Executive Summary: On August 4, 2023, the U.S. Department of Labor, Office of Federal Contract Compliance Programs (OFCCP) published a final rule amending the 2020 pre-enforcement regulations colloquially referred to as the “PDN Rule.” A PDN or a Predetermination Notice is a letter that OFCCP issues to notify contractors, currently undergoing a compliance review, that the agency has identified preliminary indicators of potential discrimination. The PDN provides contractors with an early opportunity to respond prior to OFCCP issuing a Notice of Violation (NOV). The 2020 PDN Rule was hailed by OFCCP as a sign of its commitment to transparency and early, efficient resolution of open audits. While the final rule does not eliminate the requirement that OFCCP issue a PDN, the level of transparency promised and the evidentiary standard for issuing the PDN have been significantly reduced.
Why did OFCCP amend the 2020 PDN Rule?
OFCCP determined that the PDN Rule “unduly constrained its broad enforcement discretion,” and “imposed inflexible evidentiary requirements early in the compliance evaluation process and attempted to codify complex evidentiary definitions for ‘qualitative’ and ‘quantitative’ evidence and other standards.”
How does the 2023 PDN Rule Differ from the 2020 PDN Rule?
The 2023 PDN Rule adopts almost all of the OFCCP’s proposed changes discussed in the Notice of Proposed Rulemaking (NPRM), thereby disregarding many of the comments submitted by the contractor community. The OFCCP retained only two elements of the 2020 Rule: (1) the early resolution procedures; and (2) the requirement that the OFCCP issue a PDN before it may issue an NOV.
Among the most notable changes outlined in the final rule are:
- While the final rule retains the PDN notice requirement, it eliminates the associated evidentiary requirements set out in the 2020 final rule. Specifically, the 2023 rule no longer requires OFCCP to include a discussion of the qualitative and quantitative evidence identified during the compliance review that supports the alleged violations outlined in the PDN. Moreover, OFCCP is no longer required to demonstrate that the alleged disparity is practically significant. These changes in particular, as discussed below, will significantly limit the ability of contractors to evaluate any alleged violations and consider early resolution.
- The District and Regional Offices are no longer required to obtain the Director’s approval before issuing a PDN or an NOV.
- Contractors have only 15 — instead of 30 — calendar days to respond to a PDN or NOV. Extensions will be granted for good cause only. The examples of good cause are very similar to the extreme circumstances necessary to obtain an extension to submit the response to the scheduling letter. They include:
- extended medical absences of key personnel;
- localized or company-specific disaster affecting records retrieval such as a flood, fire, or computer virus;
- unexpected absence of key personnel due to military service; or
- unexpected departure of key affirmative action official.
- The final rule allows OFCCP to identify additional violations in a subsequent NOV or Show Cause Notice (SCN). The Agency is not required to issue an amended PDN before moving to the NOV.
- OFCCP may issue a SCN without first issuing a PDN or an NOV.
When is the 2023 Rule Effective?
The 2023 PDN Rule applies to any pre-enforcement notices issued on or after September 5, 2023, the effective date of the new regulations.
What does the New Rule mean for Contractors?
The benefit of the 2020 PDN Rule, for both contractors and OFCCP, was the required transparency early in the compliance review process. The prior PDN standard required OFCCP to conduct a thorough assessment and provide thoughtful notice of potential areas of non-compliance early in the process as a means of more efficiently moving audits to conciliation or closure. In exchange for early transparency, contractors could undertake an informed assessment of OFCCP’s findings and either present legitimate explanations supported by evidence; engage in early conciliation; or seek to move to the next stage of the audit.
OFCCP states that the changes to the 2020 PDN Rule were needed because the standard it had to satisfy was too high and it took too long and required too many resources to develop the necessary evidentiary support. However, the new standard for demonstrating a potential violation early in the review process is so limited that few, if any, contractors will agree to conciliation without a more well-developed basis for the alleged violation.
Contractors are already required to conduct annual self-analyses in connection with the development of their AAPs. Contractors should conduct these analyses under legal privilege and investigate any indicators of potential discrimination in hiring, promotion and termination activity and in compensation. Where preliminary disparities are identified, contractors should conduct a thorough investigation and document any legitimate explanations, including preserving all relevant documents supporting these explanations so they are available for submission to OFCCP, if necessary. If questions remain after completing the investigation, contractors should work with counsel to determine the appropriate course of action to resolve any identified issues.
