There’s been a lot of discussion in past days about OFCCP’s new Compensation Directive, which describes the Agency’s approach to investigating pay discrimination.  We’ve spent some time digging into the details of the directive.  We’ve previously shared our thoughts about the Directive’s commitment to transparency, and now, as promised, want to share our thoughts about the nuts and bolts of the Directive. In summary, while the Directive is certainly transparent and descriptive and contains clarifications, it is by no means the “windfall” for contractors as some may be reporting.

The Directive breaks down, in much appreciated detail, the Agency’s approach to (1) creation of pay groupings for analysis, including insights into how the Agency defines “similarly situated” and, (2) statistical modeling.

Pay Analysis Groups (PAGs) are Here to Stay

The contractor community was first introduced to PAGs when OFCCP released the now rescinded Directive 307 in 2013.  Since that time contractors have struggled to understand, and predict, how OFCCP groups their workforces for pay analyses.  In its new Directive, the Agency takes steps to provide insight into its grouping philosophy.  First, the Agency states directly that it “aligns its compensation compliance evaluation procedures with principles under Title VII.”  Specifically, with respect to groupings, the Directive states OFCCP defines similarly-situated employees as those who would be expected to be paid the same based on:

  • job similarity (e.g., tasks performed, skills required, effort, responsibility, working conditions and complexity); and
  • other objective factors such as minimum qualifications or certifications.

While the Directive states it is

 OFCCP’s objective to use PAGs that mirror a contractor’s compensation system,

the Directive also provides OFCCP the latitude to disregard the contractor’s structure if  (1) OFCCP determines the structure is not “reasonable,” (2) cannot “verify the structure as reflected in the contractor compensation policies” and (3) “the analytical groupings are of insufficient size to “conduct a meaningful system statistical analysis.” In an important footnote to the Directive OFCCP expands on these caveats (and its latitude) to say

[t]here is no bright-line rule, and professionals may disagree, about what constitutes sufficient size for a meaningful systemic statistical analysis of an employer’s compensation system.  In its preliminary analysis, OFCCP generally seeks to evaluate groups containing employees under a similar pay system performing broadly similar job functions, regardless of group size.

(emphasis added).  The Directive further clarifies that OFCCP may “broaden or narrow” its preliminary PAGs based on information received during the review.  In the absence of information about a contractor’s compensation system, the Directive states “OFCCP will conduct its preliminary desk audit using either EEO-1 or AAP job groups” where OFCCP will control for “sub-groupings, functions, units or titles, as appropriate. Thus, while it’s goal is to use mirror contractor compensation systems, the Directive certainly contemplates, as a default, OFCCP developing large, and broad, groupings for analysis.

OFCCP’s Statistical Methodology and Modeling

After discussing the development of pay groups, the Directive moves on to detail the principles OFCCP will use to analyze the groupings. Utilizing technical terminology, OFCCP lays out how it will analyze pay, the variables it may use to build its regression model for the purposes of analyzing pay, and how it may treat those variables in the model.  The principles the Agency will apply include:

  • Separately analyzing base and total compensation
  • Transforming salary to the natural log (which will help account for different pay distributions within a pay group)
  • Controlling for time variables separately (e.g. analyzing time in job separate from time in company)
  • Considering squaring tenure variables (which will allow the model to take into consideration the natural growth, and eventual stagnation, of earning potential)
  • Considering education and performance ratings
  • Considering combining categories of variables to better capture pay differentials (e.g. analyzing the impact of PhD and Master degree requirements together versus lesser education requirement instead of analyzing the impact of each degree separately)

Again, while the transparency is welcomed, and overdue, the Directive does not require the Agency to utilize the principles or build its model in a specific way.  Thus, the Agency will continue to have the latitude and autonomy to develop its methodology on a case-by-case basis.  What remains to be seen is how much input OFCCP will allow contractors in this process and how much transparency the Agency will give into the methods and modeling it concludes are appropriate.

The third of the three Directives OFCCP issued last Friday, Directive 2018-06 “Contractor Recognition Program” announces a program by which OFCCP will recognize contractors with “high-quality and high-performing compliance programs and initiatives.” Recognition is one of the four themes Acting Director Leen has spoken about recently and such programs are not a new concept in the Agency – some of you may recall OFCCP’s previous EVE Award program.   The Agency’s new Directive, however, describes a program having much more potential than a simple recognition program.

While the Directive is short on specific details for the program, it shows OFCCP is looking for creative and more effective ways to encourage voluntary compliance and further the core principles of affirmative action.  In furtherance of the Agency’s efforts to efficiently and effectively “expand its compliance reach,” the heart of the Directive is the idea that contractors can, and should, learn from one another regarding effective AAP efforts.  The program would advance OFCCP’s compliance assistance efforts by identifying contractors with “innovative programs” driving “demonstrable results” that “could be taught or incorporated into contractor peer mentoring programs.”

OFCCP believes contractors would be supportive of a compliance assistance model that includes a peer-to-peer mentoring type component because OFCCP found contractor believe

other businesses best understand their compliance barriers and challenges.

The program will not simply recognize compliant contractors “but would be for contractors that are innovative thought leaders among their peers for achieving diverse and inclusive workplaces.”  OFCCP would take the first step of identifying and approving “implementable best or model contractor practices,” and presumably establish a foundation and framework for a mentoring program through which contractors could expand and build upon the successes of their peers.

Collaboration is also central to this proposed program in another aspect.  Rather than working alone, OFCCP promises to work directly with other federal entities, such as “the Women’s Bureau, the Office of Disability Employment Policy, and other Department of Labor components as appropriate.”

OFCCP has not provided a timeline for the development of this program so stayed tuned to this page for further updates as OFCCP makes them available.

As we announced Friday, OFCCP has issued three new Directives in furtherance of its efforts to make the Agency more transparent and efficient.  New Directive 2018-07 “Affirmative Action Program Verification Initiative,” is aimed at expanding OFCCP’s enforcement reach and was previewed by Acting Director Leen at last month’s ILG National Conference.

 As we like to say, we can’t predict when OFCCP will select a contractor’s establishment for audit, and OFCCP likes it that way because it keeps contractors on their toes in anticipation of an audit.  But, the Agency is

concerned many federal contractors are not fulfilling their legal duty to develop and maintain AAPs

and instead playing the odds they won’t get audited. 

According to the General Accounting Office (“GAO”) in its September 2016 report roughly 85 percent of contractor establishments do not submit a written AAP within 30 days of receiving a scheduling letter.  OFCCP cited this statistic in the Directive to suggest some contractors are not preparing AAPs until OFCCP selects them for audit.  Because, in the words of the Directive, there is “a small likelihood of discovery” if a contractor does not timely prepare AAPs, OFCCP needs to bring additional compliance pressure to bear on these contractors.      

While the Directive is short on details, the initiative “squarely addresses this barrier to achieving comprehensive compliance by establishing a program for verification of compliance by all contractors with AAP obligations.”

 This verification would

initially take the form of OFCCP review of a certification, followed by potential compliance checks, and could later take the form of annual submission of AAPs to OFCCP for review.

 In order to facilitate the possible submission of AAPs, OFCCP will in the coming months be working on, “development of information technology to collect and facilitate review of AAPs provided by federal contractors.”  The Directive notes OFCCP is reviewing “whether there is an existing certification made as part of the procurement process that would be sufficient to allow OFCCP to implement the program without requiring a separate certification directly to OFCCP.”

Will the certification program have teeth?  According to the Directive, yes, because a contractor’s failure to certify compliance will be incorporated into the methodology for neutrally selecting contractors for audit “so that entities that have not developed and maintained AAPs are more likely to be scheduled.”  

 OFCCP says it will flesh out the details as well as “prepare a public outreach and education campaign on this initiative.”  We’ll report back with additional details as they become available.  In the meantime, we continue to suggest staying on top of timely preparing (and implementing) your AAPs.

 

Late last week OFCCP released a new Directive detailing the Agency’s approach to investigating pay discrimination.  Directive 2018-05 applies to all OFCCP reviews scheduled on or after August 24, 2018, and to open reviews to the extent “they do not conflict with OFCCP guidance or procedures existing prior to the effective date.”

Over the coming days we will break down the different components of the Directive including a review of the Directive’s details as to the development of “similarly situated” pay groupings and the Agency’s stated statistical methodology for analyzing compensation disparities.

Before digging into the details, we wanted to take a minute to highlight how the Directive reflects the Agency’s current commitment to transparency.   The “transparency” elements in the Directive are consistent with one of the four themes articulated recently by OFCCP Acting Director Craig Leen.

The first stated objective of the Directive is to

further clarify and provide additional transparency to contractors about OFCCP’s approach to conducting compensation evaluations.

In addition to providing a detailed explanation of its pay grouping and statistical methodology, the Directive requires, at the conclusion of a desk audit, that OFCCP provide the contractor with a written explanation describing the “general nature of any preliminary compensation disparities that warrant further information requests or onsite review.”

More importantly, and more substantively, the Directive requires that, when discrimination findings exists, OFCCP attach to a Pre-Determination Notice (PDN)

 the individual-level data necessary for the contractor to replicate the PAGs and regression results.

It remains to be seen how the transparency aspect of the new Directive will be implemented in compliance reviews. For example, will OFCCP be providing information sufficient for contractors to actually replicate OFCCP’s analysis (e.g. how the regression model was developed), or just provide detail around PAG development and the results of the regression analysis?

Per the Directive, OFCCP is committed to facilitating “transparency, consistency and resolution of discrimination findings through conciliation.”  Knowing whether OFCCP is “bucketing” variables or “squaring” time factors, which OFCCP disclosed may be part of their methodology, will impact contractors’ ability to replicate the results of the regression analysis.  A contractor’s ability to actually replicate the Agency’s analysis is an important piece of the conciliation process.   Thus, OFCCP’s level of transparency can have a material impact on the success of resolution.

Stay tuned in the coming days as we continue to raise these types of questions and provide analysis on the latest OFCCP directives.

 

It’s here!  OFCCP has finally issued its long-awaited, much-anticipated, new compensation directive.  The Directive explicitly replaces the controversial Directive 307 and sets out the Agency’s current approach, and commitment to transparency, with respect to pay equity analyses.

Directive 2018-05: Analysis of Contractor Compensation Practices During a Compliance Evaluation outlines “standard procedures for reviewing contractor compensation practices during a compliance evaluation.”  The eight-page Directive explains the agency’s methodology for creating Pay Analysis Groups, details its statistical methodology and modeling, including a listing of the variables it will control for in its regression models.  The Directive also sets out OFCCP’s process for providing contractors with information regarding its conclusions.

OFCCP also released two additional directives, Directive 2018-06: Contractor Recognition Program and Directive 2018-07: Affirmative Action Program Verification Initiative.

We are in the process of digesting the Directives and will follow up soon with detailed analysis and insights.

As we reported last week, in light of three Supreme Court cases addressing religious freedoms, OFCCP has issued a new Directive 2018-3 and a press release regarding “religion-exercising” organizations and individuals. The Directive cites three recent Supreme Court cases as well as Executive Orders issued by President Trump. With respect to the court cases, the Directive notes:

Recent court decisions have addressed the broad freedoms and anti-discrimination protections that must be afforded religion-exercising organizations and individuals under the United States Constitution and federal law.

The Directive also acknowledges

 recent Executive Orders have similarly reminded the federal government of its duty to protect religious exercise – and not to impede it.

The Directive notes federal contractors and subcontractors have non –discrimination obligations as set forth in Executive Order 11246, which include prohibitions on discrimination on the basis of religion as well as sexual orientation and gender identity. The Directive also reiterates a religious exemption contained in the Order that exempts certain contractors and sub-contractors from compliance with this section of the Executive Order. The religious exemption is limited to “a religious corporation, association, educational institution, or society, with respect to the employment of individuals of a particular religion to perform work connected with the carrying on of such [entity’s] activities.” 41 C.F.R. § 60-1.5(a)(5).

The Directive neither overturns President Obama’s Executive Order, which expanded Executive Order 11246 and its regulations to cover “sexual orientation” or “gender identity,” nor directly expands the religious exemption in the Order and regulations. Additionally, EEOC has taken the position that Title VII offers protection on the basis of gender identity and sexual orientation.

However, the Directive states it “supersedes” the Frequently Asked Questions regarding the religious freedom exemption to the extent they are inconsistent with these Supreme Court cases and President Trump’s Executive Orders. Thus, the Directive essentially modifies the FAQ guidance and instructs OFCCP to account for these legal developments in its enforcement and other efforts. Specifically, the Directive states OFCCP staff “should bear in mind” that:

  • They “cannot act in a manner that passes judgment upon or presupposes the illegitimacy of religious beliefs and practices” and must “proceed in a manner neutral toward and tolerant of … religious beliefs.”
  • They cannot “condition the availability of [opportunities] upon a recipient’s willingness to surrender his [or her] religiously impelled status.”
  • “[A] federal regulation’s restriction on the activities of a for-profit closely held corporation must comply with [the Religious Freedom Restoration Act].”
  • They must permit “faith-based and community organizations, to the fullest opportunity permitted by law, to compete on a level playing field for … [Federal] contracts.”6
  • They must respect the right of “religious people and institutions … to practice their faith without fear of discrimination or retaliation by the Federal Government.”

What Does This Mean for Contractors?

It would seem contractors are caught in a difficult situation. However, it’s important to keep in mind OFCCP’s FAQs and Directives are guidance documents that do not have the same authority as Executive Orders or the regulations.  The Directive states that OFCCP may pursue regulatory modifications to implement these cases. Until then, contractors should continue to comply with the regulations prohibiting discrimination on the basis of “sexual orientation” and “gender identity” as they have been, unless the contractor has a specific need to apply the principles of these Supreme Court cases to a particular situation.

In the Directive released late last week, OFCCP announced its plan to start scheduling focused reviews starting in Fiscal Year 2019.  OFCCP’s fiscal year begins October 1.

Directive 2018-04 directs OFCCP staff to “work towards ensuring that a portion of future scheduling lists, starting with Fiscal Year 2019, include focused reviews as to each of the three authorities that OFCCP enforces,” with the three authorities being Executive Order 11246, VEVRAA and Section 503 of the Rehabilitation Act.

Focused reviews are one of several types of investigative procedures OFCCP is authorized by regulation to conduct.  The types of investigations include:

  • Compliance Reviews which are comprised of a desk audit, an on-site, and, off-site review of records;
  • Off-site Review;
  • Compliance Check; and
  • Focused Reviews

While the Directive provides some details around OFCCP’s anticipated expectations for the focused reviews – including mandatory onsite visits – the Directive does not set out exactly what contractors can expect if selected for a focus review.  Instead, the document directs OFCCP staff “to develop a standard protocol for conducting focused reviews.”  In furtherance of its commitments to transparency and certainty, OFCCP staff is directed to “make this information available publicly in its FAQs prior to the next scheduling list being issued” as well as to develop training for staff and contractors as to the focused reviews.

Interestingly, as part of the Directive’s description of an example Section 503 focused review, it states

OFCCP would also seek to evaluate hiring and compensation data

in addition to its evaluation of accommodation practices to ensure individuals with disabilities are not being discriminated against in employment.  The Directive notes similar approaches will be used to evaluate compliance with VEVRAA and Executive Order 11246.

As a reminder, Directives provide guidance to OFCCP staff and contractors on enforcement and compliance policies or procedures.  As the directives themselves acknowledge “[d]irectives do not change the laws and regulations governing OFCCP’s programs and do not establish any legally enforceable rights or obligations.

We are eager to learn more about what data OFCCP intends to review and how it intends to analyze the information and look forward to understanding the Agency’s protocols for these reviews.

We will be sure to provide more detail and insights as they become available.

As discussed during the 2018 ILG National Conference, Acting Director Craig Leen has released a Directive formalizing OFCCP’s plans to start initiating focused reviews.  Acting Director Leen, simultaneously released a Directive addressing religious discrimination – a topic not broadly (or otherwise) discussed during the Agency’s recent public engagements.

The stated purpose of Directive 2018-03: Executive Order 11246 Sec 204(c), religious exemption is “to incorporate recent developments in the law regarding religion-exercising organizations and individuals.

The stated purpose of Directive 2018-04: Focused reviews of contractor compliance with Executive Order 11246 (E.O.), as amended; Section 503 of the Rehabilitation Act of 1973 (Section 503), as amended; and Vietnam Era Veterans’ Readjustment Assistance Act of 1974 (VEVRAA), as amended is “to direct that a portion of future scheduling lists include focused reviews as to each of three authorities that the Office of Federal Contract Compliance Programs enforces.

We are in the process of reviewing each directive and will provide our thoughts and insights on both the Directive 2018-03 and Directive 2018-04 soon.

Even though it feels as thought we are still in the midst of summer, the time is here for annual VETS-4212 reporting.  The portal is now open for the 2018 filing season which started on August 1, 2018 and ends on September 30, 2018.

If you recall, last year, VETS clarified that in addition to using a traditional workforce snapshot from between July 1, 2018 and August 31, 2018 to complete the filing, contractors have the option of using a December 31, 2017 workforce snapshot for the report.  This change allows contractors to use the same workforce data for they used for EEO-1 reporting for the VETS filing.

If you have questions or concerns about your filing you can contact VETS-4212 customer support at 1-866-237-0275 or via email at VETS4212-customersupport@dol.gov.

Following the tone of the preceding days, the 2018 ILG National Conference closed Friday morning with a friendly conversation between Acting Director Craig Leen and NILG Chair Paul McGovern.  The two discussed several of the themes and OFCCP initiatives addressed during the conference:

Contractor Certification

Acting Director Leen also discussed a new topic – the Agency’s work to develop a contractor verification or certification process.  Leen discussed the current General Services Administration’s (GSA’s) certification process which occurs within the System for Award Management (SAM) registration system.  He described how the simple “check-the-box” certification question likely does not capture accurately who is in compliance with their affirmative action obligations.  Leen recognized those in attendance likely already prepare affirmative action plans but raised concern about the many that do not because of a low risk of audit.

The Acting Director did not get into specifics of OFCCP’s certification program but mentioned the Agency is asking the GSA to provide it with information on how contractors respond to the certification question in SAM and shared OFCCP will be taking a look at those answers.

With respect to all of OFCCP’s initiatives, enforcement and technical assistance alike, Acting Director Leen encouraged conference attendees to reach out to him with thoughts and suggestions.

As part of his closing remarks, Acting Director Leen expressed his gratitude for being included in such a “tremendous” conference, and remarked on the many sessions he attended and things he learned.  The feelings are mutual and those in attendance appreciated the opportunity to engage (again) in information sharing with the Agency and look forward to continued opportunities to do so in the future.  See you next year!