Thursday, August 11 2022

United States: OFCCP to begin requiring internal pay equity audits of contractors

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On March 15, 2022, the OFCCP issued its first directive since President Biden took office. Directive 2022-01 (the “Directive”) deals with the obligations of contractors to analyze their remuneration systems and to submit these analyzes when they are subject to an audit.

The directive begins by outlining the obligations of contractors under 41 CFR § 2.17(b). This regulation provides that contractors “must carry out thorough analyses” of their “compensation system(s) to determine if there are any disparities based on gender, race or ethnicity”. The regulation does not specify what these analyzes must entail, only that they must “determine whether and where obstacles to equal employment opportunity exist”. Where such barriers exist, contractors are required to “develop and execute action-oriented programs designed to correct any problem”. 41 CFR § 217(c).

The guidance then “clarifies the power of the OFCCP to access and review contractor compensation system analyses,” which it defines as “pay equity audits.” The guidance says the OFCCP will request such analyzes when an on-site audit “reveals pay disparities or other concerns about the contractor’s pay practices.” The guidance asserts that the OFCCP has the “authority” to obtain these documents “to understand the methodology used and verify compliance with” 41 CFR § 2.17. The OFCCP indicates that it

will ask that the contractor provides a full copy the pay equity audit(s) conducted in accordance with [41 C.F.R. §] 2.17(b)(3) which shows all the compensation groups that were assessed, all the variables used and the results of the analyses, including any disparities found. For compensating regression or statistical analysis results, OFCCP may request model statistics (such as b-coefficients, significance tests, R-squared, adjusted R-squared, F-tests, etc) for all variables or comparisons in the model. The OFCCP may also request information relating to the frequency of pay equity audits, communication to management, and how the results have been used to rectify disparities based on gender, race and/or gender. ‘Ethnicity.

(emphasis added). The directive states that the OFCCP may request such analyzes “covering a period commencing two years before the date on which the contractor received the planning letter”.

The final part of the directive provides for contractors to assert solicitor-client privilege over their pay equity audits. The OFCCP essentially rejects any claim that solicitor-client privilege protects the production of internal pay equity audits at the agency:

The OFCCP notes, however, that federal contractors must retain and make available to the OFCCP documentation of their compliance with OFCCP regulations. Contractors may not withhold these documents by invoking solicitor-client privilege or the doctrine of attorney’s work product. The OFCCP has the authority under its regulations to require the testing that the contractor has performed to comply with the OFCCP regulations.

The guidance, after discussing the scope of solicitor-client privilege and stating that solicitor-client privilege does not apply to compensation analyzes conducted for the purpose of complying with OFCCP regulations, concludes with a warning to contractors who refuse to submit their internal analyzes on pay equity:

In cases where the on-site audit reveals pay disparities or other concerns with the contractor’s compensation practices, the OFCCP will continue to request the related pay equity audit that a contractor conducts on its own. employment process to meet the regulatory requirements of 41 CFR 60-2.17(b). Failure to provide the required pay equity audit will be considered by the OFCCP as an admission of non-compliance with these regulatory requirements..

(emphasis added). However, the guidance also states that when the contractor submits a pay equity analysis, the OFCCP will not seek other preferred pay equity analyzes that a contractor may have performed – provided the contractor can establish that there is a privilege:

Provided the contractor provides the OFCCP with a pay equity audit and compliance records sufficient to comply with 41 CFR 60-2.17(b)(3) during its evaluation, the OFCCP will generally only request no additional privileged analyzes when the contractor demonstrates that he has also conducted a duly privileged pay equity process with a lawyer.

The directive is the first formal statement that the OFCCP under Yang’s leadership will be aggressive in exploring compensation issues during audits. Contractors have now been warned that the OFCCP will not accept claims of privilege as a basis for resisting requests for pay equity analysis and should adapt its processes, with the assistance of counsel, to take into account of this development and ensure that they can demonstrate compliance with regulatory requirements while protecting privileged compensation analyses.

OFCCP to begin requiring internal pay equity audits of contractors

The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.

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