The Office of Federal Contract Compliance Programs (“OFCCP”) released Directive 310 on July 17, 2013. The Directive provides guidance concerning the calculation of back pay awards by OFCCP in investigations and proceedings involving individual and class allegations of discrimination. This is the first time OFCCP has addressed the computation of back pay award since the Federal Contractor Compliance Manual (“FCCM”), a field guide for compliance officers. Although the new Directive essentially tracks the guidance in the FCCM, it changes OFCCP’s focus in computing back pay from individual relief to class-wide relief.
Calculation of Back Pay
OFCCP often seeks the payment of back pay in connection with conciliation agreements and enforcement proceedings. In essence, through the payment of back pay, OFCCP is attempting to determine the amount of earnings an affected applicant or employee would have received absent the alleged discrimination. OFCCP defines earnings broadly to include all forms of compensation, such as wages, overtime, raises, bonuses, sales commissions, cost-of living increases, tips, benefits, and the value of stock awards or options.
There are two basic models OFCCP uses for computing back pay relief—formula relief and individual relief. Formula relief estimates the back pay award for an affected class, while individual relief computes back pay for a particular individual.
OFCCP will generally use either the Shortfall Method or the Averaging Method for calculating formula relief.
Shortfall Method. The Shortfall Method is generally used in cases where the number of individuals in the class exceeds the number of “opportunities,” such as allegations of discrimination in hiring, promotion and termination. The “shortfall” is the difference between the actual number of individuals in the affected group who were selected for the opportunity and the number that were statistically expected to be selected.
For example, suppose a contractor has ten openings for a specific job title and twenty males and twenty females apply, but only two females receive a position. Based upon the gender of the applicants, one would have expected five females to be hired, instead of just two. In this case, the “shortfall” for females is three.
In determining the back pay award, OFCCP will first evaluate the total earnings for each of the ten positions filled. Once it determines the average earnings for the position, it will multiply that number by the number of “shortfall” positions to identify the total back pay amount. It will then offer a pro rata share of the total back pay to qualified female applicants who were not hired.
Averaging Method. OFCCP will use the Averaging Method in cases where the calculations are based on the number of individuals affected rather than on the number of positions at issue. This occurs most often in compensation discrimination. To determine the amount of back pay, OFCCP first calculates the average pay of the non-affected group and the average pay of the affected group. The difference in pay will then be used to determine the amount of back pay to award the affected group.
When individual relief is provided, OFCCP attempts to determine an individualized back pay award for each victim of discrimination. The most common way to define an individual’s loss is to identify similarly situated employees or applicants who were not discriminated against (i.e., members of the favored group) for comparison to the affected individual.
Two Key Differences Between Directive 310 And The FCCM
Directive 310 has two significant differences from the FCCM. First, Directive 310 de-emphasizes the preference for individual relief. The FCCM emphasized that individual relief is the preferred model, stating that it should be applied “whenever feasible.” The Directive, on the other hand, gives OFCCP the discretion to decide which model is most appropriate. Unlike the FCCM, Directive 310 discusses formula relief first and devotes more attention to formula relief than the FCCM. This emphasis on formula relief is consistent with the agency’s focus on systemic discrimination as detailed in OFCCP’s Directive 307, Procedures for Reviewing Contractor Compensation Systems and Practices (covered in our previous blog entry here).
Second, Directive 310 adopts a “presumption of unemployment” in calculating back pay in hiring cases. In other words, OFCCP will assume that an applicant the contractor did not hire was unemployed during the period being assessed for the back pay award, even if the applicant listed a current employer on the application. Contractors may attempt to rebut this assumption with “evidence pertaining to applicants’ employment.” The Directive states that indicators of employment on applications will not suffice “unless specifically and individually verified” by the contractor. This change will make it more difficult for contractors to show that a back pay award should be mitigated or reduced by interim earnings. Although the Directive states that this approach follows Title VII, we do not believe that it comports with Title VII precedent.
Please feel free contact the Government Regulatory Compliance & Relations group at Proskauer if you have any questions concerning OFCCP’s Directive or any other OFCCP compliance issues.