OFCCP Revises Directive on Federal Contractors’ Compliance with “Pay Equity Audits”
On March 15, 2022, the Office of Federal Contract Compliance Programs (“OFCCP”) issued a Directive regarding OFCCP’s expectations of compliance with the regulatory provisions of 41 CFR 60-2.17(b)(3). The regulations require qualified contractors to implement an equal employment opportunity and affirmative action program, which must include an evaluation of whether and where gender, race, or ethnicity-based pay disparities exist. The Directive explained how, during a compliance review, the OFCCP would inquire into a contractor’s compliance, including access to internal pay equity audits. The Directive drew significant criticism because it appeared to claim a right to compel contractors to disclose their pay equity analyses even when potentially protected by the attorney-client or work product privilege.
In response to criticism, on August 18, 2022, the OFCCP issued the revised Directive 2022-01 Revision 1, Advancing Pay Equity Through Compensation Analysis. The revised and reissued Directive aims to update and clarify its guidance on how OFCCP will evaluate federal contractors’ compliance with compensation analysis obligations, including its authority to access and review documentation of required compensation analyses. This Revised Directive makes clear that OFCCP intends to challenge contractors if they rely on privilege objections in refusing to demonstrate compliance, while also acknowledging privilege concerns and giving contractors alternatives for demonstrating compliance with the regulatory provisions when issues of privilege exist. The key points of the Revised Directive are summarized below.
OFCCP Will Not Require Contractors to Produce Pay Equity Analyses That Are Protected by Attorney Work Product or Attorney-Client Privilege
Federal contractors are required to “maintain and make available to OFCCP documentation of their compliance” with the obligation to conduct compensation analyses and to implement action-oriented programs to address any problem areas identified pursuant to that analysis. Compensation analyses must include an evaluation of the contractor’s compensation system to determine whether any gender, race, or ethnicity-based disparities exist. One issue with the original Directive was that it failed to acknowledge that a contractor’s compensation analysis may contain privileged attorney-client communications or work product. The Revised Directive attempts to clarify this issue.
According to the revised guidance, OFCCP will not require contractors to produce pay equity analyses and related communications protected under the attorney work-product and attorney-client communication privileges. However, “simply invoking privilege” and not providing documentation is not an acceptable form of compliance. This is because documents showing that contractors have complied with their regulatory obligations are not all inherently privileged, according to the OFCCP. For example, underlying facts explaining what a contractor did to comply with 41 CFR 60-2.17(b)(3) are not covered by the attorney-client privilege. However, OFCCP acknowledges that a contractor’s full analysis may contain privileged information. In such a scenario, the Revised Directive provides other acceptable methods to show compliance.
When a Contractor’s Compensation Analysis Contains Privileged Content, The Revised Directive Offers Alternatives for Establishing Compliance
OFCCP compliance disfavors an “all or nothing” approach in producing documentation. Instead, it offers alternatives to establish compliance under 41 CFR 60-2.17(b)(3), including:
- produce a redacted version of its compensation analysis;
- conduct a separate analysis during the relevant Affirmative Action Plan period that does not implicate privilege concerns; or
- generate a detailed affidavit that sets forth the required compliance but does not contain privileged material.
OFCCP also identifies the following “non-privileged” information that contractors are always expected to produce, including:
- when the compensation analysis was completed;
- the number of employees the compensation analysis included and the number and categories of employees the compensation analysis excluded;
- which forms of compensation were analyzed and, where applicable, how the different forms of compensation were separated or combined for analysis;
- that compensation was analyzed by gender, race, and ethnicity; and
- the method of analysis employed by the contractor.
While this Directive addresses concerns of legal privileges, the OFCCP still has total control over the review process and determination of what constitutes sufficient compliance. Questions remain whether the implementation of this Revised Directive will resolve the tension between OFCCP’s requirements for documentation and the assertion of any legal privileges.
OFCCP Further Clarifies the Document Required to Demonstrate Good Faith Efforts to Resolve Problems Identified in Contractors’ Compensation Analyses
Compensation analyses may uncover “problem areas (including gender, race, or ethnicity-based pay disparities)” which require the contractor to develop and execute a plan to correct them. To assess the developed program and to ensure good faith efforts are taken to remove identified pay disparities, OFCCP will require documentation of compliance, including:
- the nature and extent of any pay disparities found, including the categories of jobs for which disparities were found, the degree of the disparities, and the groups adversely affected;
- whether the contractor investigated the reasons for any pay disparities found;
- that the contractor has instituted programs designed to correct any problem areas identified;
- the nature and scope of these programs, including the job for which the programs apply and any changes the contractor made to the compensation system; and
- how the contractor intends to measure the impact of these programs on employment opportunities and identified barriers.
Such documentation may inherently contain privileged information. As such, contractors must carefully evaluate and determine an acceptable manner to comply with the regulations without waiving any right to privilege.
OFCCP’s Revised Directive makes clear that regulatory compliance cannot be avoided by simply asserting an attorney-client communication or work product privilege and failing to produce any documents. While acknowledging that federal contractors have a right to protect their privileged information, the OFCCP believes that many documents in a pay equity audit are inherently non-privileged and that it ultimately should make the determination of what is considered sufficient non-privileged information to demonstrate the contractor’s regulatory compliance. As such, contractors subject to the OFCCP regulations are encouraged to consult with experienced counsel, if they have such counsel, or contact CDF Labor Law to discuss best practices to evaluate and audit compensation systems, protect privileged information, and comply with nondiscrimination and affirmative action regulatory obligations.