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New OFCCP Directive

In conjunction with its formal rescission of the 2006 Standards and Guidelines, OFCCP issued a Directive that describes the procedures its compliance officers will now use when reviewing contractor compensation systems and practices. The procedures provide significant flexibility in how compensation investigations are conducted and what analytical framework OFCCP can apply in an investigation. According to OFCCP, this Directive clarifies and improves the agency’s procedures to align pay discrimination enforcement more fully with Title VII principles. The Directive explains that OFCCP will take a case-by-case approach consistent with Title VII when analyzing a contractor’s compensation systems. While OFCCP will continue to use statistical analyses, such as multiple regression, and non-statistical analyses, such as the use of comparators, OFCCP will also investigate compensation disparities in non-systemic cases and even in some instances where no anecdotal evidence exists. OFCCP states in its Directive that this approach will allow the agency to better protect workers from compensation discrimination.

Impact of New Developments?

In reality, the formal rescission of the Standards and Guidelines and the issuance of the new Directive are non-developments. These documents simply formalize how OFCCP has been approaching its compensation investigations for the last several years under the Obama administration. The agency has focused decidedly less on statistical analysis and much more on identifying job titles with differences in pay by gender or race/ethnicity and making sure that contractors are able to provide non-discriminatory explanations for such differences. As was the case when OFCCP applied the 2006 Standards, OFCCP continues to have very limited success in finding discrimination in contractors’ pay practices.

One particularly noteworthy item in OFCCP’s rescission Notice and new Directive is the agency’s insistence that it is following Title VII principles in determining whether pay discrimination has occurred. The Notice of rescission and new Directive are OFCCP’s first formal pronouncements on pay discrimination since the 2007 U.S. Supreme Court’s decision in Ledbetter v. Goodyear Tire & Rubber Co., 550 U.S. 618 (2007), and the subsequent passage of the Lilly Ledbetter Fair Pay Act of 2009. The Lilly Ledbetter Fair Pay Act formally established that an “unlawful employment practice . . . with respect to discrimination in compensation” is something that results from a discriminatory decision or other practice. 42 U.S.C. § 2000e-5(e)(3)(A). Despite this statutory language, OFCCP’s compensation investigations continue to focus on pay disparities and the employer’s ability to explain the non-discriminatory reasons for such disparities, as OFCCP does not investigate whether any discriminatory decisions caused the disparity. The new guidance documents do not indicate that OFCCP intends to change this approach. As a result, it is unclear which Title VII principles OFCCP intends to apply -- those that pre-date the U.S. Supreme Court’s 2007 decision, or the concepts reflected in the Lilly Ledbetter Fair Pay Act. Notably, the only reference to either the Ledbetter provisions of Title VII or the Ledbetter decision in OFCCP’s Notice of rescission or its new Directive is a sentence from Justice Ginsburg’s dissenting U.S. Supreme Court opinion.

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Executive order 11246 requires federal contractors and subcontractors to provide equal employment opportunity through affirmative action and nondiscrimination, including compensation nondiscrimination. The OFCCP is charged with auditing and enforcing this nondiscrimination requirement and issuing related compliance materials. In 2006, the agency issued the two aforementioned documents. The Standards, according to background material included in the rescission notice, “set forth a new, rigid procedure for investigating and analyzing systemic compensation discrimination cases.” Under the Standards, the OFCCP cannot issue a notice of violation (NOV) to the contractor unless it also has anecdotal evidence to support the agency’s statistical analysis of alleged pay inequities. In addition, the Standards require the agency to use multiple regression analysis to identify compensation discrimination. Both of these obligations, the OFCCP claims, are overly restrictive and “undermine OFCCP’s ability to vigorously investigate and identify compensation discrimination.”

The OFCCP finds fault with the Voluntary Guidelines as well. Such guidelines establish procedures contractors may use to conduct the required self-analysis of their pay practices. Contractors whose self-evaluation “reasonably meets” the Voluntary Guidelines’ procedures are deemed to be in compliance. The agency claims, however, that contractors have rarely used the these procedures, and that the analytical model established by the guidelines is too rigid.

If the Standards are rescinded, the OFCCP says that it will “reinstitute the practice of exercising its discretion to develop compensation discrimination investigation procedures in the same manner it develops other investigation procedures.” If the Voluntary Guidelines are rescinded, the OFCCP advises that contractors will still be required to conduct self-evaluations of their compensation practices.

This proposed rescission follows other recent changes instituted by the OFCCP to strengthen its enforcement efforts.

Comments on the proposed rescission must be made within 60 days of the publication of the notice in the Federal Register, which is scheduled for January 3, 2011. All comments must contain the identification number: 1250-ZNE, and be submitted in one of the following ways: through the federal eRulemaking Portal, via facsimile: (202) 693-1304 (for comments of 6 pages or fewer), or by mail to: Director, Division of Policy, Planning, and Program Development, Office of Federal Contract Compliance Programs, Room N3422, 200 Constitution Avenue, N.W., Washington, D.C. 20210.

Photo credit: borisyankov