OFCCP Seeks to Provide Certainty to Contractors By Issuing Final Rule on Compliance Evaluation Procedures



On November 10, 2020, OFCCP published its Final Rule on “Nondiscrimination Obligations of Federal Contractors and Subcontractors: Procedures to Resolve Potential Employment Discrimination.”  We previously covered OFCCP’s Notice of Proposed Rulemaking on the subject, which promised to provide additional certainty to contractors regarding OFCCP’s standards for finding discrimination-based violations. 

In the Final Rule, OFCCP made significant changes to the Notice of Proposed Rulemaking, the most significant of which are described below:

OFCCP replaced the concepts of “statistical evidence” and “nonstatistical evidence” from the Notice of Proposed Rulemaking with “qualitative evidence” and “quantitative evidence” in the Final Rule.  Qualitative evidence largely corresponds to the previous category of “nonstatistical evidence” and encompasses testimony and other documentary evidence giving rise to an inference of discrimination.  In a positive note for contractors, OFCCP has somewhat backed away from the Notice of Proposed Rulemaking’s classification of manager discretion or subjective decision making as qualitative/nonstatistical evidence of discrimination, and now considers the existence of discretion or subjectivity to be qualitative evidence only where there is additional evidence showing the discretion has been used in a discriminatory manner.  Given that subjectivity is an almost inherent aspect of performance evaluation, this is a welcome development.  The Final Rule also makes clear that an employee’s subjective belief that he or she has been discriminated against does not constitute qualitative evidence.

The Final Rule’s new category of “quantitative evidence” is broader than the “statistical evidence” of the Notice of Proposed Rulemaking.  The prior category of statistical evidence focused on OFCCP’s preferred tool of linear regression analysis, and required OFCCP to find disparities of two standard deviations or greater in order to provide evidence of discrimination.  The Final Rule retains the two standard deviation threshold, but now also includes cohort analyses in which OFCCP compares the outcomes of specific employees as “quantitative evidence.”  Troublingly, the Final Rule does not provide standards for conducting cohort analyses, leaving the door open for OFCCP to pursue enforcement actions based on cherry-picked comparisons.

The Final Rule establishes specific standards for findings of discrimination in disparate treatment and disparate impact cases.  For disparate treatment cases, OFCCP must provide quantitative evidence of discrimination, provide qualitative evidence that supports a finding of discriminatory intent and a finding that the discriminatory intent caused the disparate treatment, and show that the disparity is practically significant.  This move to require qualitative evidence in nearly all cases is a welcome development.  However, the Final Rule contains an exception to the qualitative evidence requirement in cases where the quantitative evidence is “extraordinarily compelling,” without defining that standard (as opposed to the Notice of Proposed Rulemaking’s three standard deviation threshold for purely statistical violations).  It remains to be seen how strictly OFCCP will apply the “extraordinarily compelling” standard in practice.

For disparate impact cases, OFCCP must provide quantitative evidence of discrimination, identify the contractor’s specific policy or practice causing the adverse impact, and show that the disparity is practically significant.  The requirement for identification of a specific policy or practice is a positive development, as OFCCP previously brought claims based on statistical disparities without identifying how the contractor allegedly discriminated.  Again, however, the Final Rule contains an exception for situations where “the elements of a contractor’s selection procedures are incapable of separation for analysis.”  As with disparate treatment cases, it remains to be seen whether the exception will swallow the rule.

The Final Rule codifies many aspects of OFCCP Director Leen’s 2018 directives in a form that will be more binding on the agency. Contractors facing preliminary findings of discrimination can evaluate OFCCP’s evidence against the Final Rule’s standards to seek to rebut the agency’s claims .As noted, however, the Final Rule does contain exceptions that lack specific standards for their application and could allow OFCCP to evade the Final Rule’s requirements. That said, OFCCP is likely to take a more aggressive approach to enforcement under a Biden administration, and the Final Rule provides contractors with tools to refute some OFCCP allegations of discrimination.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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