Benefits and Compensation, HR Management & Compliance

OFCCP Issues Revised Directive for Compensation Analysis

Covered federal contractors have been tasked by the federal government with preventing disparities in pay for their employees based on race, gender, and ethnicity. To prevent such disparities, the Office of Federal Contract Compliance Programs (OFCCP) under the U.S. Department of Labor (DOL) requires federal contractors to annually conduct an in-depth compensation analysis.

In early 2022, the OFCCP issued Directive 2022-01. This aimed to give guidance on how the OFCCP would ensure compliance with its compensation analysis obligations. Recently, however, a revised version of this guidance has been issued. In this article, we will discuss the changes in the revised directive and how that affects strategy for compliance with the compensation analysis for federal contractors.

Background

On March 15, 2022, the OFCCP issued Directive 2022-01. As mentioned above, the purpose of the directive was to “provide guidance on how OFCCP will evaluate federal contractors’ compliance with compensation analysis obligations and clarify OFCCP’s authority to access and review documentation of compensation analyses.”

Ultimately, the directive encouraged federal contractors to devote greater attention to their duties regarding analyzing compensation systems. Notably, the directive suggested that the OFCCP could compel contractors to provide their compensation analyses, including privileged attorney-client communications and attorney work product.

With controversy incited over the directive, the OFCCP issued a revision to the directive titled “Advancing Pay Equity Through Compensation Analysis.” In the revised directive, the OFCCP addressed some of the controversies of its earlier guidance.

Privileged Communications

The revised directive clarifies that, though the OFCCP requires contractors to provide certain documentation proving they have conducted a compensation analysis, federal contractors don’t have to produce privileged attorney-client communications or attorney work product.

With that said, the OFFCP also made the following points regarding the attorney-client privilege and work-product doctrines:

  • Documentation that contractors have compiled in compliance with the revised directive isn’t inherently privileged.
  • The work-product doctrine protects material that was prepared in anticipation of litigation. It doesn’t protect materials that would have been similarly created, but in the absence of litigation.
  • Facts regarding what a contractor did to comply with the revised directive are not “communications” covered by the attorney-client privilege.
  • A communication intended to be disclosed to a third party isn’t confidential.
  • The attorney-client privilege only applies to the extent it facilitates the provision of legal services.

These five points signify that the OFCCP isn’t likely to blindly accept withholding compliance documents based on a claim of privilege. The OFCCP notes, however, that if a contractor believes its full compensation analysis is protected by the attorney-client privilege, it may fulfill its obligations in the following ways:

  • By providing a redacted version of its compensation analysis (as long as the analysis contains the required compensation analysis);
  • Conducting a separate analysis that is outside attorney-client privilege, and providing the separate analysis to the OFCCP in full; or
  • Generating a detailed affidavit that provides the required compensation analysis without disclosing privileged or protected material.

Compensation Analysis Documentation

What information is the OFCCP requiring? The revised directive clarifies what it expects from federal contractors to prove they conducted the compensation analysis. It explains that federal contractors must provide documentation that at least demonstrates the following:

  • When the compensation analysis was completed;
  • The number of employees the compensation analysis included and the number and categories of employees it excluded;
  • Which forms of compensation were analyzed and, where applicable, how the different forms were separated or combined for analysis;
  • That compensation was analyzed by gender, race, and ethnicity; and
  • The method of analysis employed by the contractor.

Documentation for Action-Oriented Programs

Last, when a federal contractor’s analysis reveals problem areas, it must develop action-oriented programs to correct them. To prove that it has done so, the federal contractor must provide documentation that demonstrates the following:

  • The nature and extent of any pay disparities found, including the categories of jobs for which disparities were found, the degree of the disparities, and the groups adversely affected;
  • Whether the contractor investigated the reasons for any pay disparities found;
  • That the contractor has instituted action-oriented programs designed to correct any problem areas identified;
  • The nature and scope of these programs, including the job(s) for which the programs apply and any changes (e.g., pay increases, amendments to compensation policies and procedures) the contractor made to the compensation system; and
  • How the contractor intends to measure the impact of these programs on employment opportunities and identified barriers.

These obligations are broad, and because they implicate legal concerns, they may also be obligations that are taken with the assistance of counsel.

Takeaways

The revised directive makes it clear that contractors may not escape compliance obligations by simply invoking privilege. Because of the agency’s stance regarding attorney-client communications, contractors will need to work closely with their counsel to provide sufficient evidence of compliance through non-privileged documentation.

Peyton Hildebrand is an attorney with Mitchell Williams in Little Rock, Arkansas. You can reach her at phildebrand@mwlaw.com