On March 15, 2022, the US Department of Labor’s Office of Federal Contract Compliance Programs (OFCCP) issued a new directive putting federal contractors on notice that it will more closely scrutinize their pay equity audits. Making headlines, the directive states that federal contractors are expected to hand over information about their internal pay analyses when being audited by the office, including documents that are protected by the attorney-client privilege and/or work product doctrine.

Background

Executive Order 11246 requires affirmative action and prohibits federal contractors from discriminating on the basis of race, color, religion, sex, sexual orientation, gender identity, or national origin. Contractors also are prohibited from discriminating against applicants or employees because they inquire about, discuss, or disclose their compensation or that of others.

As part of their affirmative action obligations, supply and service contractors are required to perform an in-depth analysis of their total employment practices to determine whether and where impediments to equal employment opportunity exist. This includes conducting an in-depth analysis of their compensation systems to determine whether there are gender-, race-, or ethnicity-based disparities, as provided in 41 CFR 60-2.17(b)(3).3.

To comply with the regulations, most companies doing business with the federal government conduct an evaluation of their pay practices for potential gender, race, or ethnicity-based disparities. Oftentimes, these analyses are performed with the help of outside counsel who provides legal advice regarding, among other things, compliance with the requirements enforced by OFCCP. And, until now, these pay audits have been considered privileged and confidential.

Impact of the new directive

During a compliance evaluation, a supply and service contractor is required to provide OFCCP with compensation data. In addition to requesting additional compensation data, interviews, and employment records, the OFCCP is now making explicit that it may also seek the contractor’s evaluation under § 60-2.17(b)(3), which the OFCCP calls the “pay equity audit.”

The OFCCP explains its mandate as follows:

OFCCP has the authority to review the contractor’s pay equity audit conducted pursuant to 2.17(b)(3) to understand the methodology used and verify compliance with this requirement. OFCCP will request that the contractor provide a complete copy of the pay equity audit(s) conducted pursuant to 2.17(b)(3) that shows all pay groupings that were evaluated, any variables used, and the results of the analyses, including any disparities found. For compensation regression or statistical analysis results, OFCCP may request the model statistics (such as b-coefficients, significance tests, R-squared, adjusted R-squared, F-tests, etc.) for all variables or comparisons in the model. OFCCP may also request information relating to the frequency of pay equity audits, the communication to management, and how the results were used to rectify disparities based on gender, race and/or ethnicity.

But what about legal privilege?

The OFCCP takes the position that contractors’ pay equity analyses are not privileged because contractors are legally required to conduct the analyses and to provide records to the OFCCP upon request. 41 C.F.R. § 60-2.10(c). The directive posits that this legal obligation defeats any expectation that the pay equity audit and compliance records prepared with the assistance of counsel would remain confidential.

The directive includes a warning to comply: “[f]ailure to provide the required pay equity audit will be considered by OFCCP as an admission of noncompliance with these regulatory requirements.”

An open question

Interestingly, the directive recognizes that contractors “may conduct a separate pay equity audit for the purpose of obtaining privileged legal advice, and not for demonstrating compliance with OFCCP regulations.” And, “[w]here the contractor has produced to OFCCP an acceptable pay equity audit sufficient to demonstrate compliance with 2.17(b)(3), OFCCP will not require production of these separate pay equity audits, to the extent that the contractor can verify that they were conducted under privilege.” Given this distinction, it will be crucial for contractors distinguish their OFCCP compensation reviews from their privileged pay equity audits. However, it remains an open question as to how the OFCCP will interpret and enforce the differentiation.

Key takeaways

Last year, OFCCP Director Jenny Yang told Bloomberg Law that the OFCCP would prioritize equal pay and workforce diversity efforts. (Previously, Yang held the top role at the Equal Employment Opportunity Commission, where she led the collection of pay data from private employers as a method of addressing systemic gender and racial pay gaps. This initiative was later quashed by the Trump administration.) This directive (the first of Yang’s tenure) is in line with our expectation that we will see heightened pay equity enforcement under the Biden administration, including through OFCCP activities.

Of course, time will tell if the directive is ultimately struck down. We will continue to monitor this development and share updates on The Employer Report.

Federal contractors and subcontractors in the US now have guidance on mandatory vaccines for employees, while private US employers with 100 or more employees are still waiting for the Occupational Safety and Health Administration (OSHA) to issue an Emergency Temporary Standard (ETS). On September 24, 2021, the Safer Federal Workforce Task Force–the task force created by President Biden to provide workplace guidance to heads of federal agencies during the COVID-19 pandemic–released its COVID-19 Workplace Safety: Guidance for Federal Contractors and Subcontractors (the Guidance). The Guidance primarily addresses vaccination requirements for employees of covered federal contractors, but it also imposes mask and physical distancing requirements for covered contractor worksites (including for employees, visitors and others) and requires contractors to designate a person (or persons) to coordinate COVID-19 workplace safety efforts at their workplaces.

The Director of the Office of the Office of Management and Budget has already determined the Guidance will promote economy and efficiency in federal contracting–making the Guidance effective immediately. Highlights include:

Vaccination and proof

  • Contractors must ensure that all covered contractor employees are fully vaccinated for COVID-19, unless the employee is legally entitled to an accommodation for a disability (including medical conditions) or religious belief.
  • Covered employees have until December 8, 2021 to be fully vaccinated. After that date, covered employees must be must be fully vaccinated by the first day of the period of performance on a newly awarded covered contract, and by the first day of the period of performance on an exercised option or extended / renewed contract when the clause has been incorporated into the contract. However, an agency head may approve a 60-day exception for “urgent, mission-critical need” for a covered employee to begin work on a contract or at a worksite before becoming fully vaccinated.
  • Covered contractors cannot take their employee’s word for it (no self-attestation). They must review covered employees’ documentation to prove vaccination status.
    • Covered contractors must require covered contractor employees to show or provide their employer with one of the following documents: a copy of the record of immunization from a health care provider or pharmacy, a copy of the COVID-19 Vaccination Record Card, a copy of medical records documenting the vaccination, a copy of immunization records from a public health or State immunization information system, or a copy of any other official documentation verifying vaccination with information on the vaccine name, date(s) of administration, and the name of health care professional or clinic site administering vaccine.
    • Covered contractors may allow covered contractor employees to show or provide to their employer a digital copy of these vaccination records, including, for example, a digital photograph, scanned image, or PDF of such a record.
  • Covered employees who work outside at covered worksites must be fully vaccinated.
  • Covered employees who work remotely full time (i.e., from home) still must be vaccinated, but do not need to comply with the mask and distance rules outlined below.
  • Employees who have already had COVID-19 must be vaccinated.

Masks and physical distancing

  • Covered contractors must ensure that all individuals, including covered contractor employees and visitors, comply with published CDC guidance for masking and physical distancing at a covered contractor workplace.
  • In areas of high or substantial community transmission (which is currently most of the US), fully vaccinated people must wear a mask in indoor settings, except for limited exceptions discussed in the Guidance. In areas of low or moderate community transmission, fully vaccinated people do not need to wear a mask. Fully vaccinated individuals do not need to physically distance regardless of the level of transmission in the area.
  • Individuals who are not fully vaccinated must wear a mask indoors and in certain outdoor settings (see below) regardless of the level of community transmission in the area. In addition, to the extent practicable, individuals who are not fully vaccinated should maintain a distance of at least six feet from others at all times, including in offices, conference rooms, and all other communal and work spaces.
  • Covered contractors must require individuals in covered contractor workplaces who are required to wear a mask to:
    • Wear appropriate masks consistently and correctly (over mouth and nose).
    • Wear appropriate masks in any common areas or shared workspaces (including open floorplan office space, cubicle embankments, and conference rooms).
    • For individuals who are not fully vaccinated, wear a mask in crowded outdoor settings or during outdoor activities that involve sustained close contact with other people who are not fully vaccinated, consistent with CDC guidance.
  • At least weekly, covered contractors must check the CDC COVID-19 Data Tracker County View website for community transmission information in all areas where they have a covered contractor workplace to determine proper workplace safety protocols.
    • When the level of community transmission in the area of a covered contractor workplace increases from low or moderate to substantial or high, contractors and subcontractors should put in place more protective workplace safety protocols consistent with published guidelines.
    • However, when the level of community transmission in the area of a covered contractor workplace is reduced from high or substantial to moderate or low, the level of community transmission must remain at that lower level for at least two consecutive weeks before the covered contractor utilizes those protocols recommended for areas of moderate or low community transmission.

Compliance issues

  • Covered federal contracts executed after October 15, 2021 must include a clause requiring compliance with the Guidance, including future amendments. For contracts awarded prior to October 15, 2021 where performance is ongoing, the requirements must be incorporated when an option is exercised or an extension is made.
  • Covered contractors shall designate a person or persons to coordinate implementation of and compliance with the Guidance and the workplace safety protocols detailed in the Guidance at covered contractor workplaces (including communication of policies and protocols to employees and visitors, and ensuring that employees comply with requirements to provide proper vaccination documentation).

The Guidance includes FAQs on vaccination and safety protocols (“How do covered contractors determine vaccination status of visitors to covered contractor workplaces?”); workplaces (“Does this Guidance apply to outdoor contractor or subcontractor workplace locations?”); scope and applicability (“Must the order’s requirements be flowed down to all lower-tier subcontractors and, if so, who is responsible for flowing the clause down?”); and compliance (“What is the prime contractor’s responsibility for verifying that subcontractors are adhering to the mandate?”). These FAQs are in addition to the Task Force’s FAQs for vaccinations (issued September 16, 2021) which includes a specific section on federal contractors and visitors.

What to do now?

Employers who are federal contractors should consult with counsel as they make necessary changes to comply with the Guidance. Though private employers who are not federal contractors may be eager to read the tea leaves, they will still need to wait for the issuance of the OSHA ETS to be certain they are complying with applicable requirements. Stay tuned, and contact your Baker McKenzie employment attorney for assistance with your employment needs.