Federal AAP Obligations Can Extend Beyond the Business Entity Holding the Federal Contract 

When a business contracts with the federal government, it may take on more extensive equal employment opportunity reporting obligations than expected. Many organizations have been surprised to learn that their legal entities without a federal contract may be required to maintain affirmative action plans (AAPs) for women and minorities, individuals with disabilities, and qualifying veterans. This is because the Office of Federal Contract Compliance Programs (OFCCP) analyzes the applicability of federal contractor obligations based on an integrated relationship or “single entity” status between the entity holding the federal contract and other related organizations. When one business entity contracts with the federal government, related entities may have to meet the same obligations as those directly engaged in the contract. 

The OFCCP test focuses on whether the separate entities’ ownership, management, and operations are sufficiently interrelated to warrant treating them as an integrated enterprise or a single entity. The agency uses a five-factor test to determine whether a sufficiently integrated relationship exists between legal entities. It considers whether: 

1. The entities have common ownership;
2. The entities have common directors or officers;
3. One entity has day-to-day control over the other through policies, management, or supervision of the entity’s operations;
4. The personnel policies of the entities come from a common or centralized source; and 
5. The entities’ operations depend on each other; e.g., services are provided principally for the benefit of one entity by another, or both entities share management, offices, or other services. 

A business or organization does not need to meet all five factors to be considered a single entity with a federal contractor. In recent years, the OFCCP has considered one of the most important factors to be whether there is centralized control over human resources functions. In its explanation of its analysis, the OFCCP uses the following example of a determination that two organizations are sufficiently interrelated to be a single entity for purposes of compliance: 

• Two entities are under common ownership, with a common board of directors;
• The entities have a central corporate office that determines and issues human resources policies for both entities and generally manages most personnel-related issues for both entities; but
• The operations of the two entities are not particularly dependent on each other.

Even though not all of the factors apply to the two companies, the factors that do apply outweigh those that do not. The OFCCP will consider the two entities as being a single entity for purposes of requiring AAPs from all qualifying establishments of the two organizations.

All employees of the related entities must be included in the federal contractor’s AAPs. Deciding which employees go into which AAP can be complex. The general rule is that each physical location with 50 or more employees is considered an ‘establishment’ that requires its own AAPs. Locations with fewer employees can roll up into larger locations or can have their own AAPs. Typically an employee is counted under the AAPs for the location where they work. There are several instances, however, where an employee must be counted under the AAPs for the location where the person they report to works. A good resource for figuring out how to apply OFCCP requirements to a business is the Federal Contractor Compliance Advisor provided by the U.S. Department of Labor. The online resource walks the employer through various questions to assist in determining how specific obligations apply to the employer’s situation: https://webapps.dol.gov/elaws/ofccp.htm.