New OFCCP Compensation "Guidance" Offers Little to Guide Contractors

As expected, the U.S. Department of Labor, Office of Federal Contract Compliance Programs ("OFCCP" or "Agency") has rescinded two compensation discrimination enforcement devices promulgated in 2006 – the only previously-existing guidance regarding the Agency's approach to compensation discrimination. In their place, the OFCCP has issued Directive 307 – Procedures for Reviewing Contractor Compensation Systems and Practices, which adopts a "case-by-case" approach and gives the Agency maximum flexibility to simply do as it sees fit when analyzing compensation data submitted by covered federal contractors and subcontractors ("Contractors"). 

The Rescission Notice criticizes the prior Bush-era guidance as a "rarely used, ineffective and burdensome compliance procedure." The Notice expressly rejects certain provisions of the 2006 guidance, including the prior regulatory requirement that the Agency would not pursue statistical disparities without accompanying anecdotal evidence of pay discrimination. To justify this change, the OFCCP stated that it will not ignore possible indications of discrimination "simply because the contractor had successfully hidden it from its employees." 

While the OFCCP touts the Rescission Notice and new Directive  as providing "much greater transparency on questions of investigation practices and procedures," in fact the Agency provide little guidance for Contractors looking for a much-needed compliance roadmap. The Directive advises that the Agency will apply Title VII principles and take a "case-specific approach" when investigating and enforcing non-discrimination in Contractor compensation systems. Both the Rescission Notice and the Directive indicate that the Agency will apply the following five broad guidelines when reviewing Contractors’ pay practices:

• Determine the most appropriate and effective approach from a range of investigative and analytical tools;
• Consider all employment practices that may lead to compensation discrimination;
• Develop appropriate pay analysis groups;
• Investigate large systemic, smaller unit and individual discrimination; and
• Review and test factors before including them in analysis.

While the OFCCP will continue to use multiple regression analysis, the Agency contends that "its application has limitations" and pledges to utilize other statistical techniques. While the Agency trumpets the Directive's "transparency," the guidance only obliquely addresses the 2%/$2,000 difference test (and similar variations), pursuant to which some OFCCP District Offices seek individualized compensation data based on salary differences as narrow as 2% or $2,000 (by salary grade or job title or other grouping of jobs). Further, the Directive states that "OFCCP periodically may adjust the size and weight of the factors used for these quantitative comparisons, based on the review of the results of investigations, the results of quality audits, and other factors such as agency resources and priorities."    

Bottom line: this Rescission Notice and Directive do not materially alter the case-by-case, ad hoc approach to compensation analysis the Agency informally adopted some time ago. Bolstered by its victory in United Space Alliance v. Solis, 824 F. Supp.2d 68 (D.D.C. 2011), the OFCCP will likely continue to seek individualized compensation data near the outset of a compliance review and will analyze the data at its discretion, without notifying the Contractor (or all Contractors) of the precise approach it will take as to that data. The Agency is also likely to group together, for analysis purposes, jobs that are dissimilar in many important ways.  

In response to this Agency action, Contractors will continue to be well-served by conducting sophisticated, attorney-client privileged analyses of their compensation data, including regression analyses. Contractors should strive to capture information and data on all factors that impact pay and should be prepared to defend aggressive Agency action in this arena.