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Employer Law Report

OFCCP Signals Formal Change of Course on Pay Discrimination

Posted in Workforce Strategies

 On February 28, 2013, the Office of Federal Contract Compliance Programs (OFCCP) rescinded two Bush-era enforcement guidance documents on pay discrimination from 2006—the “Compensation Standards” and “Voluntary Guidelines.” This is consistent with OFCCP’s stated focus on pay discrimination since the beginning of the Obama administration.

OFCCP’s Director, Patricia Shiu, issued a press release and authored a blog article, stating that OFCCP intended to align its analysis of pay discrimination with the principles used to enforce Title VII. She stated that OFCCP intended to no longer limit its pay discrimination focus to equal pay in the same job but to expand its focus to more tacit practices like discrimination in assigning sales territories or departments or in promotion or bonus, overtime, or commission opportunities. She also signaled that OFCCP would no longer take a “narrowly defined, cookie-cutter approach” to evaluating contractor pay practices but that pay analysis would be tailored to the individual contractor, industry, types of jobs, and pay practices.

It is important to note that prior guidelines were rescinded immediately, and new procedures are in place for all compliance evaluations going forward. Employers using the 2%/$2,000 rule, screening by job title, are no longer safe using this simple rule of thumb, which was rescinded as part of the prior guidance.

OFCCP will now use a flexible, fact-based approach, similar to what courts use for Title VII and not restrict itself to any formula or framework. Briefly, the new approach will involve:

• OFCCP investigators working with government statisticians and attorneys to determine the appropriate analytical methods for use in each investigation;
• Analyzing comparative compensation data using both large and small groups to determine if discrimination has occurred;
• Reviewing and testing of all factors (such as experience, tenure in position, performance ratings, etc.) provided by the contractor as an explanation for employee compensation disparities to determine if they are relevant to compensation and whether they were consistently applied;
• Not requiring statistical analysis to prove pay discrimination in all cases; and
• Not requiring anecdotal evidence (statements by workers about pay discrimination) to prove systemic pay discrimination.

“Compensation discrimination” will not be limited to base pay, but could include other earnings (e.g., bonuses, overtime, and commissions) and benefits, job assignments, training and advancement opportunities, differences in opportunities for increased compensation, or other unexplained differences.

During a desk audit, OFCCP will:

  • Gather summary data for pay comparison (average compensation by sex and race by pay grade or job group);
  • Assess quantitative factors, such as:
    • The size of overall average pay differences based on race or sex,
    • The number of job groups/pay grades where average pay differences exceed an unstated certain threshold, and
    • The number of employees negatively affected within job groups/pay grades;
  • Assess qualitative factors, such as:
    • Compliance history (prior violations),
    • OFCCP or EEOC complaints,
    • Anecdotal evidence,
    • Potential violations found during the audit involving other employment practices, and 
    • Inaccurate or incomplete initial data submitted;
  • Gather individual data after gathering summary data or at the same time as the summary data;
  • Review policies and practices;
  • Interview HR personnel and employees; and
  • Examine payroll and human resource information systems.

If satisfied with a preliminary analysis of summary data, OFCCP may (but is not required to) stop its analysis and not conduct individual or more in depth review. The analytical methods to be used include pooled regression analysis (large groups) or non-pooled regression analysis (small groups), using a 2-standard deviation standard, and cohort analysis, comparing similarly-situated individuals.

Information on this new directive is available here.

While OFCCP states that the new approach is intended to make the process more clear, the information released thus far does not provide a new “OFCCP-sanctioned” roadmap for contractors to follow in conducting their yearly compensation analysis as part of their affirmative action plan preparation or in preparing for a desk audit. OFCCP has indicated that it will be releasing further guidance documents and conducting webinars on this topic in the near future. We will update this blog post as more information is provided by OFCCP.

(More specifically, the two guidance documents rescinded were: (1) Interpreting Nondiscrimination Requirements of Executive Order 11246 With Respect to Systemic Compensation Discrimination (“Compensation Standards”), 71 FR 35124, and (2) Voluntary Guidelines for Self-Evaluation of Compensation Practices for Compliance with Nondiscrimination Requirements of Executive Order 11246 (“Voluntary Guidelines”), 71 FR 35114.)

Jamie LaPlante