President Obama has just nominated Thomas Perez, current head of the Civil Rights Division at the Justice Department, to be his new Labor Secretary. It would be the perfect time for Labor to overhaul the way one of its little-known but powerful offices accuses many federal contractors of violating anti-discrimination laws—except that Perez defends such questionable efforts.
The federal government spends about $500 billion a year, about 14 percent of overall spending, on private contractors and subcontractors that provide a range of different goods and services, such as defense work, mail and package transportation, etc. Those contractors must comply with all anti-discrimination laws, just as every other company does.
But the Labor Department’s Office of Federal Contract Compliance Programs (OFCCP) has been ratcheting up its use of some questionable methods for determining whether or not a contractor is actively engaged in hiring or pay discrimination. As a result, some large employers with excellent track records for hiring and promoting minorities and women have become the target of discrimination accusations.
To get a sense of how broadly OFCCP now defines “discrimination,” take a look at this line from a press release issued after it forced FedEx into a $3 million settlement in 2012: “The affected workers, include men and women as well as African-American, Caucasian and Native American job seekers, as well as job seekers of Hispanic and Asian descent.”
Take particular note of all the groups listed. According to the OFCCP, FedEx was guilty of discriminating against … everyone. Including whites and men. Normally, a discrimination charge means that one group was disadvantaged when compared to another. But how can you discriminate against everyone?
OFCCP’s primary method for identifying what it deems as discriminatory policies is known as “disparate impact.” It’s a blunt statistical formula that plugs in hiring data provided by contractors. If a company’s hiring doesn’t essentially match the minority make-up of the applicant pool—within 2 percentage points—it is assumed that the company has engaged in discrimination. This approach effectively imposes a quota system, which the U.S. Supreme Court has (mostly) declared unconstitutional in the workplace.
OFCCP officials rarely take into consideration whether or not employees have actually complained about unfair practices, whether there is any actual difference in the treatment of those applying, or whether or not there are any claims of mistreatment of those applying or existing employees.
The agency’s method also neglects to consider if a company has specifically established a minority outreach plan and actively invests resources into identifying and recruiting qualified minority candidates.
OFCCP doesn’t even have to prove a company intended to discriminate. Indeed, intent doesn’t matter; what matters is whether there is even a minor deviation in the statistics.
While the government has used disparate impact as a tool for fighting discrimination for decades, under the Obama administration it has become a hammer.
Take the widely recognized statistical anomaly known as “Simpson’s paradox,” which sometimes “discovers” discrimination where none exists. In a real example, university admissions may appear discriminatory until they are considered by department, whereupon the problem disappears. The apparent discrepancy arises from aggregating all the departments together.
Large government contractors are similarly susceptible to Simpson’s paradox, which can be used against them if a government agency is willing to spend countless man-hours and unlimited taxpayer dollars to prove even a dubious allegation. The result is that company executives sometimes conclude it’s better just to settle, pay a fine, get out of the headlines, and hope they can continue doing business.
It’s just one more example of the tide of uncertainty that has flooded business in the last four years. When companies, like people, are uncertain about the future, they simply try to ride it out until the turbulence ends. That means sitting on piles of cash—$1.8 trillion at last estimate—and postponing investment. And in light of the OFCCP’s aggressive efforts, companies may postpone hiring as well.
Wonder why the unemployment rate has remained so high for so long? Look at the flood of new regulations, imposed business costs (e.g., ObamaCare) and regulatory harassment, like that of the OFCCP.
Under the right presidential guidelines, agencies such as the OFCCP can be a valuable resource for identifying and stopping discriminatory practices. Or they can engage in a perpetual witch hunt, looking for manufactured culprits to harass in order to justify their own existence—and budgets.
It’s time for Congress to reign in these practices and press, or force, agencies like the OFCCP to restrict their efforts to real discrimination. Disparate impact has become a way to actively discriminate—by forcing employers to meet arbitrary racial quotas—rather than a way of ending it.