On March 15, 2022, the Office of Federal Contract Compliance Programs (OFCCP) issued a new Directive clarifying covered contractors’ obligation to conduct pay equity audits on an annual basis. Quite notably, the OFCCP issued the new Directive on Equal Pay Day. Directive 2022-01, Pay Equity Audits, clarifies OFCCP’s expectations with respect to contractors’ compliance with the regulatory requirement in 41 CFR 60-2.17(b)(3) to perform an in-depth analysis of their total employment process, including their compensation program, to determine whether there are impediments to equal employment opportunity such as gender- or race/ethnicity-based pay disparities.
Increasingly, in audits where OFCCP identifies an indicator of pay discrimination, the agency is requesting that contractors provide the analysis they conducted in compliance with 2.17(b)(3). Contractors generally object to this request taking the position that the analysis is privileged because it was conducted under the advice of counsel and is a voluntary self-audit that is not part of any compliance evaluation. Directive 2022-01 makes clear that OFCCP’s position is that it is within its authority to request contractors’ 2.17(b)(3) pay equity analysis in order to determine compliance with the regulation regardless of whether the analysis was conducted under privilege.
What are the New Requirements of the Pay Equity Directive?
The Directive provides guidance to covered contractors on existing policies and procedures. The Directive reiterates contractors’ existing legal obligation to conduct an annual assessment of their compensation program and clarifies OFCCP’s authority to request, and contractors’ obligation to provide, the results of the assessment.
1. When will OFCCP Request Contractors’ 2.17 Compensation Assessment?
Generally, OFCCP will request a contractor’s 2.17(b)(3) compensation assessment when the desk audit reveals pay disparities among similarly situated employees based on gender or race/ethnicity. Additional information will also be requested if OFCCP (a) identifies “other concerns” relating to the contractor’s compensation practices such as promotion, assignment or steering patterns; (b) becomes aware of employee complaints of pay discrimination; or (c) performs statistical analyses indicating that a group of workers are concentrated in lower-paying positions based on gender or race/ethnicity.
2. What information will OFCCP Request?
Where OFCCP identifies the need for more information, it may request:
- additional data not included in the item 19 submission, including prior experience and education;
- follow up interviews; and
- the contractor’s pay equity audit conducted pursuant to 2.17(b)(3), including pay groupings, variables used, any disparities found; and the model statistics for all variables in the model.
3. What is OFCCP looking for?
In addition to assessing compensation data for indicators of pay discrimination, OFCCP is assessing whether the contractor is engaging in discrimination in promotions or assignments and unlawful steering into lower-paid positions based on gender or race/ethnicity.
4. How Should Contractors Conduct their Pay Equity Audit?
Pursuant to 41 CFR § 60-2.17(b)(3), contractors are required to analyze pay to determine whether there are gender and race/ethnicity disparities. Neither the regulations nor the Directive prescribe any particular methodology or parameters for assessing compensation systems. Contractors may choose to analyze pay based on such categories as job titles or job groups provided the category groups similarly situated employees. Contractors should review their own pay structure and determine the most appropriate model. However, whenever possible, contractors should use a regression analysis to determine whether there are statistically significant gender or race/ethnicity disparities within each group. Where disparities are identified, contractors are required to determine the cause of the disparity and implement action-oriented programs designed to correct any disparities and remove any identified barriers.
5. What is the Basis of OFCCP’s Authority to Review Pay Equity Audits?
OFCCP has the authority under its regulations to request the “pay equity audit” that the contractor has conducted to comply with OFCCP regulations. According to the Directive, a contractor cannot simply delegate the preparation of the pay equity audit to their attorneys, and claim the information is protected under the attorney-client privilege. Failure to provide the required pay equity audit to the OFCCP will be considered an admission of noncompliance with the regulatory requirements. While the notion that 60-2.17(b) requires an annual pay data analysis that is quantitative is certainly debatable, at the very least, the Directive provides a window into OFCCP’s intentions with regard to how it will view a contractor’s compensation evaluations under the regulations and any quantitative pay equity analyses they may conduct.
6. How Does the Current 2022 Directive Impact the New Certification Requirements?
Beginning March 31, 2022, covered contractors will be required to certify that they have developed and maintained “affirmative action programs” at each covered establishment. While there are still lingering questions about the scope of the certification, the requirement to conduct an assessment pursuant to 60-2.17 is included in the regulations discussing the content of an affirmative action program. Based on the new Directive, covered contractors are required to conduct annual pay equity audits as part of their annual compliance program. Without more clarity from the OFCCP, contractors are left wondering whether their pay equity audits must be completed for each establishment before certifying.
Final Thoughts….
Contractors should begin conducting an annual pay equity analysis for each covered establishment pursuant to and consistent with the OFCCP’s regulations. This analysis should still be completed under the advice of counsel but with the understanding that the contractor will have to waive the privilege if OFCCP requests the assessment. Where there are indicators at the establishment level, contractors must investigate the root cause of the disparities, document legitimate reasons for any pay differences and make corrections where necessary.
Contractors should continue to perform their annual proactive company-wide pay equity analyses, also under legal privilege. We recommend using a snapshot date other than the date of the 60-2.17 assessments. Where the contractor has produced to OFCCP an acceptable pay equity audit sufficient to demonstrate compliance with 41 CFR § 60-2.17(b)(3), OFCCP will not require production of the contractor’s company-wide pay equity study.
If you have any questions regarding this Alert, please contact the authors Consuela Pinto at cpinto@fordharrison.com, Nancy Holt at nholt@fordharrison.com, or Erica Johnson at ejohnson@fordharrison.com. Of course, you can also contact the FordHarrison attorney with whom you usually work.