As we previously reported, in March of this year, OFCCP issued
its first directive of the Biden Administration – Directive
2022-01 (the “Directive”) – which addressed the
issue of contractors’ obligations to conduct analyses of their
compensation systems, as well as the agency’s expectations
regarding providing those analyses when under audit. The Directive
received a lot of (mostly negative) attention, for appearing to
indicate the agency would demand privileged pay equity analyses
during audits, as well suggesting that contractors are obligated by
regulation to conduct full pay equity analyses.
Now, five months after issuing the Directive, the agency has
issued significant revisions to it. As summarized in its announcement, the Directive has been revised
in three main ways:
- It explicitly reaffirms the agency’s position that it does
not require the production of attorney-client privileged
communications or attorney work product. - It identifies the documentation that OFCCP requires from a
contractor to determine that the contractor has satisfied its
obligation to perform a compensation analysis. - It explains the documentation required from a contractor when
its compensation analysis identifies problem areas to demonstrate
that it has implemented action-oriented programs.
It also removes references to “pay equity audits,”
replacing the phrase with “compensation analysis,” in
order to, as OFCCP Director Jenny Yang contends, “avoid any confusion regarding
the nature of a contractor’s obligations.”
OFCCP “reaffirms” (or reverses) its
position on production of privileged materials. With
respect to production of privileged information, the Directive now
states that the “Directive is not intended to encourage waiver
of privilege. Rather, this Directive informs contractors that,
where they maintain this information in non-privileged form, making
it available can assist OFCCP in conducting a more efficient
compliance evaluation.” While the agency characterizes this as
a “reaffirm[ation],” it is clearly an effort to reverse
the clear impression that the agency would be demanding privileged
information the original Directive generated.
Even so, the agency makes clear that contractors will not be
permitted to simply claim their compensation assessments are
protected from disclosure during an audit. The Directive provides
that “[c]ontractors will not be found in compliance with their
compensation analysis obligations if they simply invoke privilege
and provide OFCCP with no or insufficient documentation of
compliance.” As discussed below, OFCCP maintains contractors
have methods of confirming compliance without revealing privileged
information.
OFCCP details what it expects to see from
contractors regarding their compensation assessments.
The Directive contends that contractors are required to conduct
analyses of their compensation systems and provide documentation
“confirm[ing] that the contractor has evaluated its
compensation systems for race-, gender-, or ethnicity-based
disparities.” The agency notes that “the most useful form
of documentation is a contractor’s full compensation analysis
because it allows OFCCP to understand how the contractor evaluates
its compensation systems in practice,” and
“encourage[s]” contractors to provide their “full
compensation analyses available where OFCCP identifies concerns
during a compliance evaluation.”
Where a contractor’s full compensation analysis contains
privileged communications or protected work product, the Directive
provides that the contractor “may fulfill its regulatory
obligations by making available to OFCCP other documentation that
it has conducted the [required] compensation analysis.” The
Directive identifies a number of ways this can be accomplished:
- “[A] contractor may make available a redacted version of
its compensation analysis, provided that the non-redacted portions
include the required facts” discussed in the Directive. - “[A] contractor may conduct a separate analysis during the
relevant AAP period that does not implicate privilege concerns and
provide that analysis to OFCCP in full.” - “[A] contractor may generate a detailed affidavit that
sets forth the required facts described [in the Directive] but does
not contain privileged material.”
The Directive notes that where compensation evaluation
documentation is demanded by the agency, the contractor must
“provide documentation that demonstrates at least the
following:
i. when the compensation analysis
was completed;
ii. the number of employees the
compensation analysis included and the number and categories of
employees the compensation analysis excluded;
iii. which forms of compensation
were analyzed and, where applicable, how the different forms of
compensation were separated or combined for analysis
(e.g., base pay alone, base pay combined with bonuses,
etc.);
iv. that compensation was analyzed
by gender, race, and ethnicity; and
v. the method of analysis employed
by the contractor (e.g., multiple regression analysis,
decomposition regression analysis, meta-analytic tests of z-scores,
compa-ratio regression analysis, rank-sums tests, career-stall
analysis, average pay ratio, cohort analysis, etc.).”
Documentation of Action-Oriented Programs To Correct
Pay Disparities. The Directive also addresses the
information a contractor must provide during an audit regarding pay
disparities discovered during a compensation analysis.
Specifically, the Directive provides that where such disparities
are discovered, OFCCP regulations “require the contractor to
develop and execute action-oriented programs to correct them.”
As such, “OFCCP may request documentation demonstrating that
the contractor did so.” When it does,
“OFCCP will require documentation that demonstrates, at a
minimum:
i. 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;
ii. whether the contractor
investigated the reasons for any pay disparities found;
iii. that the contractor has
instituted action-oriented programs designed to correct any problem
areas identified;
iv. 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
v. how the contractor intends to
measure the impact of these programs on employment opportunities
and identified barriers.”
In her blog post published on August 18, 2022,
Director Yang confirms that “[c]ombatting pay discrimination
is a top priority for OFCCP” and notes that OFCCP
“reviews contractors’ pay data and practices to identify
problems that would not otherwise come to light because workers are
often unaware of their colleagues’ pay.”
As such, contractors need to understand that notwithstanding the
welcome “reaffirmations” contained in the Directive,
OFCCP remains focused on pay discrimination issues and will devote
significant attention to compensation matters during audits.
Contractors should familiarize themselves with the Directive, as
revised, and ensure they are prepared to respond to OFCCP’s
inquiries regarding their compensation analyses.
OFCCP Revises Its Pay Equity Directive
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