The Office of Federal Contract Compliance Programs (OFCCP) recently rescinded its previous guidance regarding compensation practices for federal contractors and subcontractors covered by Executive Order 11246. Effective February 28th, the OFCCP has put in place “Policy Directive 307, Procedures for Reviewing Contractor Compensation Systems and Practices,” which purportedly provides clarity on the OFCCP’s practices when investigating pay discrimination during an OFCCP audit.
Executive Order 11246 is a non-discrimination order applicable to most federal contractors and subcontractors who have a federal contract of $50,000 or more. The Order provides, amongst other things, that employers’ payment practices may not discriminate against employees based upon their race, gender or ethnicity. Although this is only a small part of Executive Order 11246, pay discrimination investigations have been a priority recently leading the OFCCP to seek substantial back pay and damages from contractors.
The Directive provides that the OFCCP’s review of payment practices will not be subject to restraints, such as any particular discrimination test. Instead, the OFCCP will choose which analysis and data to use on a “case by case” basis. The OFCCP may rely upon the information provided in response to its initial scheduling letter (overall company compensation data organized by gender and race and Affirmative Action Plan job group), or it may request more specific information. The OFCCP also may review the additional data for other compensation discrimination including, discriminatory work assignments, training, preferred shifts, better sales territories, promotions, and other opportunities for advancement, such as a proverbial “glass ceiling.”
The OFCCP may choose to analyze the data using traditional statistical tests if that meets their goals for that investigation, or the OFCCP may choose to use any other type of analysis, such as an individual comparison or a group comparison. The directive also gives the OFCCP the ability to separately analyze the data provided to the OFCCP, including analyzing overall compensation data, job group and job title data, and even creating its own job groupings based upon what the OFCCP determines are a company’s pay practices. The guidance also clarifies that every investigation will review compensation data for systemic, group and individual discrimination in pay practices.
While the ultimate effect this directive will have on investigations remains to be seen, federal contractors and subcontractors can expect an increased emphasis on wage and compensation payment investigations. Given the wide variety of analyses the OFCCP may undertake and the grouping of data that may occur, there is little doubt that federal contractors face an increased likelihood of discrimination findings and assessment of back pay and other damages.
The Directive is an important reminder that employers need to review their compensation practices annually. Given the potential costs associated with a finding of discrimination, federal contractors should consider doing attorney-client protected statistical analysis, such as a regression analysis, to identify statistically significant weaknesses. Employers that can address problem areas before an OFCCP audit may be able to avoid costly findings of pay discrimination.