The U.S. Department of Labor’s (DOL) Office of Federal Contract Compliance Programs (OFCCP) formally rescinded the Bush-era guidance on pay discrimination in February, criticizing the 2006 “Voluntary Guidelines and Compensation Standards” as improperly limiting its ability to conduct full investigations of compensation matters. The OFCCP replaced the 2006 voluntary guidelines with Directive 307, which specifies the procedures that OFCCP investigators must follow when conducting compensation audits.
“Today, we are lifting arbitrary barriers that have prevented our investigators from finding and combating illegal pay discrimination,” said OFCCP Director Patricia A. Shiu in a press release. “At the same time, we are providing clear guidance for contractors to facilitate their success when it comes to providing equal opportunity to all of their workers.” Directive 307’s investigative procedures apply to all scheduling letters issued by the OFCCP on or after February 28, 2013.
Broader investigations to be conducted
Under the 2006 voluntary guidelines, a single analytical procedure was used for determining a violation in all systemic compensation discrimination cases, with few exceptions. The OFCCP was required to use regression analyses based on similarly situated employee groups (SSEGs) to test for pay disparities, and it needed anecdotal evidence to establish a violation in most cases. By contrast, the new directive provides that the OFCCP will use any combination of analytical methods permitted under Title VII of the Civil Rights Act of 1964 and appropriate to the specific case.
The OFCCP’s new directive marks a significant expansion in its approach to compensation reviews. Virtually every federal contractor’s compensation decisions, policies, or practices will be subject to scrutiny and possible challenge by the agency. As a result, federal contractors can expect a more intensive OFCCP review of their compensation systems and practices and should be prepared to respond accordingly.
The OFCCP believes that in keeping with Title VII’s principles, it must be able to use a variety of “investigative and analytical tools” in conducting its compensation evaluations. Directive 307 states that “investigation of potential compensation discrimination presents complex and nuanced issues. The choice of the best approach for a case depends upon the underlying facts, the available data, and the contractor’s compensation system and practices. As such, [the] OFCCP takes a case-by- case approach to analyzing compensation issues.”
The agency will consider five principles when reviewing contractors’ pay practices:
- It must determine the most appropriate and effective approach from a range of investigative and analytical tools.
- It must consider all employment practices that may lead to compensation discrimination.
- It must develop appropriate pay analysis groups.
- It must investigate large systemic, smaller unit, and individual discrimination.
- It must review and test factors before including them in the analysis.
Generally, the OFCCP will begin by testing for statistically significant pay disparities on large groups of employees and then will refine the data and conduct additional tests on smaller groups or individuals if necessary. The investigations may be very broad and may examine all employment practices that have the potential to lead to compensation disparities. Directive 307 states that the OFCCP should now examine employee access to opportunities affecting compensation such as “higher paying positions, job classifications, work assignments, training, preferred or higher paid shift work, and other opportunities.”
Additionally, the agency may review policies and practices that limit a group’s earning potential, including “‘glass ceiling’ issues, and access to overtime hours, pay increases, incentive compensation, and higher commission or desired sales territories.” The agency will investigate and remedy instances of compensation discrimination regardless of whether individual workers have reported being underpaid. It also may consider qualitative factors such as past compliance history in its investigation.
Bottom line
The newest round of corporate scheduling announcement letters (CSALs) went out recently, which will generate the first compliance reviews under Directive 307. The letters are not actual audit notices but rather courtesy notifications from the OFCCP that a compliance review is likely during the scheduling cycle. Given the significantly expanded procedures and protocols the agency now has in its arsenal, federal contractors are well-advised to begin to conduct thorough self-audits that look more broadly at factors that could affect compensation on both a systemic and smaller group basis, regardless of whether they receive a CSAL in this cycle. In performing a self-audit, contractors should be prepared to remediate any discrepancies for which there isn’t a legitimate nondiscriminatory explanation and document all decisions carefully.
Melineh Verma is an employment law attorney with Fortney & Scott, LLC, in Washington, D.C. She has more than 10 years of experience representing employers through litigation and mediation before state and federal agencies and courts, as well as counseling and training public, private, and non-for-profit companies in all aspects of employment law. She may be contacted at mverma@fortneyscott.com.