On February 26, 2013, OFCCP announced the rescission of two guidance documents on pay discrimination issued in 2006: Interpreting Nondiscrimination Requirements of Executive Order 11246 With Respect to Systemic Compensation Discrimination (“Compensation Standards”) and Voluntary Guidelines for Self-Evaluation of Compensation Practices for Compliance With Nondiscrimination Requirements of Executive Order 11246 With Respect to Systemic Compensation Discrimination (“Voluntary Guidelines”). The rescissions took effect on February 28, 2013.  OFCCP also issued Directive 307, Procedures for Reviewing Contractor Compensation Systems and Practices, (“Directive 307” or “Directive”), effective February 28, 2013, which describes the procedures that OFCCP will use when conducting compensation investigations.

Directive 307’s investigative procedures will apply to scheduling letters issued by OFCCP on or after February 28, 2013. The Directive’s investigative procedures will also apply to open reviews to the extent that the procedures are not in conflict with OFCCP guidance or procedures in place prior to the effective date of the Directive. The rescinded 2006 guidance documents will apply to determinations of whether to issue a Notice of Violation for systemic compensation discrimination in reviews scheduled or pending on the effective date of the new Directive.

Reasons For The Rescission

According to the Notice of Rescission (“Rescission”), the 2006 guidance documents restricted OFCCP’s ability to fully investigate pay discrimination and the rescission of the documents will improve its ability to combat pay discrimination. OFCCP noted that the 2006 documents addressed one type of compensation practice using limited evidence and required the use of a very narrow analytical procedure regardless of the circumstances of a particular case. This narrow approach, according to OFCCP, conflicted with the approach that OFCCP employs in investigating other discrimination practices. Further, although the Voluntary Guidelines attempted to inform contractors how to satisfy their self-monitoring duties, OFCCP found that the guidelines were inadequate and rarely used.

OFCCP concluded that the Compensation Standards and Voluntary Guidelines were also inconsistent with how other federal agencies address pay discrimination. In 2010, President Obama created the National Equal Pay Task Force, which brought together the Department of Labor, the Equal Employment Opportunity Commission, the Department of Justice, and the Office of Personnel Management to address pay discrimination. The rescission of the 2006 guidelines is part of the overall effort of the federal agencies to coordinate efforts consistent with the goals of the National Equal Pay Task Force.

OFCCP’s New Approach To Pay Investigations

OFCCP believes the new Directive will allow OFCCP to investigate contractor pay practices through a case-by-case approach consistent with Title VII of the Civil Rights Act of 1964, which OFCCP currently applies to other discrimination investigations. Specifically, OFCCP will consider five principles when reviewing compensation practices:

  • Determine the most appropriate and effective approach from a range of investigative and analytical tools;
  • Consider all employment practices that may lead to compensation discrimination;
  • Develop appropriate pay analysis groups;
  • Investigate large systemic, smaller unit, and individual discrimination; and
  • Review and test factors before including them in the analysis.

OFCCP is not limited to reviewing employee pay. It can also examine other employment practices and opportunities that may affect compensation including, among other things, work assignments, training, preferred or higher paid shift work, desired sales territories, promotions, and other opportunities for advancement.

OFCCP stated in the rescission of the 2006 documents that it is committed to providing greater transparency for contractors. Specifically, in both the Rescission and the new Directive, OFCCP described the investigative procedures that it will use and how it will review contractor pay practices. Further, OFCCP will provide assistance to contractors through written materials, for instance, case examples and frequently asked questions, and other online and in-person interactions such as webinars, online chats, conference calls, presentations, and workshops.

The newly announced OFCCP compensation “methodology” in effect removes any standardized method for reviewing compensation and possibly substitutes a results examination for a consistent analytical framework. Too, careful attention will be paid to how OFCCP develops “pay analysis groups” and whether the agency will combine disparate jobs that might fall into different job groups or locations to justify conclusions regarding pay practices. This will represent a dramatic change in the accepted methodology of reviewing compensation under current law.

OFCCP has issued frequently asked questions regarding the Rescission and new Directive on its website at http://www.dol.gov/ofccp/regs/compliance/faqs/CompGuidance_faq.htm

Implications For Government Contractors

  • It is more important than ever to regularly undertake a privileged self-audit of compensation and policies that may contribute to compensation disparities, including hiring, promotions, and performance management.
  • OFCCP now has greater flexibility in investigating compensation discrimination and is not constrained to using a particular methodology, which may make it more difficult for contractors to determine if they are compliant.
  • Please see our prior client alerts – April 2009 Tip of the Month (Best Practices for Compensation Audits) and April 17, 2012 (Government Interest in Pay Equity Still High, Increased Enforcement Efforts Afoot) – on pay equity audits and EEOC directed investigations.
  • Proskauer will be keeping a close watch on OFCCP to see how the new Directive is being implemented and which methodologies the agency is utilizing.