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Federal Court Upholds OFCCP Demand For Data

November 21, 2011

On November 14, 2011, Judge Lamberth of the United States District Court for the District of Columbia dismissed a lawsuit by United Space Alliance LLC (“USA”) challenging the Office of Federal Contract Compliance Programs’ (“OFCCP”) demand that USA produce detailed compensation data to the Agency.  USA had challenged the OFCCP’s demand on a number of grounds, ranging from arguments that it violated the Administrative Procedure Act to assertions that it was unconstitutional.  In a lengthy opinion, the Court concluded that USA’s challenges were unavailing and that the OFCCP’s demand, set forth in an Order of the Department of Labor’s Administrative Review Board (“ARB”), was lawful.

The facts underlying the dispute are straightforward.  In 2009, the OFCCP initiated a compliance evaluation of USA, a federal government contractor that works in human space operations.  At the desk audit stage, the OFCCP requested, pursuant to its standard scheduling letter, that USA submit compensation data showing average pay rates by race and gender for each “salary range, rate, grade, or level.”  USA provided that compensation data.

The OFCCP performed an analysis of USA’s compensation data using its “threshold test” to compare male and female earnings.  The OFCCP had identified this “threshold test” as the standard test performed on compensation data provided to it pursuant to its scheduling letter in order to identify pay disparities.  The threshold test did not indicate potential compensation discrimination.  The OFCCP, however, identified results it claimed were questionable and decided to perform additional tests on the data, examining patterns in pay disparities.  Based on this “pattern test,” the OFCCP claimed to find women at USA were earning less than men.

Based on these findings, the OFCCP requested that USA provide more detailed data on its employee compensation.  USA refused, stating that it had performed the threshold test itself, and found no pay disparity using that test. Therefore, it argued, the OFCCP had no basis to request additional information. As a result of USA’s refusal to comply with its request, the OFCCP initiated enforcement proceedings, and an Administrative Law Judge (“ALJ”) ordered that USA provide the requested information.  USA excepted to the ALJ’s Order; the ARB failed to act on the exceptions within the time period specified by regulation and the ALJ’s Order became the Order of the ARB.

Applying “considerable deference” to the OFCCP’s interpretation of its regulations, the District Court agreed with the ARB’s decision that the OFCCP was acting within its authority to make the request for the additional compensation information as part of a desk audit.  Despite this conclusion, the District Court found “plausible” USA’s argument that the underlying regulations do not permit the supplemental requests for information as part of a desk audit.  “[I]ndeed,” the District Court noted, it “might prefer [USA’s reading of the regulatory scheme] if it were to interpret the regulatory text on a clean slate.”  But, based on the OFCCP’s interpretation of the regulations, and the deferential standard applicable to that interpretation, the District Court found the OFCCP’s interpretation was not clearly erroneous.

The Court also held that the OFCCP was acting within its authority in conducting, and then relying on the results of, the pattern test analysis, even though various OFCCP publications stated that it would analyze compensation data using the threshold test and did not explicitly authorize utilization of another method of analyzing compensation data. Notably, in reaching its conclusion, the District Court analyzed a number of OFCCP publications that are no longer in use at the OFCCP, including a 2007 Directive regarding assessments of contractor compensation data at the desk audit stage and the Agency’s “Active Case Management” guidelines.

The District Court granted the government’s motion for summary judgment, effectively requiring USA to comply with the OFCCP’s demand that it provide the detailed compensation data.  The District Court stayed its judgment until November 28, 2011, to provide an opportunity for USA to file an appeal of Judge Lamberth’s ruling.  As of this writing, USA has not appealed.

While this case presented to the District Court important questions regarding the ability of the OFCCP to seek detailed compensation data during the desk audit phase of a compliance evaluation, the implications of Judge Lamberth’s ruling may be limited.  The OFCCP has proposed revisions to its scheduling letter and itemized listing that, if approved by the Office of Management and Budget (“OMB”), would require federal government contractors and subcontractors to provide individualized compensation, rather than compensation data aggregated by salary grade or salary band, at the outset of a compliance evaluation, without any showing of potential disparities in pay. The implications of that change, and others built into the OFCCP’s proposed revised scheduling letter and itemized listing, would be far-reaching.  The contracting community is eagerly awaiting OMB’s action on the proposed revised scheduling letter and itemized listing.

For more information, please contact the professional(s) listed below, or your regular Crowell & Moring contact.

Kris D. Meade
Partner – Washington, D.C.
Phone: +1.202.624.2854
Rebecca L. Springer
Partner – Washington, D.C.
Phone: +1.202.624.2569
Ira M. Saxe
Partner – New York
Phone: +1.212.895.4230