Earlier this year, we predicted that the Department of Labor’s Office of Federal Contract Compliance (“OFCCP”) would ramp up investigations directed at rooting out alleged discrimination by information technology companies. Many tech companies have indeed been the focus of increasingly intense and acrimonious investigations in 2016.

OFCCP took its enforcement efforts to the next level this week by filing a formal administrative complaint for violations of Executive Order 11246 (which prohibits discrimination by federal contractors). The complaintalleges that Palantir Technologies – a private software company headquartered in Palo Alto and recently valued at $20 billion – discriminated against Asian applicants for three positions (QA Engineer, Software Engineer, and QA Engineer Intern). Specifically, the OFCCP alleges that the company hired largely based on an employee referral system that resulted in statistically significant underrepresentation of Asian hires, given that the vast majority of applicants for these jobs were Asian. The complaint seeks to debar the company from future federal contracts and require “complete relief” for Asian applicants for these roles, including lost compensation, hiring, and retroactive seniority.

Companies throughout the tech industry would be well-served to follow the case. In it, OFCCP can be expected to claim that the raw statistics establish hiring discrimination against Asians. However, any such purely numbers-based claim would need to be understood in light of broader hiring trends in industries like tech. In particular, the composition of the applicant pools may significantly deviate from the existing labor market – and, in turn, the subset of applicants who possess the qualifications needed to work on cutting edge, emerging and disruptive technologies may differ from the applicant pool as a whole.

Addressing claims of hiring discrimination predicated on alleged numerical imbalances alone can pose additional challenges for tech companies. While all contractors need to be mindful of their obligations to foster workplace diversity, the law is clear that they cannot institute numerical quotas to balance their workforces. However, the government may be signaling a desire to move in that direction. Politico reports that, at aroundtable discussion held Tuesday, September 27—the day after the Palantir complaint was filed—participants from Congress, the EEOC, and OFCCP discussed ways to hold tech companies “accountable” for diversity. OFCCP Director Pat Shiu touted the Palantir complaint and—further underscoring the agency’s focus on hiring discrimination—suggested that her office might push tech companies to adopt “affirmative action representation goals” which OFCCP would monitor. Counsel experienced with OFCCP investigations and enforcement are well positioned to assist tech companies with monitoring and understanding the agency’s positions, and developing proactive and legally sound compliance strategies.

Article by Christopher Wilkinson, Erin M. Connell, Gary Siniscalco and Kathryn G. Mantoan of Orrick