OFCCP tightens pay discrimination investigations & enforcement for federal government contractors and subcontractors

Co-authored with Russell Samson Executive branch agencies continue to make good on President Obama's promise to ferret out and rectify unfair pay discrimination. As part of that effort, the Office of Federal Contract Compliance Programs (OFCCP) of the U.S. Department of Labor significantly tightened its approach to investigations and enforcement for federal government contractors and subcontractors regarding pay discrimination based on sex, race and ethnicity. 2006 OFCCP guidances regarding compensation analyses were rescinded recently, and replaced with Policy Directive 307, Procedures for Reviewing Contractor Compensation Systems and Practices, was adopted to replace them. The new directive applies to OFCCP reviews scheduled on or after February 28, 2013, and to open reviews, as long as it does not conflict with the 2006 guidances. Reviews include audits and complaint investigations.

Out With the Old

One of the 2006 guidances, called Interpreting Nondiscrimination Requirements of E.O 11246 with respect to Systemic Compensation Discrimination, provided general procedures to field staff for investigating, making, and notifying pay violations. The other 2006 guidance, called Voluntary Guidelines for Self-Evaluation of Compensation Practices for Compliance with E.O. 11246 with respect to Systemic Compensation Discrimination, provided contractors with safe harbor options showing their compliance. The 2006 guidances were rescinded on February 28, 2013. However, they will continue to guide OFCCP decisions whether to issue a notification of violation (NOV) for pay discrimination found in any review that was scheduled, opened, or otherwise pending on February 28, 2013. What was wrong with the 2006 guidances? The OFCCP said they were narrow and limiting because they applied a cookie-cutter approach to compensation analyses on only narrow types of evidence. For instance, they did not account for differences in industries, jobs, worker characteristics, job groupings and available data. The OFCCP believes they prevented the detection of pay violations because only a small number of pay violations were found in its audits as compared with other violations. Also, contractors rarely used the Voluntary Guidelines to demonstrate compliance.

In With the New

New Policy Directive 307 provides for 'thorough and robust investigations.' It adopts a case-by-case approach using statisticians and attorneys to advise field staff in tailoring each investigation. Large and small group pay data will be analyzed, as well as individual data, to answer three 'key questions:'

1. Is there a measurable difference in compensation on the basis of sex, race, or ethnicity?

a. Regression analysis will be used for larger job groups and a difference of two or more standard deviations constitutes a measurable difference.

b. For smaller job groups, analyses will be conducted using Title VII principles. Tools for this include non-statistical analyses (e.g., comparators, cohort analysis) and anecdotal evidence (e.g., employee complaints and interviews).

2. Is the difference in compensation between employees who are comparable under the contractor's wage or salary system?

3. Is there a legitimate (i.e., nondiscriminatory) explanation for the difference?

The OFCCP will look at equal access to pay and benefits, also. This can include reviews of opportunities for training, promotions, overtime hours, pay increases, incentive compensation, and territory assignments, as well as glass ceiling issues in high level professional and managerial positions. Contractors will be allowed to explain pay discrepancies the OFCCP uncovers with 'factors' used to make pay decisions. 'Factors' are elements offered to explain pay differences for example, qualifications, skills, experience, performance evaluations, and tenure in the job. Factors will be analyzed further by the OFCCP to determine whether they are complete, whether all are relevant to compensation, whether each has been consistently applied, and whether any has an adverse impact based on sex, race, or ethnicity. The OFCCP's usual remedies will be used for the pay violations identified. These include making victims whole, actions to stop and prevent violations through nonmonetary relief (e.g., modifying policies and practices, training, changing work assignments, promoting or placing individuals, etc.), and legal action (e.g., cancellation of contracts, disbarment, etc.). Legal action is to be reserved for those who refuse to comply or are the worst offenders. The OFCCP will provide technical assistance to contractors to ensure understanding and compliance with the new directive. FAQs can be found on its web page. Webinars are supposed to be offered in the near future, also.

Tips for Contractors and Subcontractors

• Review AAP job groups for consistency. Job groups used for the compensation analyses in an affirmative action plan that differ from those used otherwise in the AAP are, per the directive, generally, not acceptable. That said, we had a different experience in 2012 with a client of ours during an OFCCP audit. There, we used the same job groups throughout the AAP, but were told that was 'wrong' for the compensation analysis, and we were directed to redo it. We did not receive much guidance as to what job groups would be 'right' for the compensation analysis, other than being told that the OFCCP could not conduct a meaningful compensation analysis. In hindsight, that may have been a trial run of the new approach in Policy Directive 307, and we may have been one of the test cases the led to the next bullet point. • Be prepared for the OFCCP to define its own 'pay analysis groups' to try to identify systemic pay discrimination, regardless of your job groups. According to Policy Directive 307, 'pay analysis groups' are groups of similarly situated workers subject to similar pay practices, and they may include multiple job titles, units, categories and/or job groups that are similar in role, level, function, and/or classification. Factors indicating similarity can include tasks performed, skills, effort, level of responsibility, working conditions, job difficulty, and minimum qualifications. At this point in time, it is not recommended that a federal government contractor attempt to predict what 'pay analysis groups' the OFCCP might create. • Be prepared to provide individual compensation data to the OFCCP, for all types of pay, including but not limited to base pay, overtime, bonuses, commissions, shift differentials, vacation and holiday pay, awards, stock options and profit sharing. Failure to provide individual compensation data may trigger an onsite investigation. Even though an individual has not filed a complaint, the OFCCP will seek remedies for individuals who did not know they were being paid unfairly, which the OFCCP notes can be the case because pay practices are often kept secret. • Be prepared to provide compensation data in electronic form to the OFCCP. MS Excel for spreadsheets and MS Word for documents, or a similar format, will be required. • Be prepared to provide compensation policies, practices, and contracts to the OFCCP. • Do all you can to preserve confidentiality of individual employee information and pay practices. All information submitted to the OFCCP is theoretically subject to disclosure via a Freedom of Information Act (FOIA) request. Anyone can make a FOIA request, including the media, unions, parties adverse to the employer in litigation, and even competitors. The OFCCP states it will not release data in response to a FOIA request until after a compliance investigation and all subsequent proceedings are complete. Also, contractors/subcontractors will be notified in writing and in advance of responding to a FOIA request so the objections to release can be made. In order to protect the confidential compensation data of individuals you can use alphabetic or numeric codes for employee names, pay or pay ranges, reasons for decisions, etc. For electronic data, it may help to submit the files in a password protected format, providing the password separately to the compliance officer. Also, consider sending all information to the OFCCP with a note on each electronic file, and a cover letter or email with all files, asserting that the materials are exempt from FOIA disclosure and the basis on which you claim that exemption. A federal government contractor might also try to limit OFCCP's access to highly confidential compensation data by providing on-site access only. Remember that OFCCP must be given 'full access' to all relevant data. • Obtain competent counsel early in the audit process (when the scheduling letter for the desk audit is received). While this is always good advice, it may be even more critical as the OFCCP embarks on this new form of analysis.

The material in this blog is not intended, nor should it be construed or relied upon, as legal advice. Please consult with an attorney if specific legal information is needed.

- Jill Jensen Welch