 4344 (the 1992 amendments), to strike the limiting
phrase ``, in employing persons to carry out such contract,'' from
section 503. This amendment expanded section 503 coverage to all of a
contractor's work force at all of its facilities. As indicated in the
legislative history of the enactment, the coverage amendment
``clarifies that the scope of the obligation under section 503 is
parallel to the scope under Executive Order 11246.'' S.

[[Page 5903]]
Rep. No. 357, 102d Cong., 2d Sess. 72, reprinted in 1992 U.S. Code
Cong. & Admin. News 3783.
In addition, ``in order to avoid any confusion'' regarding the
effect of the coverage amendment on the waiver authority set forth in
the OFCCP regulations at 41 CFR 60-741.3(a)(5), the 1992 amendments
specifically included waiver authority in the legislation. S. Rep. No.
357, at 72 reprinted in 1992 U.S. Code Cong. & Admin. News 3783.
Section 505(b) of the 1992 amendments codified the separate facility
waiver regulation by expressly incorporating it (with minor editorial
changes) into section 503. The full text of the waiver amendment, as it
appears at section 503(c)(2) (A)-(B), 29 U.S.C. 793(c)(2) (A)-(B),
reads as follows:

(A) The Secretary of Labor may waive the requirements of the
affirmative action clause required by the regulations promulgated
under [section 503(a)] with respect to any of a prime contractor's
or subcontractor's facilities that are found to be in all respects
separate and distinct from activities of the prime contractor or
subcontractor related to the performance of the contract or
subcontract, if the Secretary of Labor also finds that such a waiver
will not interfere with or impeded the effectuation of this Act.
(B) Such waivers shall be considered only upon the request of
the contractor or subcontractor. The Secretary of Labor shall
promulgate regulations that set forth the standards used for
granting such a waiver.

The affirmative action clause referenced in subsection (c)(2)(A)
above appears at 41 CFR 60-741.4 and must be incorporated into all
contracts and subcontracts covered by section 503. The clause sets out
contractors' basic obligations under the Act, including the obligation
to comply with the Act's implementing regulations. Accordingly, a
waiver of the requirements of the affirmative action clause is
effectively a waiver from the requirements of section 503 and its
implementing regulations.
The waiver amendment requires OFCCP to make two separate findings
in order to justify granting a waiver. First, as a threshold
requirement, OFCCP must find that the facility for which the waiver is
sought is in all respects separate and distinct from activities related
to the performance of the contractor's Government contract. Second, if
the facility is found to satisfy this ``separate and distinct'' prong,
OFCCP must additionally find that the waiver will not interfere with or
impede the effectuation of the Act.

II. Summary and Explanation of the Proposed Regulatory Standards

Section 505(b) of the 1992 amendments requires OFCCP to issue
regulations that set forth the standards to be used for granting
separate facility waivers under section 503. It should be noted that,
historically, OFCCP has narrowly construed section 503 waiver
provisions and similar waiver provisions under Executive Order 11246
(41 CFR 60-1.5(b)(2)) and VEVRAA (41 CFR 60-250.3(a)(5)). It is OFCCP's
intent to continue its longstanding practice of interpreting the
regulation narrowly so as to ``jealously guard'' the granting of
waivers. Narrow interpretation of this exemption would be appropriate
in light of the remedial nature of the Act and would be in accordance
with the Act's purpose to improve employment opportunities for
qualified individuals with disabilities. Moreover, such an approach is
supported by the discretionary language of the 1992 statutory
amendment. The 1992 amendment states that OFCCP ``may'' grant a waiver
when a facility is in all respects separate and distinct and when the
waiver would not interfere with or impede the effectuation of the Act,
therefore, OFCCP is not compelled to grant a waiver in such
circumstances.
OFCCP proposes to delete the current separate facility waiver
regulation in 41 CFR 60-741.3(a)(5) and add the proposed separate
facility waiver standards in new 41 CFR 60-741.3(b)(3). This
reorganization would more logically group the separate facility waiver
regulation with the other two waiver provisions under paragraph (b),
i.e., waivers when there exist special circumstances in the national
interest and waivers essential for national security reasons.
Proposed new paragraph (b)(3)(i) sets forth the general
requirements for the granting of separate facility waivers.
Proposed subparagraphs (b)(3)(i) (A) and (B) recite the two
threshold requirements codified in the 1992 amendments and present in
the current regulation: (a) the facility is in all respects separate
and distinct from activities of the contractor related to the
performance of a contract; and (B) such a waiver will not interfere
with or impede the effectuation of the Act. In compliance with the 1992
amendments, proposed paragraph (b)(3)(i) also indicates that waivers
would only be considered by the ``Secretary's designee (i.e., the
Deputy Assistant Secretary) upon written request by a prime contractor
or subcontractor.
Proposed paragraph (b)(3)(i) also specifies that the contractor
bears the burden of demonstrating that the granting of a waiver is
appropriate. OFCCP believes that this is reasonable because only the
contractor knows how it will deploy its resources to perform its
Federal contracts. The requesting contractor would have the necessary
factual information to support a waiver application, such as
information on how the contract will be performed, the contractor's
employment practices, and the structure and relationship between the
contractor's facilities. Under the proposed rule, the requesting
contractor would have the burden of supplying OFCC with relevant
supporting material.
Proposed paragraphs (b)(3) (ii) and (iii) contain non-exhaustive
lists of factors that may be considered by the Deputy Assistant
Secretary in making a decision about whether the contractor has made a
sufficient demonstration that the facility meets these standards. As
noted above, because the statutory amendment permits OFCCP discretion
to deny a waiver even where it finds both criteria are met, it permits
OFCCP to consider other factors in determining whether the waiver
should be granted.
Proposed paragraph (b)(3)(ii) lists factors that are associated
with the question of whether the facility is in all respects separate
and distinct from the activities of the contractor or subcontractor
related to the performance of a contract. The proposed factors focus on
the activities and employees at the facility for which the waiver is
requested. The factors listed include: (A) whether any work at the
facility supports or contributes to the satisfaction of the work
performed on a Government contract or subcontract; (B) whether the
facility benefits from a Government contract or subcontract; (C)
whether any costs associated with operating the facility are charged to
a Government contract or subcontract; (D) whether working at the
facility is a prerequisite for advancement in job responsibility or
pay; and (E) whether employees or applicants for employment at the
facility may perform work related to a Government contract or
subcontract or another facility.
The proposal specifies that the factors relating to whether the
work performed at the facility supports, contributes to, or benefits
from the performance of a contract (subparagraphs (A)-(B)), would
include activities directly related to the performance of a contract
and indirectly related activities that are necessary to, or facilitate
performance of, a contract. Consideration of activities which are
necessary to, or facilitate performance of, a contract would reflect
the practical reality that the performance of a contract generally
requires the cooperation of a variety of individuals engaged in
auxiliary and related functions beyond the direct production of the
goods or the provision of the services that are the object of a
contract.

[[Page 5904]]
These indirectly related activities may include, for example: (1) The
services of the personnel office responsible for the employees directly
performing a Government contract where the personnel services are not
carried out at the same facility at which these employees are located;
(2) corporate headquarters' management activities relating to a
facility directly performing a Government contract; and (3) maintenance
of equipment and buildings used in performing a contract where the
workers who perform the maintenance are not stationed at the same
facility at which the equipment and buildings are located.
Regarding proposed subparagraph (C) relating to whether any costs
associated with operating the facility are charged to a Government
contract or subcontract, these costs might involve ``indirect'' costs
as well as ``direct'' costs. OFCCP may consider, for example, whether
the cost of positions located at a facility is allocable as either a
direct or an indirect cost of a contract under the cost principles set
forth in the Federal Acquisition Regulations (FAR) (48 CFR chapter 1).
Under the cost allocation principle set forth in FAR 31.201-4, a cost
is allocable to a particular Government contract if it: (1) Is incurred
specifically for the contract; (2) benefits both the contract and other
work, and can be distributed to them in reasonable proportion to the
benefits received; or (3) is necessary to the overall operation of the
business, although a direct relationship to any particular cost
objective cannot be shown. A ``direct cost'' is any cost that is
identified specifically with a particular final cost objective (such as
a particular contract) and may be charged directly against that
contract. FAR 31.202(a). An ``indirect cost'' is any cost not directly
identified with a single final cost objective, but is identified with
two or more final cost objectives, or an intermediate cost objective.
Indirect costs are accumulated by logical cost groupings, and are then
allocated among the final cost objectives included in the groupings on
the basis of the benefits accruing to the objectives. FAR 31.203. OFCCP
believes that if a contractor or subcontractor is receiving
reimbursement from the Government for the costs of a position, then it
is reasonable to conclude that the facility at which the position is
located is contributing to the performance of the contract, and thus
may not be ``separate and distinct.''
Proposed factors listed in (D) and (E) focus on the relationship
between the employees at the facility for which the waiver is sought
and facilities performing work on Government contracts. For example,
under (D), if employees who work on a Federal contract at one facility
must, at some future time, work at another facility for which a waiver
is sought in order for them to advance in employment, the facility for
which a waiver is sought may be inexorably linked to the employees
working on the contract and, therefore, not ``separate and distinct.''
Under (E), OFCCP may consider, for example, whether employees at the
facility for which a waiver is sought travel to another site or
facility to engage in work related to a Government contract.
As noted above, because the 1992 statutory amendment permits OFCCP
discretion to deny a waiver even where it finds both criteria are met,
it permits OFCCP to consider other factors in determining whether the
waiver should be granted. Proposed subparagraph (b)(3)(ii)(F) notes
that the Deputy Assistant Secretary may consider factors not explicitly
listed in the regulations when he or she believes such additional
factors are necessary or appropriate in determining whether a facility
is in all respects separate and distinct.
Proposed paragraph (b)(3)(iii) lists factors that the Deputy
Assistant Secretary may consider when determining whether granting a
waiver will interfere with or impede the effectuation of the Act. The
factors listed include: (A) whether the waiver will be used as a
subterfuge to circumvent the contractor's or subcontractor's
obligations under the Act or implementing regulations; (B) the extent
that the contractor or subcontractor is in compliance with the Act or
implementing regulations; and (C) the impact of granting the waiver on
OFCCP enforcement efforts.
In determining whether a waiver will be used as a subterfuge to
circumvent the contractor's section 503 obligations, the Deputy
Assistant Secretary may consider under factor (A), for example, whether
the contractor restructured its operations to concentrate its
Government contract work in certain facilities, or whether the
contractor sought a waiver only after learning that the facility at
issue was being scheduled for a section 503 compliance review. Under
factor (B), consideration may be given, for example, to the results of
any past section 503 complaint investigations or compliance reviews of
the facility at issue, or of other facilities of the contractor.
Factor (C) focuses on the impact of granting a waiver on OFCCP
enforcement efforts. Under this factor OFCCP might examine, for
example, whether granting a waiver would simplify OFCCP's compliance
review activity, or would complicate such compliance reviews.
Consideration may be given to the expected duration of the contractor's
Government contract(s) or subcontract(s), or to whether the contractor
or subcontractor is covered by the written affirmative action program
requirement under the section 503 regulations (see 41 CFR 60-741.5(a)).
OFCCP might also consider under factor (C) that the facility for which
the waiver is sought is the largest employer in a small town, or that
the number of employees which would be removed from section 503
protection by the issuance of a waiver would be small.
Proposed subparagraph (iii) (D) specifies that the Deputy Assistant
Secretary may deem other factors to be necessary and appropriate for
considering whether granting a waiver would interfere with or impede
the effectuation of the Act.
Proposed paragraph (b)(3)(iv) provides that waivers granted in
accordance with paragraph (b)(3) may be withdrawn by the Deputy
Assistant Secretary at any time when, in his or her judgment, such
action is necessary or appropriate to achieve the purposes of the Act.
A similar regulation providing for withdrawals of waivers is contained
in current 41 CFR 60-741.3(c). Withdrawals of waivers would be
appropriate when, for example, the contractor's operations has changed
since the granting of the waiver and the facility is no longer in all
respects separate and distinct from activities related to the
performance of a contract. In addition, withdrawal of a waiver would be
appropriate if OFCCP subsequently determines that the relevant facts
upon which it relied in granting the waiver did not accurately or fully
describe the relationship between the facility and the contractor's
activities related to the performance of a contract. OFCCP may also
determine that the waiver, in fact, interferes with or impedes the
effectuation of the Act, as described above.

III. Regulatory Analyses

Executive Order 12866

The Secretary of Labor has determined that this proposed rule is
not a significant regulatory action as defined in Executive Order
12866, and therefore a regulatory impact analysis is not required.

Regulatory Flexibility Act

The proposed rule, if promulgated, will not change existing
obligations for Federal contractors and will only permit waivers to be
sought by contractors large

[[Page 5905]]
enough to have facilities which are in all respects separate and
distinct from the activities of the contractor related to the
performance of a contract. Consequently, we certify that the rule will
not have a significant economic impact on a substantial number of small
business entities. Therefore, in accordance with the Regulatory
Flexibility Act, 5 U.S.C. 605(b), a regulatory flexibility analysis is
not required.

Paperwork Reduction Act

This proposed rule does not contain substantive or material
modifications to previously approved information collection
requirements, but will only clarify existing requirements for Federal
contractors who request ``separate facility'' waivers. In view of this
fact, and because the proposed rule does not change existing
obligations for Federal contractors, the proposed rule creates no
additional paperwork requirements above those contained in the current
Information Collection Report (1215-0072), which has been approved by
the Office of Management and Budget.

List of Subjects in 41 CFR Part 60-741

Administrative practice and procedure, Civil rights, Employment,
Equal employment opportunity, Government contracts, Government
procurement, Handicapped, Individuals with disabilities,
Investigations, Reporting and recordkeeping requirements.

Signed at Washington, D.C. this 8th day of February 1996.
Robert B. Reich,
Secretary of Labor.

Bernard E. Anderson,
Assistant Secretary for Employment Standards.

Shirley J. Wilcher,
Deputy Assistant Secretary for Federal Contract Compliance.

Accordingly, Title 41 of the Code of Federal Regulations, Part 60-
741 is proposed to be amended as follows:

PART 60-741--AFFIRMATIVE ACTION OBLIGATIONS OF CONTRACTORS AND
SUBCONTRACTORS FOR HANDICAPPED WORKERS

1. The authority citation for part 60-741 is revised to read as
follows:

Authority: Sec. 503, Pub. L. 93-112, 87 Stat. 393 (29 U.S.C.
793), as amended by sec. 111, Pub. L. 93-516, 88 Stat. 1619 (29
U.S.C. 706); sec. 103(d)(2)(B), Pub. L. 99-506, 100 Stat. 1810,
1843, 1844 (29 U.S.C. 706); sec. 9, Pub. L. 100-259, 102 Stat. 31-32
(29 U.S.C. 706); sec. 512, Pub. L. 101-336, 104 Stat. 377 (29 U.S.C.
706); sec. 505, Pub. L. 102-569, 106 Stat. 4427-28 (29 U.S.C. 793);
and E.O. 11758 (3 CFR, 1971-1975 Comp., p. 841).

Sec. 60.741.3 [Amended]

2. In Sec. 60-741.3, paragraph (a)(5) is removed.
3. A new paragraph (b)(3) is added to Sec. 60-741.3 to read as
follows:

Sec. 60-741.3 Coverage and waivers.

* * * * *
(b) * * *
(3) Facilities not connected with contracts.
(i) Upon the written request of the contractor, the Deputy
Assistant Secretary may waive the requirements of the equal opportunity
clause with respect to any of a contractor's facilities if the Deputy
Assistant Secretary finds that the contractor has demonstrated that:
(A) The facility is in all respects separate and distinct from
activities of the contractor related to the performance of a contract;
and
(B) Such a waiver will not interfere with or impede the
effectuation of the Act.
(ii) The Deputy Assistant Secretary's findings as to whether the
facility is separate and distinct in all respects from activities of
the contractor related to the performance of a contract may include
consideration of the following factors:
(A) Whether any work at the facility directly or indirectly
supports or contributes to the satisfaction of the work performed on a
Government contract;
(B) The extent to which the facility benefits, directly or
indirectly, from a Government contract;
(C) Whether any costs associated with operating the facility are
charged to a Government contract;
(D) Whether working at the facility is a prerequisite for
advancement in job responsibility or pay;
(E) Whether employees or applicants for employment at the facility
may perform work related to a Government contract at another facility;
and
(F) Such other factors that the Deputy Assistant Secretary deems
are necessary or appropriate for considering whether the facility is in
all respects separate and distinct from the activities of the
contractor related to the performance of a contract.
(iii) The Deputy Assistant Secretary's findings as to whether
granting a waiver will interfere with or impede the effectuation of the
Act may include consideration of the following factors:
(A) Whether the waiver will be used as a subterfuge to circumvent
the contractor's obligations under the Act;
(B) The section 503 compliance status of the contractor;
(C) The impact of granting the waiver on OFCCP enforcement efforts;
and
(D) Such other factors that the Deputy Assistant Secretary deems
are necessary or appropriate for considering whether the granting of
the waiver would interfere with or impede the effectuation of the Act.
(iv) When a waiver has been granted for facilities not connected to
a Government contract in accordance with paragraph (b)(3) of this
section, the Deputy Assistant Secretary may at any time withdraw the
waiver when in his or her judgment such action is necessary or
appropriate to achieve the purposes of the Act.
* * * * *
[FR Doc. 96-3277 Filed 2-13-96; 8:45 am]
BILLING CODE 4510-27-M