The U.S. Department of Labor’s Office of Federal Contract Compliance Programs (OFCCP) issued its first Directive (DIR 2022-01) formalizing and clarifying OFCCP’s more aggressive approach to require federal contractors to produce certain pay equity analyses, which contractors may argue are protected by the attorney-client privilege.

While the Directive does not have the force and effect of law, it does clarify OFCCP’s interpretation of previously published regulations on a hotly contested topic.

Contractors Must Conduct Pay Equity Audits

Directive 2022-01 communicates OFCCP’s expectation of federal contractors and subcontractors that are required to annually prepare and maintain an affirmative action program pursuant to 41 CFR 60-2. Specifically, 41 CFR 60-2.17(b)(3) requires covered contractors to “perform in-depth analyses of its total employment process to determine whether and where impediments to equal opportunity exist,” including “[c]ompensation system(s) to determine whether there are gender-, race-, or ethnicity-based disparities.”

OFCCP Will Request Copies of Pay Equity Audits in Compliance Reviews

The Directive explains that OFCCP “will request that the contractor provide a complete copy of the pay equity audit(s) . . . that shows all pay groupings that were evaluated, any variables used, and the results of the analyses, including any disparities found.”

In addition, “OFCCP may request the model statistics . . . for all variables or comparisons in the model” and “may also request information relating to the frequency of pay equity audits, the communication to management, and how the results were used to rectify disparities based on gender, race and/or ethnicity.”

The Attorney-Client Privilege May Protect Some, but Likely Not All, Pay Equity Audits

The Directive recognizes that federal contractors often retain counsel to assist with the preparation of the pay equity audit and compliance records required by OFCCP’s regulations. However, OFCCP notes that federal contractors must also maintain and make available to OFCCP documentation of their compliance with OFCCP regulations. OFCCP takes the position that contractors cannot withhold these documents by invoking attorney-client privilege or attorney work-product doctrine.

The Directive clarifies that a contractor may conduct a separate pay equity audit for the purpose of obtaining privileged legal advice, and not for demonstrating compliance with OFCCP regulations. Where a contractor has produced to OFCCP an acceptable pay equity audit sufficient to demonstrate compliance with 41 CFR 60-2.17(b)(3), OFCCP will not require production of these separate pay equity audits, to the extent that the contractor can verify that they were conducted under privilege.

And where an audit was performed for the dual purpose of obtaining legal advice and OFCCP compliance, the Directive states OFCCP may nonetheless request those records if the primary purpose of the communication is complying with OFCCP regulations (even if it also implicates legal matters).

Contractors Should Conduct Pay Equity Audits Carefully

In light of OFCCP’s recent Directive 2022-01, as well as the increasingly aggressive approach OFCCP compliance officers are taking to require contractors to produce pay equity audits, contractors should conduct their pay equity audits carefully. Covered federal contractors and subcontractors would be well advised to:

• Engage an outside attorney to conduct/supervise a privileged pay equity audit for the limited purpose of conducting a legal review;
• Address any outstanding legal issues raised by the outside attorney (and the attorney’s consultants, if any) in connection with that privileged pay equity audit; and
• Conduct a separate pay equity audit for purposes of complying with OFCCP regulations after conducting the privileged pay equity audit and after addressing any outstanding legal issues in that privileged audit.

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