The Office of Federal Contract Compliance Programs ("OFCCP") is taking action that it says will strengthen the agency's ability to identify and remedy compensation discrimination by federal government contractors and subcontractors covered by Executive Order 11246.[1] Effective February 28, 2013, the OFCCP has rescinded two enforcement guidance documents on pay discrimination from 2006 known as the "Compensation Standards" and "Voluntary Guidelines" because they "limited OFCCP's ability to conduct full investigations and use every enforcement tool at its disposal to combat pay discrimination."[2] The Office has also released a Compensation Directive describing the procedures and protocols the agency will now follow when conducting compensation investigations.[3] The Rescission Notice and the Directive replace all existing written internal OFCCP guidance on compensation enforcement.[4]

OFCCP reviews contractor and subcontractor compliance with Executive Order 11246, including its ban on compensation discrimination. The 2006 Compensation Standards had three key features. First, only "similarly situated employees," i.e., those with similar job duties who occupied positions of similar responsibility and requiring similar skills, were compared. Second, OFCCP was to use multiple regression analysis to control for legitimate nondiscriminatory factors that might influence pay disparities. Third, before a finding of discrimination could be made, statistical evidence had to be supported by anecdotal evidence of discrimination, e.g., examples of individual cases of discrimination.

The agency now says that these standards unduly restricted what OFCCP could consider in its investigations of employers' compensation systems, and restricted the ways in which the agency could establish a violation. OFCCP cites judicial decisions applying Title VII of the Civil Rights Act of 1964 which, in the agency's view, establish that there is no single way to prove compensation discrimination, and no particular limits on the kinds of evidence or information that might be relevant to proving discrimination in a particular case. As a result, OFCCP has abandoned what it decides as the "cookie-cutter approach" taken by the 2006 guidance documents in favor of standards that the agency believes more closely align with Title VII standards.[5]

Accordingly, OFCCP is throwing out its prior guidance in toto. The OFCCP attempts to justify its Notice of Rescission by suggesting that the strict grouping requirements of the 2006 Standards can obscure pay differences arising from discrimination in job assignments, unequal access to promotional opportunities, channeling, and glass ceiling issues.[6] It also notes that the use of multiple regression analysis, while effective for evaluating some compensation systems, may not be appropriate in smaller workplaces, in reviews involving high-level or very specialized positions, or in cases where important data is unavailable or unreliable.[7] Finally, the agency says that the rule requiring anecdotal evidence was particularly burdensome for workers who frequently lacked meaningful access to information about pay.[8] Thus, OFCCP posits that this rescission will allow the agency to review all aspects of contractors' compensations practices for indicators of potential discrimination, and to proceed in cases without performing a regression analysis and regardless of whether individual workers have reported being underpaid or are aware that they have been discriminated against.

In addition to rescinding the 2006 documents, OFCCP has released a Compensation Directive describing the procedures and protocols the agency will now follow when conducting compensation investigations.[9] The Directive states that OFCCP will now take a case-by-case approach to its investigations and will use a wide range of investigative and analytical tools.[10] Statistical and nonstatistical analyses, such as the use of comparators or cohort analysis, as well as regression analysis, will be applied as feasible and appropriate. Significantly, anecdotal evidence will no longer be required in order for the agency to investigate and remedy compensation discrimination.

So what does this mean for government contractor and subcontractor employers? It means that they need to be prepared for renewed focus by OFCCP on all employment actions that affect employee compensation, a focus that will likely be highly individualized and not take any one prescribed form. Government contractors who have not already done so should consider promptly implementing privileged assessments of their pay practices.