Pot o' Gold: OFCCP Releases Contractor Compensation Procedures

by Baker Donelson
Contact

OFCCP has released a new directive that outlines the procedures the office will use for reviewing contractor compensation systems and practices during a compliance evaluation. One thing is not new: Under Executive Order 11246 and its implementing regulations, contractors must review and monitor their compensation systems to determine whether there are any gender-, race- or ethnicity-based disparities.

Effective February 28, 2013, the Office of Federal Contract Compliance Programs (OFCCP) issued Directive No. 307, which outlines the procedures OFCCP will use for reviewing contractor compensation systems and practices during a compliance evaluation. The Directive also rescinds OFCCP's 2006 Compensation Standards and the Voluntary Guidelines for Self-Evaluation of Compensation Practices for Compliance with Nondiscrimination Requirements of Executive Order 11246 with Respect to Systemic Compensation Discrimination. One thing is not new: Under Executive Order 11246 and its implementing regulations, contractors must review and monitor their compensation systems to determine whether there are any gender-, race- or ethnicity-based disparities.

The Rescission

The 2006 standards were "interpretive standards" that did not have the binding force of law, although they did bind OFCCP's actions, i.e., their purpose was to inform contractors of the rules the OFCCP would follow with respect to investigating compensation practices during a compliance evaluation. The standards focused on "systemic discrimination." Nonetheless, that did not mean that the OFCCP would overlook smaller groups of alleged compensation discrimination if it found them, but that the primary focus of its investigatory prowess was meant to target larger systemic compensation issues. The standards sought to segment the workforce into what OFCCP termed "Similarly Situated Employee Groups," otherwise known as SSEGs, and to primarily use multiple regression analysis as its tool for determining whether there were any statistically significant wage-based disparities in the SSEGs it created.

The "Voluntary Guidelines," on the other hand, were meant to enable contractors to obtain voluntary compliance coordination with the OFCCP during a compliance review instead of supplying compensation data pursuant to Item 11 of the Scheduling Letter. Contractors could also seek Alternative Compliance Certification under the Guidelines, but only under penalty of perjury. The number of contractors that actually sought voluntary compliance coordination is questionable as the requirements to achieve compliance were quite onerous and expensive.

The Directive

OFCCP claims that the 2006 standards contained "arbitrary restrictions" that hampered the agency from effectively combatting illegal pay discrimination. It states that the new Directive will provide a flexible, case-by-case approach to compensation discrimination that includes the use of various statistical and non-statistical means of analyses consistent with Title VII.

However, any contractor that has been subjected to an OFCCP compliance review in the past few years has most likely noticed the increased focus on compensation and has been, almost without fail, directed to submit individualized compensation data after OFCCP's initial review of the contractor's Item 11 data. Upon review of the Directive, this practice does not appear that it will change. Unfortunately, the Directive does not provide any specifics about the "average pay difference," "thresholds," or the number of "affected employees" that will trigger an individualized compensation data request. Consequently, contractors should be prepared for such a request and also be prepared to explain its pay practices and policies, especially in those areas in which the data reveals any significant compensation disparities.

Once it receives the individualized compensation data, OFCCP will then determine which tool(s) it may use to analyze for compensation issues. The Directive does not restrict OFCCP to multiple regression analysis. Although the Directive mentions a number of tools OFCCP may use to analyze the contractor's compensation data, it will remain a mystery to the contractor as to which tool or tools OFCCP actually utilizes.

Probably the most disturbing aspect of the Directive is the creation of "Pay Analysis Groups," which OFCCP will use for its analyses. OFCCP loosely defines "Pay Analysis Groups" as "a group of employees who are comparable for purposes of the contractor's pay practices." However, it goes on to say that these groups "may be limited to a single job or title, or may include multiple distinct units or categories of workers" and "may combine employees in different jobs or groups, with statistical controls to ensure that workers are similarly situated." It is doubtful that contractors will have much confidence in OFCCP's assurance. At least the 2006 definition for SSEGs stated that employees are similarly situated "if they are similar with respect to the work they perform, their responsibility level, and the skills and qualifications involved in their positions." In any event, OFCCP will analyze these Pay Analysis Groups for systemic discrimination, smaller groups of discrimination and/or individual discrimination.

Finally, if OFCCP's analysis warrants, it may decide that an on-site investigation is necessary and determine the need for interviews with the contractor's staff and employees. Of note, the Directive emphasizes OFCCP's enforcement of Title VII's principles that prohibit discrimination based on disparate treatment (intentional discrimination) or disparate impact (neutral policy that negatively impacts the protected class) theories. Thus, contractors should guard against any attempt by the OFCCP to base a violation upon Equal Pay Act principles that do not require a finding of discrimination.

Even though, going forward, contractors subject to a compliance review may not experience much difference outwardly in the manner in which OFCCP seeks additional compensation data and otherwise conducts its investigation, the Directive provides a lot of useful insight that a proactive contractor would do well to heed. The Directive may be found here.

As always, Baker Donelson's Labor and Employment attorneys stand ready to assist contractors in understanding this Compensation Directive as well as any issues that may arise in the federal contracting arena.

If you have questions about how the OFCCP directive will affect your business, please contact any of our more than 70 Labor & Employment attorneys located in Birmingham, Alabama; Atlanta, Georgia; Baton Rouge, Mandeville and New Orleans, Louisiana; Jackson, Mississippi; Chattanooga, Johnson City, Knoxville, Memphis and Nashville, Tennessee; and Houston, Texas.

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.

© Baker Donelson | Attorney Advertising

Written by:

Baker Donelson
Contact
more
less

Baker Donelson on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):
hide

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.

Security

JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.