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Your credit union needs to comply with affirmative action regulations

Analysis Compliance Courier

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ANALYSIS:  The U.S. Department of Labor considers all federally insured credit unions (and banks) to be “government contractors” under certain federal laws, requiring them to comply with federal affirmative action regulations.
 
Credit unions with fewer than 50 employees must meet certain basic affirmative action standards.
 
Credit unions with 50 or more employees must develop and maintain comprehensive, written Affirmative Action Programs (AAPs). Also, those credit unions must certify that they are complying with their AAP requirements every year, and the 2024 certification deadline is July 1st. The requirement is catching some Wisconsin credit unions off guard. (At least one has told us it was surprised to get a “Notice to Contractors,” with instructions on how to complete the certification process.)
 
Affirmative action requirements are not new; they have been in place for years. However, they are getting renewed attention because the agency that enforces them is said to be increasing its compliance audits of financial institutions.
 
This Courier will take a closer look at the affirmative action requirements, the laws that apply, the debate over why the rules apply to insured financial institutions, and resources to help covered credit unions fulfill their obligations. 

The federal laws that require affirmative action

The U.S. Department of Labor’s Office of Federal Contract Compliance Programs (OFCCP) is responsible for ensuring that “government contractors” comply with three sets of laws related to affirmative action and equal employment opportunity: 

Today, these laws prohibit federal contractors from discriminating in employment on the basis of race, color, religion, sex, sexual orientation, gender identity, national origin, disability status, and protected veteran status. All covered contractors have an obligation to take affirmative action and ensure non-discrimination in their employment practices. The affirmative action obligation reaches all terms, conditions, and privileges of employment, including recruitment, promotion, termination, and compensation.
 
The OFCCP’s affirmation action regulations are at 41 CFR part 60.  

How OFCCP’s regulations apply to credit unions

There is some debate over whether the OFCCP’s AAP requirements should apply to credit unions and other financial institutions. The OFCCP considers those organizations federal contractors, but not everyone agrees. Here is why.
 
The relevant OFCCP regulation (41 CFR §60-2.1(b)) says that an employer must comply with the affirmative action rules if it meets any one of a list of criteria, including these: 

  • It is a “financial institution which is an issuing and paying agent for U.S. savings bonds and savings notes in any amount.” Many credit unions used to process U.S. savings bonds. In the past, this would have subjected almost any credit union or bank to the OFCCP’s affirmative action obligations, but that is no longer the case. In 2012, the U.S. Treasury stopped selling savings bonds and notes “over the counter” at banks and credit unions. They are now sold only online. 
  • It “serves as a depository of Government funds in any amount.” Some financial institutions may serve as a depository of federal government funds (e.g., with Treasury Tax & Loan accounts), but this is uncommon. 
  • It “has a contract of $50,000 or more.” The rules say that the term “contract” means, “Any agreement . . . between any contracting agency” [i.e., a department or agency of the U.S. executive branch] “and any for the purchase, sale or use of … nonpersonal services” which includes “insurance, and fund depository.” (41 CFR §60-1.3) 

Few credit unions directly contract with federal government agencies (though some might, e.g., lease space from a federal agency). But the OFCCP says that federal deposit insurance is a type of government contract. Notice that the regulation’s definition of “contract” mentions “insurance.” It never mentions “deposit insurance,” and yet the OFCCP’s FAQ #13 treats the word “insurance” in a broad sense and concludes that “financial institutions with federal share and deposit insurance are considered to be government contractors” and are required to comply with the requirements of Executive Order 11246, VEVRAA, and Section 503.
 
Since all Wisconsin credit unions must have NCUSIF coverage, they are therefore considered “government contractors” and are subject to the affirmative action rules.
 
Not everyone agrees with the OFCCP’s interpretation, as this 2015 law review article explains. It says that the OFCCP “maintains a fallacious position that has unnecessarily cost the financial services industry billions of dollars over the past several decades. … OFCCP expects even the smallest of financial institutions holding FDIC- or NCUA-insured deposits to create and annually update several affirmative action plans, comply with a tangled web of complicated and ever-changing regulations, and subject themselves to OFCCP’s jurisdiction for costly and invasive compliance reviews. … To make matters worse, the financial institutions hurt most by OFCCP’s position are the small community banks, thrifts, and credit unions, for which over-burdensome regulations can sound a death knell.”
 
Unless the OFCCP changes its mind, which is unlikely to occur, all federally insured credit unions must comply with the affirmative action rules.
 
Please note that different federal laws and executive orders impose other requirements on government contractors, and their definitions vary. Just because your credit union meets the OFCCP’s standards to be considered a “government contractor” for affirmative action purposes, does not mean it necessarily fits the definition of that term for other purposes, too. 

What must a credit union with 50 or fewer employees do?

Credit unions with fewer than 50 employees do not have to produce written AAPs, but they are still required to keep up with various basic coverage requirements. 

  • Basic coverage under Executive Order 11246 requires organizations to, among other things, prevent discrimination on the basis of race, color, religion, sex, sexual orientation, gender identity, and national origin; it also requires inclusion of an EEO tag line in all advertisements, dissemination of a notice to labor unions, and inclusion of a reference to Executive Order 11246 in all covered subcontracts and purchase orders. 
  • Basic coverage under Section 503 requires organizations to, among other things, prevent discrimination against individuals with disabilities, review mental and physical job requirements, provide accommodations for any individual with a disability when there is a reasonable request to do so, post the “Know Your Rights” poster (which replaced the “EEO is the Law” poster in 2022) so that it can be seen by applicants and employees, include a specific reference to disability in the EEO tag line included on all advertisements, and include specific language in covered subcontracts and purchase orders. 
  • Basic coverage under VEVRAA requires organizations to, among other things, prevent discrimination against protected veterans, provide accommodation for disabled veterans when there is a reasonable request to do so, post the “Know Your Rights” poster (which replaced the “EEO is the Law” poster in 2022) so that it can be seen by applicants and employees, include a specific reference to veteran status in the EEO tag line included on all advertisements, and include specific language in covered subcontracts and purchase orders. Basic coverage under VEVRAA also includes various requirements related to listing information with the relevant state employment service. 

What must a credit union with 50 or more employees do?

Covered federal contractors with 50 or more employees must have comprehensive, written AAPs in place. Executive Order 11246, VEVRAA, and Section 503 each impose particular AAP obligations. Employers subject to all three laws may create three separate AAPs, one combined AAP, or one AAP for Executive Order 11246 and one combined AAP for the other two laws.
 
Developing and maintaining your written AAP is not easy. One law firm described it this way in 2017: 

An AAP is a comprehensive, written self-auditing document that generally requires detailed and complex statistical analyses regarding the makeup of the contractor’s workforce and its efforts to proactively recruit, hire, train, and promote women, minorities, disabled individuals, and veterans to ensure that all such individuals have equal opportunities in employment. 
 
If AAP obligations are triggered, among other comprehensive recordkeeping and administrative requirements, the contractor must prepare an AAP on an annual basis, which must include, among other things, a job group analysis, a demographic description of employees in various job groups, a determination of the availability of women and minorities in each job group in the particular locale and comparison against those employed with the contractor in that locale, future placement goals, and identification of “problem areas” serving as impediments to equal employment opportunity.  In addition, those contractors must submit to the federal government, on an annual basis, an EEO-1 Employer Information Report, in order to provide a count of their employees by job category and then by ethnicity, race, and gender.
 
Given the complexity of determining whether, and to what extent, a company is to be considered a “federal contractor” subject to AAP requirements, as well as the substantial costs, recordkeeping and administrative burdens, and risks associated with compliance, any company with questions or concerns regarding its potential obligations is encouraged to contact your employment and labor attorney. 

The Society for Human Resource Management (SHRM) offers a “Managing Federal Contractor Affirmative Action Programs” toolkit. (Login may be required.) It details the elements that an AAP must address under the three sets of laws that may apply (Executive Order 11246, VEVRAA, and Section 503).
 
The website www.employer.gov explains that in addition to developing written AAPs, covered government contractors also have administrative and reporting requirements under each of the laws that the OFCCP enforces. These requirements include: 

  • Maintaining additional personnel and employment records; 
  • Inviting applicants and employees to voluntarily self-identify race and gender, and, when applicable, disability and protected veteran status; and 
  • Reporting data on the demographic breakdown of applicants and employees. 

AAP compliance is important because the consequences of non-compliance can be burdensome and expensive. Chris Pippett, an attorney and frequent speaker at national credit union compliance events, has warned of “severe monetary penalties” and “government intrusion” if a covered credit union doesn’t have an adequate AAP in place: “When the OFCCP determines an entity is not meeting its affirmative action obligations, it has the authority to demand back pay and interest for any underutilization in the protected categories and to remedy any discriminatory compensation practices that may exist.”
 
The League has limited resources on employment law, and so we recommend that covered credit unions seek expert help with compliance. Our outside counsel, the Husch Blackwell law firm, offers OFCCP compliance services that can help, as do other law firms and vendors. 

The AAP certification portal

We mentioned that at least one Wisconsin credit union recently received a “Notice to Contractors,” with instructions on completing the annual certification process, which is required by July 1, 2024. Here is the text of that April 1 notice, which includes links to helpful resources: 

Today, the Office of Federal Contract Compliance Programs (OFCCP) opened the Contractor Portal for the 2024 Affirmative Action Program (AAP) certification period: April 1 – July 1, 2024.
 
We urge covered federal contractors to begin certifying their AAP compliance through the portal today to meet the July 1, 2024, deadline.
 
Covered federal contractors and subcontractors must use the portal to certify, on an annual basis, whether they have developed and maintained an AAP for each establishment and/or functional/business unit, as applicable. New contractors have 120 days to develop their AAP(s) and must register and certify compliance through the Contractor Portal within 90 days of developing their AAP(s).
 
Visit OFCCP’s Contractor Portal information page before starting the certification process to access Frequently Asked Questions and step-by-step How-To videos, along with User Guides and other pertinent information.
 
Contractors can refer to the pre-recorded webinar on the Contractor Portal information page that demonstrates how a contractor can enter its establishment and/or functional/business unit’s AAP start date and certify compliance through the Contractor Portal.
 
Please submit your Contractor Portal questions to the Applications Technical help desk using the OFCCP Applications Technical Help Request Form or call the OFCCP help desk at 1-800-397-6251, press 1 for English or 2 for Spanish, then press 1 to reach technical support for assistance.

The OFCCP’s “frequently asked questions” include this:
 

10. Do I have to include my establishment in the Contractor Portal if it has fewer than 50 employees?
 
It depends on whether the establishment maintains a separate AAP. If the establishment has fewer than 50 employees and maintains an AAP only for those employees, it must be included in the Contractor Portal. … If the establishment has fewer than 50 employees and does not maintain an AAP only for those employees, the contractor does not need to list the establishment in the Contractor Portal.  

Other resources

In addition to the links provided above, check out these resources to help understand the federal affirmative action requirements: 

Note: The League thanks attorneys Melissa Caulum Williams and Nora Evans from the Husch Blackwell Labor & Employment team for their assistance with the preparation of this Compliance Courier.

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