OFCCP to Change the Way it Assesses Contractors’ Compensation Systems

by Orrick - Global Employment Law Group

The Office of Federal Contractor Compliance Programs (“OFCCP”) may soon rescind Directive 307, OFCCP’s current official statement as to how it conducts federal contractor compensation system reviews, according to a story published by Bloomberg Law on April 19, 2018. This announcement comes on the heels of Directive 2018-01, issued by the OFCCP on February 27, 2018, which mandates the use of Predetermination Notices (“PDN”) prior to issuing a Notice of Violation (“NOV”), and further requires national office oversight and approval before a PDN is issued.  OFCCP notes that Directive 2018-01 is consistent with the agency’s focus to increase transparency about preliminary findings with contractors, and encourage communication throughout the compliance evaluation process.  Combined, these two developments illustrate that change is afoot at OFCCP, now that new leadership is in place in Washington.

Background on Directive 307

In 2006, OFCCP issued Compensation Standards and Voluntary Guidelines, which governed determinations regarding the issuance of an NOV for compensation discrimination in any OFCCP compliance review.  The 2006 Standards were based on the concept of “Similarly Situated Employee Groupings” (“SSEGs”), which offered guidance to contractors on how OFCCP would analyze compensation, as well as how contractors could attain voluntary self-evaluation compliance of their compensation practices.  Specifically, the 2006 standards instructed OFCCP’s compliance officers to aggregate groups of employees for statistical analyses based on four factors: (1) similarity of work; (2) levels of responsibility; (3) skills needed to perform the job; and (4) qualifications needed to perform their jobs.

From SSEGs to PAGs

On February 28, 2013, OFCCP rescinded the 2006 Standards and Guidelines.  At the same time, it issued Directive 307 as part of OFCCP’s “ongoing policy commitment to address pay discrimination by federal contractors and subcontractors.”  The Directive calls for a case-by-case approach to analyzing compensation, and instructs compliance officers to group employees for analysis into Pay Analysis Groups (“PAGs”), defined as a “group of employees who are comparable for purposes of the contractor’s pay practices.”  The Directive specifically provides that PAGs may “be based on groups that are larger than individual job titles and AAP job groups” because “by combining employees into appropriate pay analysis groups, using statistical controls as necessary for title or level, OFCCP is able to more easily identify potential systemic discrimination needing further investigation and potential remedy.”

OFCCP’s use of PAGs has come under significant criticism by the contractor community, based largely on concerns that OFCCP’s use of PAGs has resulted in the comparison of employees who are not similarly situated, as Title VII requires.  For example, in a 2017 report by the US Chamber of Commerce entitled “Office of Federal Contract Compliance Programs: Right Mission, Wrong Tactics – Recommendations for Reform,” the Chamber wrote:

In practice, Directive 307 has led OFCCP compliance officers to compare the pay of the following groups of employees during actual compliance evaluations since 2014.

  • All exempt and nonexempt employees in a location.
  • Some, but not all employees, across multiple job groups.
  • All employees in a certain EEO-1 category regardless of job title or job group.
  • Employees in managerial roles without regard to function or role.
  • Employees in different job titles who may or may not be in the same job group.

In this way, many of the principles set forth in Directive 307 are contrary to well-established Title VII law regarding appropriate analyses of compensation.


It remains to be seen whether OFCCP will issue another directive addressing compensation or some other guidance and, if so, what approach it will take.  Bloomberg Law has reported, however, that OFCCP plans to instruct compliance officers to analyze pay rates among groups of workers at a particular contractor based on job categories set by the contractor.  Combined with Directive 2018-01, it appears that OFCCP is taking a new direction consistent with its stated intention to be more transparent with the contracting community.

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.

© Orrick - Global Employment Law Group | Attorney Advertising

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Orrick - Global Employment Law Group

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