Following a recent ruling, US employers with more than 100 employees may once more be required to submit detailed employee pay data broken down by race, gender and ethnicity.

By: Jill M. Harrison, Nancy Van der Veer Holt and Jamie B. Wamble

Firm: FordHarrison

Executive summary

On 4 March 2019, the US District Court for the District of Columbia ruled to reinstate Obama-era revisions to the pay data reporting requirements established by the Equal Employment Opportunity Commission (EEOC), which effectively expand employers’ EEO-1 reporting requirements and oblige them to submit detailed employee pay data annually to the EEOC. This ruling will have important consequences for employers, and has raised understandable uncertainty and concern among the business community.

Background

The EEOC has long required private employers covered by Title VII of the Civil Rights Act (prohibiting discrimination on the grounds of race, sex, colour, religion or origin) with 100 or more employees and federal contractors with 50 or more employees to submit annual reports, known as EEO-1 submissions, which break down the number of workers employed with the company based on gender, race, and ethnicity. On 29 September 2016, the EEOC revised its pay data reporting requirements to expand the obligations placed on employers by requiring them to submit detailed information on employees’ wages and hours.

The revised EEO-1 submission is comprised of two components. Component 1 remains unchanged from the prior iteration of the EEO-1 report; it seeks employee data broken down by gender, race, and ethnicity within 10 defined job classifications. Component 2, the implementation of which was stayed by the Office of Management and Budget (OMB) and was the focus of the lawsuit, requires employers to report W-2 wage data and hours worked broken down by gender, race, and ethnicity within the ten defined job classifications, and within 12 pay bands. The pay data component expands the EEO-1 form from 180 data cells to 3,660 data cells, and rather than simply reporting the number of employees in each gender and race or ethnicity category, employers must now track and report aggregate hours worked within each job classification and pay band. When the EEOC initially established the revisions, it contended that ‘[p]ay bands would generate reliable aggregated data to support meaningful statistical analysis,’ and support the agency’s ability to ‘discern potential discrimination.’

Many employers, on the other hand, expressed concern that the new reporting requirements would be overly burdensome, exponentially complicating the reporting process. In addition, employers and industry experts expressed concern that the arbitrary salary ranges of each pay band could, in some instances, distort pay data, resulting in apparent disparities where none in fact exist.

In addition to the criticism and concern evinced by members of the business community and industry experts, the agency’s EEO-1 revisions were criticised by the EEOC’s own Commissioner, Victoria Lipnic. During a 2016 conference, Commissioner Lipnic voiced her opinion that, as a policy matter, the EEO-1 pay data report proposal was ‘past its prime and should be relegated to the heap of bad policy ideas once and for all.’ While acknowledging the existence of a pay disparity, Commissioner Lipnic suggested that a more effective approach to address the disparity would be to focus on the reasons often considered to be the primary factors causing the pay gap, such as the fact that women frequently enter and then leave the work force, and sometimes ‘self-select’ into lower paying positions.

The OMB issues stay of revised EEO-1 form

In compliance with the Paperwork Reduction Act (PRA), which instructs federal agencies not to overburden employers with paperwork, the EEOC submitted the EEO-1 revisions to the OMB for review. The pay data reporting expansion initially was approved by the OMB in 2016. However, on 29 August 2017, under the Trump administration, the OMB issued a stay on the pay data reporting requirements (the OMB is permitted to issue a stay on a previous approval of a collection of information for ‘good cause.’) In a memorandum issued by Neomi Rao, Administrator of the Office of Information and Regulatory Affairs (OIRA) (a sub-agency of the OMB), the OMB determined that the collection of pay information required by the revised EEO-1 form was contrary to the standards of the PRA. Rao found the revisions ‘lack practical utility, are unnecessarily burdensome, and do not adequately address privacy and confidentiality issues.’ Therefore, reasoned Rao, the OMB had good cause to issue the stay.

The instant legal action

In November 2017, a short time after the OMB announced the stay on the expanded pay data reporting requirements, the National Women’s Law Center (NWLC) and the Labor Council for Latin American Advancement (LCLAA) sued the OMB and EEOC, claiming the OMB’s decision to stay the pay data reporting requirements violated the PRA and the Administrative Procedure Act (APA), and requesting that the stay be lifted and the reporting requirements reinstated.

In granting summary judgment to the plaintiff agencies and lifting the OMB’s stay, the court ruled that the OMB did not provide a ‘reasoned explanation’ for staying the EEOC’s pay data collection requirements, and that the stay was not for good cause. The court quoted Bauer v. DeVos, 325 F. Supp. 3d 74, 109 (D.D.C. 2018) in support of its finding that the OMB, like the agency in Bauer:

‘failed to acknowledge, much less to address, the inconsistency between its current view that [the expanded pay data reporting] provisions stand on legally questionable footing, and its prior conclusion that they were legally sound[.]’

Therefore, the court ruled, the OMB’s stay was ‘arbitrary and capricious.’

Likelihood of an appeal and further delay at the EEOC level

Industry experts who have weighed in on the decision to reinstate the pay data reporting expansion believe it is highly likely that the federal government will appeal the decision, which in turn could lead to an issuance of a stay on the trial court’s decision; and again pause the implementation of the new pay data reporting requirements.

In the likely event of appeal, it is anticipated that the OMB will challenge the decision on the same grounds that it did at the District Court level: that the plaintiffs lacked standing and that the challenge was improper because plaintiffs are not challenging a final agency action.

On the question of standing, the trial judge, Judge Chutkan, found that the NWLC and LCLAA had sufficient standing to bring a claim but acknowledged that jurisprudence has provided ‘conflicting guidance’ on whether lack of access to information is a sufficient basis to show an ‘injury-in-fact’ (that is, actual or imminent loss or damage necessary for a plaintiff to have standing).

Judge Chutkan found that the agencies established the standing requirements relating to causation and the availability of redress, determining that, but for the issuance of the stay, the EEOC would have collected Component 2 data, and that it would have been ‘likely’ to have published the data, thereby making it accessible to the plaintiffs. The Judge expressed ‘uncertainty’ as to whether ‘informational injury’ (that is, injury as a result of being denied access to information) can exist in the absence of a statutory or regulatory right to the information, but ultimately concluded that it could. On appeal, it is likely that the OMB will challenge and closely scrutinise Judge Chutkan’s reasoning on the issue of standing.

Judge Chutkan also found that OMB’s stay of the pay data reporting requirements was a ‘final agency action,’ which is a requirement under the APA that must be met before any agency action can be subject to judicial review. In so finding, Judge Chutkan articulated that the OMB’s stay satisfied the two-part Bennett test for finality (as articulated in Bennett v. Spear, 520 U.S. 154, 176-77 (1997)). This test instructs that an agency action is final if it:

  • ‘mark[s] the consummation of the agency’s decision-making process’; and
  • if the action determines rights or obligations, or if legal consequences will flow from the action.

It is likely that Judge Chutkan’s finding in this regard will also be closely scrutinised on appeal.

Of note, the OMB Director who issued the letter staying the data reporting collection, Neomi Rao, has been nominated by President Donald Trump for a federal judgeship for the US Court of Appeals for the District of Columbia. The nomination has been passed from committee and is currently calendared for a floor vote in the Senate.

Issues of Filing Deadlines and Other Challenges

Presently, as a result of the recent government shutdown, the 31 March 2019 filing deadline, by which employers were previously required to make their EEO-1 submissions under the prior reporting requirements, has been extended to 31 May 2019. The EEO-1 portal, where employers must electronically submit their personnel data, is not scheduled to open until 18 March. With Judge Chutkan’s ruling occurring so close to the scheduled portal opening, it is unlikely that the EEOC can revamp its website to facilitate collection of additional pay data based on the new pay bands during this reporting period without implementing another extension of the filing deadline. As another complication that the EEOC will need to address, the court ruling technically lifted the stay as it applied to the submission of 2017 EEO-1 data, yet there is no mechanism for amending 2017 EEO-1 reports to add the submission of pay data. Penalties for non-compliance with EEO-1 reporting data include debarment for government contractors and the EEOC may seek a federal court order compelling compliance. Also, under United States Code, Title 18, section 1001, false statements in EEO-1 reports may result in fines or imprisonment.

The bottom line

Although an appeal and further filing deadline extension by the EEOC appear likely to occur, there are no assurances that the stay on the new pay data reporting requirements will be reinstated. As such, employers are advised to understand their obligations under the revised EEOC pay data collection rules and take steps to comply with all pay data reporting requirements and deadlines.