Effective February 28, 2013, the Department of Labor’s Office of Federal Contract Compliance Programs (OFCCP)— the federal agency responsible for overseeing federal contractors’ compliance with the affirmative action requirements of Executive Order 11246 and several federal statutes—rescinded two Bush-era enforcement documents relating to the agency’s procedures for investigating possible compensation discrimination. The two documents—Interpreting Nondiscrimination Requirements of Executive Order 11246 with Respect to Systemic Compensation Discrimination (the “Compensation Standards”), and Voluntary Guidelines for Self-Evaluation of Compensation Practices for Compliance with Nondiscrimination Requirements of Executive Order 11246 with Respect to Systemic Compensation Discrimination (the “Voluntary Guidelines”)—have now been replaced by newly issued OFCCP Directive 307 (the “Directive”), which replaces all prior OFCCP guidance on compensation investigations and analyses and sets forth the procedures that OFCCP will now use in conducting compliance reviews regarding compensation issues.

OFCCP first issued a Notice of Proposed Rescission for the Compensation Standards and Voluntary Guidelines on January 3, 2011. In the Notice of Final Rescission, OFCCP cited the lack of flexibility and the “one-size-fits-all” approach under the old enforcement documents. Previously, OFCCP was limited to examining narrowly defined groups of employees using a single statistical model. The agency was also restricted to only searching for and addressing one type of compensation disparity—“pay differences among discrete pools of workers limited by job category.”

The new Directive rejects the uniform approach previously required under the Compensation Standards and Voluntary Guidelines and instead allows OFCCP greater flexibility and access to a broader range of investigative and analytical tools. OFCCP repeatedly explains that it wants to implement the “flexible, fact-based approach” applied by the Equal Employment Opportunity Commission and courts in Title VII compensation discrimination cases. Instead of being required to use a particular type of regression analysis, OFCCP investigators can now work with agency statisticians to develop the best approach for each investigation. Additionally, OFCCP will no longer be constrained by focusing their analysis on rigidly defined job groupings. Instead, investigators will now be instructed to analyze compensation data for potential discrimination across larger or smaller groups on a case-by-case basis.

Additionally, under the Directive, OFFCP intends to take a much broader view than it has in the past of what constitutes compensation discrimination. In future investigations, the agency will look for not only differences in pay between discrete groups of workers, but also disparities in opportunities that may affect compensation, including access to higher-paying positions, job classifications, work assignments, training, preferred or higher-paid shift work, and other opportunities. OFCCP will also consider so-called “glass ceiling” issues that limit a group’s opportunity to earn higher pay, including access to overtime hours, pay increases, incentive compensation and higher-commission or more desirable sales territories.

Although it is clear that the investigative limits imposed by the Compensation Standards and Voluntary Guidelines will no longer limit OFCCP investigations, it is not exactly clear what course future OFCCP investigations will follow. The Directive explains that preliminary investigations will focus on qualitative and quantitative factors to determine if a compensation disparity exists. The quantitative factors to be considered during compliance reviews may include:

  • the size of the overall average pay difference based on race and gender;
  • the size of the largest average pay difference within AAP job groups, or the contractor’s existing salary band or pay grade system;
  • the number of job groups or grades where average pay differences based on race or gender exceed a certain threshold; and
  • the number of employees affected by race- or gender-based pay differences within job groups or grades.

The qualitative factors that OFCCP investigators can consider may include:

  • compliance history;
  • OFCCP or EEOC complaints;
  • anecdotal evidence;
  • potential violations involving other employment practices; and
  • data integrity issues.

Although anecdotal evidence remains a factor to be considered, it is no longer required to issue a Notice of Violation. In fact, under the new Directive, Notices of Violation may be issued even when individual workers do not know they are being discriminated against with regard to compensation.

As part of the overhaul, OFCCP will be conducting field trainings for their staff to ensure that these new investigative procedures are understood and utilized. They will also be providing webinars and other forms of technical assistance to contractors to encourage compliance. The new investigative procedures detailed in the Directive apply to all OFCCP investigations and reviews.

In light of these changes, federal contractors should be sure they understand how OFCCP will conduct compensation reviews going forward and should consult with counsel to determine if any changes should be considered regarding practices for monitoring and analyzing compensation practices.

The Notice of Rescission is available at http://www.gpo.gov/fdsys/pkg/FR-2013-02-28/pdf/2013-04675.pdf.

OFCCP Directive 307 can be viewed at http://www.dol.gov/ofccp/regs/compliance/directives/Dir307_508c.pdf.

Additional information issued by OFCCP is available at http://www.dol.gov/ofccp/regs/compliance/CompGuidance/.