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OFCCP Issues New Pay Equity Audits Directive

March 19, 2022

By Anthony Kaylin, courtesy of SBAM Approved Partner ASE

On the Ides of March and Equal Pay Day, OFCCP issued their new pay equity directive (Directive 2022-01). The purpose of the directive is to provide guidance on how OFCCP will evaluate federal contractors’ compliance with pay equity audit obligations and clarify OFCCP’s authority to access and review pay equity audits conducted pursuant to 41 CFR 60-2.17(b)(3). 

As OFCCP points out, a Directive is intended to provide guidance to OFCCP staff and/or federal contractors on enforcement and compliance policy or procedures. A Directive does not change the laws and/or regulations governing OFCCP’s programs and does not establish any legally enforceable rights or obligations. The contents of the Directive do not have the force and effect of law and are not meant to bind the public in any way. The Directive is intended to provide clarity to the public regarding existing requirements under the law or agency policies.

Yet they do in practice.  There are cases that the Department of Labor’s Solicitor’s Office has tried to enforce failure to provide documentation as discussed in directives.

Under OFCCP’s regulations as provided in 41 CFR 60-2.17(b)(3), federal contractors are required to conduct an in-depth analysis of their employment processes to determine whether there are gender-, race-, or ethnicity-based disparities.  But these regulations also state that at a minimum the contractor must evaluate “(b) compensation system(s) to determine whether there are gender-, race-, or ethnicity-based disparities.”  However, it appears that over the past 50 years the OFCCP may not have interpreted the term “evaluation” to be in depth or by regression or other means.  In fact, the term “evaluation” has never been defined.  Timing of the evaluations is assumed yearly at minimum – but may not be.

John Fox, President & Partner of Fox, Wang, & Morgan P.C, in a statement to ASE discusses that 41 CFR 60-2.17(b) only requires the contractor only to “evaluate” compensation systems.   John states, “OFCCP cannot enforce that section, as a matter of law, because it is too vague to be enforced pursuant to the Administrative Procedure Act.  Moreover, OFCCP has a ‘longstanding practice’ (that is legally significant pursuant to the APA) to accept pabulum from contractors in audit, including an ‘evaluation’ as simple as: ‘We have an employee complaint system and investigate all employee complaints.’”

David Cohen, founder and President of DCI Consulting, in a response to questions from ASE also states that “[t]o be clear, the regulations do not prescribe a specific method or analysis needed to comply with 60-2.17(b).  In fact, when OFCCP made substantive changes to the regulation in 2000, OFCCP stated, ‘contractors have the ability to choose a type of compensation analysis that will determine whether there are gender-,race-, or ethnicity-based disparities.’  Therefore, the regulations allow contractors to determine an appropriate evaluation that fits its needs.  If OFCCP wants to prescribe a specific method or analysis, it should go through the normal rulemaking process and seek public comment.” 

Interestingly enough, the new Directive also does not provide much guidance as to how OFCCP will conduct its pay analysis citing  Directive 2018-05, which basically stated that an analysis will be conducted using various tools without identifying any specific or consistent approach to the analysis.  Therefore, by asking for the contractor’s analysis, it could conceivably bypass its own analysis and cite the contractor based on their analysis and data. 

Or can they?  OFCCP has tried many times in the past.  As they correctly point out in the Directive, any analysis done specifically for an audit does not have either attorney/client privilege or work product protection. Directive 2022-1 states “[w]here OFCCP identifies potential pay concerns, contractor transparency in providing to OFCCP the pay equity audits conducted to comply with OFCCP regulations enables OFCCP to accomplish its work more efficiently by understanding the contractor’s analysis of its pay.”  OFCCP regulations at 41 CFR 60-1.43 require contractors to permit OFCCP access to its records during an OFCCP compliance evaluation or complaint investigation.   Therefore, they may be entitled to any analysis conducted on behalf of a contractor in preparation for an audit.  It is a court case waiting to happen.

Therefore, given the new Directive and the uncertainty of its application, contractors conducting any pay equity analysis should do so without thought of any audit being conducted and have the attorney request it to be completed.  Further, no mention of compensation analysis should be found in any of the AAPs.  In this way, the contractor can argue with more force that the pay equity analysis was conducted under privilege, not for submission to a third party.  Finally, if an evaluation must be provided, it could be a simple one-page document summary identify results and factors to conduct the analysis.  Whether this approach is practical will only be determined down the road.

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