Government Contractor Compliance & Regulatory Update

OFCCP Enters Into MOU With Employer Group

Quick Hit: OFCCP has entered into a memorandum of understanding (the “MOU ”) with the National Industry Liaison Group (the “NILG”), a non–profit employer association that focuses on affirmative action and equal employment opportunity. The MOU is aimed at facilitating communications between OFCCP and the NILG in an effort to improve contractor compliance with OFCCP requirements as well as providing a mechanism to share contractor concerns with the agency.

Key Takeaway: Since the beginning of the Trump Administration, OFCCP has repeatedly stated that it is interested in improving relations with the government contractor community, increasing transparency, and balancing its enforcement efforts with those aimed at assisting contractors achieve compliance with its regulations. The MOU appears to be another example of the agency formalizing this commitment. Although the MOU is a welcome development and one that could provide contractors with greater clarity about their OFCCP obligations while also leading to welcome changes to the manner in which OFCCP implements its regulations, time will tell whether this initiative results in real, tangible benefits for government contractors.

More Detail:

The OFCCP and NILG entered into the MOU on August 27, 2018. The stated purpose of the agreement is to provide “a vehicle for exchanging information, obtaining feedback, and receiving advice from contractors” in order to “support contractor education and training; enable voluntary compliance with OFCCP’s regulations; and minimize, to the extent feasible, the cost of compliance by contractors.”

Among the goals of the MOU are: (1) coordination by the two organizations at both the national and local levels; (2) examination of “compliance challenges experienced by contractors”; (3) exploring “options for minimizing and eliminating operational, organizational and attitudinal barriers” contractors believe are impeding affirmative action and equal employment opportunities in their workplaces; and (4) improving OFCCP’s contractor education compliance tools and resources.

In order to achieve these goals, the OFCCP has committed, among other things, to:

  • Attend one annual meeting with the NILG Board;
  • Provide input and participating in the NILG’s annual national conference;
  • Make representatives available for at least one regional or local ILG meeting in each OFCCP region annually;
  • Engage in “various outreach initiatives that encourage all contractors, including NILG and local ILG members, to provide constructive feedback on OFCCP’s compliance evaluation process, education, outreach, and compliance assistance activities. OFCCP may reflect a consideration of this feedback in the development of contractor–focused activities”;

The NILG’s commitments include:

  • Using the annual meeting with OFCCP’s national office to discuss contractor concerns regarding OFCCP’s evaluation process and improving training and education;
  • Working with OFCCP to work cooperatively with OFCCP regarding its annual NILG conference and local ILG meetings;
  • Informing its Board members and local ILG members of OFCCP initiatives, opportunities to provide OFCCP feedback, and OFCCP-sponsored compliance assistance programs;

OFCCP Proposes New FAAP Directive

The Office of Federal Contractor Compliance Programs (“OFCCP”) is seeking approval to change its Functional Affirmative Action Program  (“FAAP”) requirements. The proposed directive, for which comments are due by November 13, 2018, proposes sweeping changes to the current FAAP directive, with the stated aim of encouraging contractors to use FAAPs. Continue Reading

OFCCP Announces Contractor Recognition Program

The Office of Federal Contractor Compliance Programs (“OFCCP”) has announced though Directive 2018-06 (the “Directive”) the development of a Contractor Recognition Program, which aims to “recognize contractors with high-quality and high-performing compliance programs and initiatives.” The Contractor Recognition Program arises out of feedback the OFCCP received from the contracting community in 2017 and 2018.

While the Contractor Recognition Program is still under development, the Directive provides some indication as to what contractors can expect. The Directive states that the OFCCP is currently developing “a contractor recognition program that highlights implementable best or model contractor practices, a contractor mentoring program that uses contractors to help their peers improve compliance, and other initiatives that provide opportunities for contractors to collaborate or provide feedback to OFCCP on its compliance assistance efforts.”

OFCCP Issues Directive Announcing Ombud Service

Quick Hit: OFCCP has announced its intention to create an Ombud Service. The new service will create a new position within the OFCCP, the “Ombud,” who will serve as a contact for contractors seeking to raise concerns or suggestions about OFCCP.

Key Takeaways:

  • The Ombud Service represents another example of OFCCP working to implement initiatives identified in its Town Hall Action Plan. With its flurry of recent Directives, OFCCP is taking steps to show contractors that it is responsive to their concerns.
  • The OFCCP’s new Directive merely announces the creation of the service in the future. In principle, the idea of an Ombud Service makes sense. It would provide contractors with an avenue to raise concerns and address perceived unfair conduct by compliance officers. However, until we see the details of the program it is difficult to predict how useful it will be.
  • One detail that will portend the effectiveness of the new service is how it handles confidentiality. Although the Directive recognizes that contractors are concerned that raising issues with the agency could lead to retribution, the Directive does not contain any statements regarding how the Ombud Service will protect the identities of contractors raising concerns. Whether and to what extent OFCCP can provide contractors such assurances will be a key element of the program and perhaps the key determinant of its success.

More Detail: On September 19, 2018, OFCCP issued Directive 2018-09 (the “Directive”), which announces the “planned implementation of an Ombud Service in the national office to facilitate the fair and equitable resolution of specific types of concerns raised by OFCCP external stakeholders in coordination with regional and district offices.”

As explained in the Directive, OFCCP is creating the Ombud Service in response to recommendations made by the Government Accountability Office’s (“GAO”) September 2016 Equal Employment Opportunity: Strengthening Oversight Could Improve Federal Contract Nondiscrimination Compliance report, as well as contractor feedback received at Town Hall meetings held by OFCCP in 2017. The new service appears aimed at addressing the concern reported by the GAO that “[s]takeholders and contractors fear that asking OFCCP for assistance would call attention to them and possibly make them a target for future OFCCP enforcement actions, such as compliance evaluations.” It also aims to respond to concerns that the agency “does not have an independent mechanism through which external stakeholders, after having exhausted district and regional office channels, can share their concerns with OFCCP about a particular open matter or provide general feedback and recommendations to improve the administration of the agency.”

The Directive does not create the Ombud Service; rather it simply announces that OFCCP plans to implement such a service. The Ombud Service’s mission will be “to facilitate the fair and equitable resolution of concerns raised by OFCCP’s external stakeholders, conduct independent and impartial inquiries into issues related to the administration of the OFCCP program, and propose internal recommendations to continuously improve the quality of services OFCCP provides to its stakeholders.”

The Directive provides contractors with some details about what to expect from the new service. Per the Directive, the Ombud Service “should require the Ombud to:

  • Listen to external stakeholder concerns about OFCCP matters and suggestions for improvements;
  • Promote and facilitate resolution of OFCCP matters at the district and region office level;
  • Work with OFCCP district and regional offices as a liaison to resolve certain issues after stakeholders have exhausted district and regional office channels;
  • Refer stakeholders to the OFCCP Help Desk for routine compliance and technical assistance inquiries;
  • Accept and review matters referred directly by the national office; and
  • Have the discretion to reject a referral in appropriate circumstances.”

The Directive also makes clear that the Ombud Service “will not

  • Advocate for either side of a dispute;
  • Give legal advice, analysis, opinions, or conclusions;
  • Conduct compliance evaluations, complaint investigations or participate in conciliation agreement negotiations; and
  • Have any role in conduct or discipline issues regarding OFCCP staff.”

When more details about the Ombud Service are announced we will report them here.


OFCCP Issues New Directive Addressing “Transparency In OFCCP Compliance Activities”

Quick Hit: OFCCP has issued Directive 2018-08 (the “Directive”) which sets forth new policies and procedures for OFCCP compliance evaluations. The Directive contains numerous specific rules and procedures that compliance officers must follow at every phase of a compliance evaluation.

Key Takeaways:

  • The Directive provides contractors a better sense of what they can expect during a compliance evaluation. The rules contained in the Directive can be cited to during a compliance evaluation if (or when) compliance officers fail to abide by them. If your business is currently under a compliance evaluation, review the Directive and make sure your compliance officer is following its requirements. It may take some time before compliance officers are familiar with all of the Directive’s details.
  • The Directive reinforces the comments included in Directive 2018-07 that OFCCP expects contractors to have prepared their Affirmative Action Programs (“AAPs”) on time and be able to produce them to OFCCP within 30 days of receipt of a Scheduling Letter. The Directive makes clear that contractors should not expect to receive extensions of time on this deadline and should expect OFCCP to promptly issue show cause notices when this deadline is missed. In other words: Make Sure You Prepare Your AAPs Annually!
  • Contractors under audit should expect more transparency from OFCCP. For example, compliance officers must now provide specific explanations about what indicators of discrimination have prompted an onsite inspection, and share details underlying any Notice of Violation during the conciliation process – including regression analysis details supporting a pay discrimination finding.
  • If the Directive is followed, contractors under audit should expect to receive regular communications from their OFCCP compliance officer. The Directive requires compliance officers to communicate with contractors within 15 days of the issuance of the Scheduling Letter, after receiving the contractor’s AAP and supporting documentation in response to the scheduling letter (ideally within 5 days), and regularly thereafter (“ideally at least once every 30 days).
  • OFCCP appears to be listening to the contractor community. Many of the provisions in the Directive respond to concerns raised by contractors for years. That being said, the Directive contains wiggle room for compliance officers, so the extent to which the Directive provides contractors with more transparency and predictability during onsite evaluations remains to be seen. That being said, if followed, the Directive contains numerous provisions (as detailed below) that should improve the compliance evaluation experience.

More Detail: On September 19, 2018, OFCCP issued Directive 2018-08 (the “Directive”). The Directive’s stated purpose is “[t]o ensure transparency in all stages of OFCCP compliance activities to help contractors comply with their obligations and know what to expect during a compliance evaluation, and to protect workers from discrimination through the consistent enforcement of OFCCP legal authorities.” This is the latest in a string of measures taken by OFCCP to improve its transparency – a major shortcoming identified by contractors during OFCCP’s 2017 Town Hall Meetings and an initiative included in OFCCP’s Town Hall Action Plan.

OFCCP states that the Directive “extends OFCCP’s transparency initiative to every stage of a compliance evaluation to facilitate consistency of operations, improve efficiency, and resolve collaboratively matters during compliance evaluations.” To emphasize that point, the Directive states that “Transparency should guide OFCCP staff during every stage of a compliance evaluation, from beginning to end.” To that end, the Directive sets forth numerous new policies and procedures that either clarify ambiguities or fill in gaps in the Federal Contract Compliance Manual (“FCCM”) – the main resource upon which contractors rely to understand the procedures applicable to compliance evaluations. The Directive makes clear that it expressly “supersede[s] any procedures in the FCCM or other previously issued guidance to the extent they could be read to conflict.” It also expressly states that “OFCCP staff must follow” the new policies and procedures.

Some of the key provisions of the Directive include:

  • 30 Day Extensions Available – But ONLY For Supporting Data. The Scheduling Letter that commences a compliance evaluation provides a 30 day period in which to provide the requested AAP and supporting data. The Directive provides that contractors may receive a 30 day extension on the deadline for providing supporting data, provided that: (1) the request is made within 30 days of receiving the Scheduling Letter, and (2) the contractor timely submits its AAPs within the initial 30-day period. The Directive makes clear that extensions of time to submit AAPs will rarely be granted. Failure to meet deadlines for submitting AAPs and/or supporting data will result in the “immediate” issuance of a Notice to Show Cause why OFCCP should not initiate enforcement proceedings, providing contractors an additional 30 day period in which to provide the information. These Show Cause Notices will not require approval from OFCCP’s National Office.
  • Initial Contact by Compliance Officer After Issuance of Scheduling Letter. Within 15 days after a Scheduling Letter is issued, the compliance officer will contact the contractor to: (1) establish the compliance officer as the primary point of contact; (2) provide an overview of the compliance evaluation process; (3) offer compliance assistance; (4) explain the available 30 day extension on the deadline to provide supporting data; and (5) the Notice to Show Cause process if the contractor cannot meet deadlines for submitting its AAP and supporting data.
  • Time to Address Issues with Initial Submissions. The Directive requires compliance officers to notify contractors promptly of any deficiencies in the AAPs and supporting data submitted in response to the Scheduling Letter, and provide “15 days to provide complete and acceptable submissions.” Many contractors complained about the short timelines provided by some compliance officers. Now contractors can expect at least 2 weeks to respond to issues with their initial submissions.
  • No Fishing Expeditions During the Desk Audit Phase and Parameters On Additional Data Requests. The Directive makes clear that during the desk audit stage of a compliance evaluation, any follow up requests by compliance officers must be limited to the data requested by the Scheduling Letter. If the matter progresses beyond the desk audit phase, requests for information may go beyond that requested in the Scheduling Letter, but should be aimed at “refin[ing] indicators and prepar[ing] for a potential onsite visit.” Moreover, contractors must be informed why the information is being requested, and the requests must be “reasonably tailored to the areas of concern, and allow a reasonable time to respond.”
  • Contractors Must Be Told Why OFCCP Is Coming Onsite. Onsite confirmation letters must “[i]nclude a high-level summary of any preliminary indicators of discrimination.” With this requirement, contractors should no longer face the prospect of an onsite inspection without knowing what OFCCP is investigating. The sample onsite confirmation letter attached to the Directive indicates that OFCCP must provide specific details about the indications of discrimination leading to the onsite. Specifically, the sample explanations in the form letter suggest that OFCCP must disclose the type of violation and the job group at issue: “(1) (e.g., hiring practices in the Technician I job group); and (2) (e.g., compensation policies and practices with respect to women in the following pay analysis groups).” That being said, OFCCP makes clear that the stated reasons for its onsite inspection do not limit the scope of its review, as it states in the sample onsite confirmation letter: “identification of these preliminary indicators does not limit the scope of OFCCP’s authority to confirm compliance with other requirements or investigate other potential violations that it discovers during the course of this compliance review.”
  • Quick Closure of Most Compliance Evaluations. The Directive contemplates that for “the majority of cases” where the desk audit review reveals no indicators of discrimination or evidence of other violations, compliance evaluations should be closed within 45 days of receipt of the contractor’s AAPs and supporting data.
  • Sharing Information in Conciliation Phase. The Directive anticipates a “collaborative approach” between OFCCP and contractors during the conciliation phase, including provision by OFCCP of “information and essential source data.” This includes sufficient information “to assist the contractor in understanding and replicating OFCCP’s findings, sharing factors used to calculate back pay, [and] providing an overview or summary of anecdotal evidence or non–statistical findings to add context to the statistical results.”
  • Next Business Day Rule. The Directive includes a rule (contained in footnote 5) that if certain deadlines fall on a weekend or holiday, the Contractor has until the next business day to respond. Although this seems like a minor enhancement, it relieves contractors of the need to either ask for permission to extend a weekend or holiday deadline or respond in advance of the deadline.

OFCCP Issues Directive Announcing “Affirmative Action Program Verification Initiative”

Quick Hit: OFCCP has issued a new Directive (Directive 2018-07), announcing its intention to develop an Affirmative Action Program Verification Initiative (the “Verification Initiative”). The Directive only notifies the contractor community that the program is in the works – for now, nothing has changed. However, the Directive shares that the program will, among other things, include “a process whereby contractors would certify on a yearly basis compliance with [Affirmative Action Program (“AAP”)] requirements,” and tweak OFCCP’s compliance evaluation scheduling criterion to attempt to increase the likelihood non-compliant contractors are scheduled for compliance evaluations.

Key Takeaways:

  1. If you are a contractor that has not been diligent in preparing its annual AAP, in the near future you will have strong incentives to change your ways. If you are one of those contractors, now is the time to get your AAP house in order.
  2. The Verification Initiative makes some practical sense and from the Directive it appears OFCCP has given the matter serious thought. That being said, the devil, as always, will be in the details. This program has the potential to be a positive development for compliant contractors, or another compliance headache.

Stay tuned. We will report on the details of the program once it is announced.

More Detail: As we previously reported, Acting OFCCP Director Craig Leen announced at the National Industry Liason Group Conference that the OFCCP is working on a contractor certification program. Although he was short on details, he shared that the program would aim to provide OFCCP with a way to identify contractors who are likely in compliance in order to focus compliance evaluations on contractors likely not in compliance.

In Directive 2018-07, OFCCP has formalized this initiative. As explained by OFCCP, the Verification Initiative appears to have two primary goals: (1) increase contractor compliance with OFCCP regulatory requirements; and (2) help OFCCP focus its compliance evaluations on non-compliant contractors.

The Directive notes that OFCCP can only conduct compliance evaluations for a small portion of the 120,000 contractor establishments governed by its regulations. The Verification Initiative is a way for OFCCP “to expand its compliance reach.” The Directive also expresses OFCCP’s “concern[] that many federal contractors are not fulfilling their legal duty to develop and maintain AAPs and update them on an annual basis.” The Directive cites to a 2016 U.S. Government Accountability Office report which found that “close to 85 percent of contractor establishments did not submit a written AAP within 30 days of receiving a scheduling letter.” Noting that the agency only audits a small fraction of government contractors, the Directive states that “federal contractor establishments have a small likelihood of discovery if they decide not to develop and update an AAP.” This, according to OFCCP, creates a “free rider” problem, where some contractors “benefit from participating in the federal procurement process while not bearing the corresponding costs of AAP compliance based on the current high likelihood they will not be listed (and potentially receiving an inequitable advantage over law abiding contractors).”

As such, the Directive announces that OFCCP seeks to “establish[] a program for verification of compliance by all contractors with AAP obligations.” The program would encourage compliance in two ways. First, contractors would have incentive to prepare their AAPs because they would have to certify compliance. Second, certifying compliance would lessen the chances that contractor would be selected for a compliance evaluation. As the Directive explains, the failure to develop and update an AAP violates threshold contractual and legal obligations, and indicates a lack of commitment to comply with equal employment opportunity and anti-discrimination obligations. Accordingly, in situations where contractor establishments fail to comply with the AAP requirement, the likelihood of other violations, including discrimination, may be higher. Thus, OFCCP believes that [adding certification information as a] new [compliance evaluation scheduling] criterion could be effective at identifying potential violators of the authorities OFCCP enforces.

The Directive only announces the creation of a verification program at some point in the future. As such, we still do not know what the program will entail or even when OFCCP aims to implement it. However, the Directive states that the program “would initially take the form of OFCCP review of a certification, followed by potential compliance checks, and could later take the form of annual submission of AAPs to OFCCP for review.” The Directive states that “comprehensive program” will include:

  1. Development of a process whereby contractors would certify on a yearly basis compliance with AAP requirements.
  2. Inclusion of a criterion in the neutral scheduling methodology increasing the likelihood of compliance reviews for contractors that have not certified compliance with the AAP requirements.
  3. Compliance checks to verify contractor compliance with AAP requirements.
  4. Requesting proffer of the AAP by contractors when requesting extensions of time to provide support data in response to a scheduling letter.
  5. Development of information technology to collect and facilitate review of AAPs provided by federal contractors.

The Directive anticipates that the new program will not come as a surprise to contractors. It promises that “OFCCP will prepare a public outreach and education campaign on this initiative. The campaign would encourage contractors to contact the agency for compliance assistance regarding AAPs.”

OFCCP Launches New Resource For Contractors

The Office of Federal Contract Compliance Programs (“OFCCP”) has announced that it has launched a new resource for federal government contractors called the “Contracting Officer Corner.” OFCCP touts the new website as constituting “a central repository of resources, including a new pre-award process guide and downloadable workplace posters, for both federal agency contracting officials and federal contractors.” The aim of the website is to “assist and ensur[e] that federal contractors meet their equal employment opportunity obligations,” and to “enhance compliance assistance.”

The new website includes:

  • a “Pre-Award Process Guide” providing guidance on the process for requesting Equal Employment Opportunity clearance from OFCCP;
  • information about subcontractor notifications required to be provided to OFCCP by construction contractors;
  • links to OFCCP’s Equal Employment Opportunity posters required to be posted by federal contractors;
  • links to the Federal Acquisition Regulations; and
  • a training presentation for federal procurement officers on Equal Employment Opportunity.

Key Takeway: the new website appears to be part of OFCCP’s Town Hall Action Plan, which aims to enhance contractor compliance assistance and increase transparency and communication. As reported here, one of the issues raised by contractors at the OFCCP’s Town Halls held last year was the desire for improved online resources. The Contracting Officer Corner appears to be a concrete step taken by the agency to respond to contractors’ concerns, although its offerings at this time are limited. Time will tell whether the Contracting Officer Corner is the beginning of a go-to resource for contractors, or simply a gesture.

Recognizing the Need for Clarity and Transparency, OFCCP Provides Guidance to Contractors and Compliance Officers Concerning Compensation Audits and Self-Auditing

On August 24, 2018, OFCCP released its long-awaited Directive outlining the standard procedures OFCCP will use during the course of compensation audits of federal government contractors. Concerned that it failed to provide clear guidance to contractors, the Directive rescinds and updates Directive 307, OFCCP’s most recent guidance concerning compensation audits. OFCCP explained that it “believes that fulsome guidance will further support contractors’ ability to conduct meaningful self-audits so that they can proactively identify and address issues with their compensation practices.” The Directive and its attachment and the FAQs are attached here.

OFCCP explained that the purpose of the new Directive was to (1) provide further transparency to contractors regarding the procedures used by OFCCP in conducting compensation audits; (2) support compliance and self-analysis by contractors; and (3) improve compensation analysis consistency and efficiency during compliance evaluations. The Directive was intended to provide more transparency to contractors regarding OFCCP’s procedures and practices for establishing pay analysis groups (PAGs) and conducting statistical analyses and modeling.

OFCCP reiterated in the attachment to the Directive that it is focused on identifying and addressing compensation disparities that are the result of systemic discrimination, including pattern or practice discrimination and disparate impact discrimination. If OFCCP believes there are indicators of systemic discrimination, it will seek to understand the contractor’s compensation system, policies and practices and undertake what it characterizes as a “holistic” review of the contractor’s EEO, diversity and inclusion policies. The attachment explains that, in conducting such a holistic review, it will consider a variety of employment practices that can lead to compensation disparities between similarly-situated employees, including the promotion, training and advancement opportunities, and the assignments offered to employees.

OFCCP also described the categories of evidence it will consider during compliance reviews, including statistical and anecdotal evidence. Anecdotal evidence can be derived from the review of policies, compensation records and other documents and interviews with managers and workers. OFCCP explained that, in determining which cases to pursue, OFCCP will be less likely to pursue a matter if the statistical evidence is not corroborated by non-statistical evidence, unless the statistical evidence is especially strong or OFCCP has identified a pattern of compensation discrimination by the contractor in prior audits.

OFCCP will continue to use the OMB-approved scheduling letter to collect initial compensation data from contractors. Compliance officers will use the information provided by contractors to develop pay analysis groupings (PAGs) of comparable employees. According to the attachment to the Directive, it is OFCCP’s objective to use or create PAGs that mirror the contractor’s compensation system. It notes that, if a contractor provides information concerning its compensation hierarchy and job structure in the submission, OFCCP will attempt to design its analysis based on that structure. OFCCP expects the information provided by the contractor concerning its compensation structure to be reasonable and verifiable and will include groups of sufficient size to undertake a meaningful statistical analysis.

OFCCP declined to identify in the Directive the size of groupings it considers sufficient. However, in the FAQs issued with the Directive, OFCCP states that it will first review each of the PAGs to determine if they contain at least 30 employees under a similar pay system performing similar job functions. It will then try to determine if there are at least 10 employees per variable (e.g., gender, years in position). Thus, if a pay model had five control variables, the PAG would ideally have at least 50 employees. It also noted in the FAQs that, in rare circumstances, OFCCP may rely on non-statistical, or cohort, data to assess small job groups. If a contractor declines to provide proposed groupings or the information necessary for OFCCP to establish PAGs, OFCCP will conduct its preliminary desk audit based on either EEO-1 or AAP job groups, if they are reasonable and sufficiently large.

After it identifies appropriate PAGs, OFCCP will then control for factors that impact pay within the PAGs, such as sub-job groupings, functions, units and titles, as appropriate. During this preliminary analysis, OFCCP will also control for tenure, full-time status and other appropriate factors. If the results of the desk audit warrant additional review, OFCCP will seek additional information to understand the contractor’s compensation systems, factors that drive compensation decisions, and job structure. Based on this additional information, OFCCP may broaden or narrow its preliminary PAGs.

OFCCP identified principles that it will use to conduct statistical analyses, both during and after the desk audit phase:

  • It will use multiple linear regression analysis (MRA) to help reduce false negative and positive results;
  • It will analyze (1) base pay, (2) total compensation and, if necessary (3) individual components of pay (e.g., bonuses or commissions);
  • It will convert salary to a log of salary using a regression model; and
  • It will analyze statistical outliers to test whether the PAGs have been composed properly.

In analyzing pay disparities using these models and principles, OFCCP will evaluate males and females in separate regression models. OFCCP noted, however, that it may evaluate the interaction of sex and race in future models. For race and ethnicity, OFCCP will create a variable for each race and ethnicity category with more than five employees. OFCCP provided the following guidance concerning the factors it will apply in undertaking a MRA:

  • It will control for components of employee tenure (e.g., time in position, time with the company) separately;
  • It will not consider squared terms (factors, such as time in position, that level out over time) until after the initial desk audit phase;
  • It will control for education categories and performance ratings and rakings, combining them as necessary;
  • It may use age as a proxy for prior experience only at the desk audit phase;
  • Per the FAQs, it may control for job title if pay legitimately varies based on job title.
  • It will control for job level or grade, combining them as necessary; and
  • It will evaluate market salary surveys, if provided by the contractor, on a case-by-case basis if job and pay differentials are not sufficiently accounted for.

Before OFCCP will apply any of these (or other relevant) factors, it will test them for neutrality to make certain they do not have a disparate impact on any protected category. OFCCP also adopted the “rule of five” recently used by the National Office statisticians in compliance reviews and conciliation negations. It described this rule in the FAQs in discussing the circumstances when job title would be a relevant factor:

OFCCP will attempt to control for . . . job title if pay legitimately varies by job title. In many instances, controlling for factors like grade level, department, or business unit sufficiently distinguishes functional differences in job titles . . .. To capture meaningful pay differentials across the categories, OFCCP requires that each category contain at least five observations. If a category has fewer than five observations, OFCCP will join those observations with their ordinal counterpart (e.g., nearest grade or level) or to the category with the nearest average pay. With this approach, OFCCP meaningfully controls for pay differentials across job titles while minimizing the risk of suturing the model with low frequency employee controls.

At the end of the attachment, OFCCP identifies three practices it will use to facilitate transparency and consistency and the resolution of findings through conciliation:

  1. At the conclusion of the desk audit, OFCCP will notify the contractor in writing of the general nature of any preliminary compensation disparities. For instance, a contractor may be informed that preliminary disparities have been found in “compensation policies and practices with respect to women in production, sales and management.”
  2. Consistent with Directive 2018-01, OFCCP will attach to any pre-determination notice (PDN) the individual-level data necessary for the contractor to replicate OFCCP’s PAGs and regression results. The contractor will have the opportunity to offer a non-discriminatory explanation for the preliminary findings before a violation will be found. The PDN and the contractor’s response will be reviewed by the National Office. The individual-level data will also be attached to any Notice of Violation (NOV) issued to the contractor after the National Office’s review is completed.
  3. To facilitate conciliation, OFCCP will include professional labor economists or statisticians from the Branch of Expert Services in the conciliation process to clarify OFCCP’s variable coding, statistical methods and findings and to answer questions about the process and assumptions used in computing back pay.

With respect to point 2, OFCCP explained in the FAQs that, if a contractor provides factors that may explain the disparities in pay, OFCCP’s statisticians and other field and national office staff will coordinate with representatives from the DOL’s Regional Office of the Solicitor to decide on a preliminary analytical model. The contractor will be given an opportunity to provide additional information to OFCCP regarding its compensation systems and practices. Based on the additional information provided by the contractor, the preliminary model may be refined.

The Directive went into effect on August 24, 2018. It will apply to all compliance evaluations scheduled on or after that date. The Directive states that it will apply to “open reviews to the extent they do not conflict with OFCCP guidance or procedures existing prior to the effective date” of the Directive.

After we have an opportunity to digest the detailed standards set forth in the Guidance and associated documents and obtain input from OFCCP officials, we will provide a series of blogs entitled “Demystifying OFCCP’s New Compensation Guidance” that reviews – in plain text – the three key elements of the Guidance and provides practical advice for compliance with them.


OFCCP Acting Director Leen Announces New Contractor Certification Program

At his closing remarks at the National Industry Liaison Group’s 2018 annual conference, Acting OFCCP Director Craig Leen announced that the OFCCP is working on a contractor certification program. Although light on details, Acting Director Leen forecast a system where contractors that did not certify compliance with their affirmative action obligations would be targeted for compliance evaluations.

Key Takeaway: For government contractors that take their compliance obligations seriously, a certification program that would reduce compliance evaluations should be a welcome development. OFCCP has noted in the past that only a very small percentage – as low as 2% – of compliance evaluations end in a finding of discrimination. A program that permits OFCCP to focus on contractors who are most likely not in compliance would not only spare contractors who work hard to achieve compliance from unnecessary and burdensome compliance evaluations, it would also permit OFCCP to be more effective.

As with most things, the devil will be in the details. We will continue to monitor this potential new program and report on any new developments.

Breaking News: OFCCP Issues New Directive Instructing Staff to Respect Contractors’ Religious Beliefs in Enforcing Executive Order 11246

On August 10, 2018, OFCCP Acting Director Craig Leen issued Directive 2018-03  (the “Directive”), the purpose of which is to “incorporate recent developments in the law regarding religion-exercising organizations and individuals.”

Most of the Directive addresses OFCCP’s regulations regarding protection from discrimination on the basis of religion and recent Executive Orders and court decisions that address the federal government’s “duty to protect religious exercise – and not to impede it. The practical import of the Directive comes at the end, where it instructs OFCCP staff “to take these legal developments into account in all their relevant activities, including when providing compliance assistance, processing complaints, and enforcing the requirements of E.O. 11246.” The Directive also anticipates future rulemaking on this topic.

Key Takeaway: When President Trump was sworn into office, many worried that his Administration would undo President Obama’s amendment of E.O. 11246  to include gender identity and sexual orientation as protected characteristics. On January 31, 2017, the Trump Administration announced that E.O. 11246, as amended by E.O. 11478, would “remain intact .” As we reported at the time , the statement followed press reports that the Trump Administration was contemplating reversing the expansion or adding religious freedom provisions.

The new Directive appears aimed at addressing the concerns of religious organizations that contract with the federal government with the expansion of E.O. 11246 to include sexual orientation and gender identity protections.