On Tuesday, February 18, 2020 the National Industry Liaison Group (“NILG”) and the Office of Federal Contract Compliance Programs (“OFCCP”) held a Compensation Roundtable at the US. Department of Labor in Washington D.C.  Director Leen introduced the program by emphasizing the need for advancement of females to higher level management positions, the right to parental leave for both men and women, and his continuing commitment to advancing his administration’s agenda.   You may recall that on February 3, 2020 President Trump announced his intention to nominate Director Leen to be the next Inspector General at the Office of Personnel Management.  Director Leen emphasized this will not impact his current agenda at OFCCP and that he expects OFCCP to issue many new directives or guidelines while he remains at the Agency, including:

  • a Mediation Directive designed to assist the Agency and Contractors in resolving disputes before enforcement referral;
  • a new Transparency Directive to provide for further disclosures of OFCCP findings prior to the issuance of Pre-Determination Notices;
  • an Efficiency Directive supporting prompt and effective resolution of compliance reviews.

Director Leen also noted that the Agency remains “focused on focused reviews.”  Contractors already have been selected for the next round of reviews, but the Agency still is working on preparation of the announcement letters.

Director Leen also shared that the Agency will be issuing new compensation guidance that he hopes will incorporate some of points to be made panel at the Compensation Roundtable.

The remainder of the event consisted of a panel discussion among a number of contractor representatives, including attorneys, labor economists and statisticians, and OFCCP representatives Robert LaJeunesse, the Branch Chief for Expert Services/Acting Director of Enforcement and Labor, and Economist David Garber.

The contractor side of the panel discussion was broken down into what is perceived as good, the bad (and even the ugly) with Compensation Directive 2018-05, and recommendations for change.

The Good

All of contractor representatives acknowledged that much good has come from Directive 2018-05, OFCCP’s current Compensation Directive.   For example, the panel fully supported the Directive’s:

  • recognition of the importance of analytical differences between modeling for base v. other forms of compensation;
  • focus on contractor’s own pay systems;
  • emphasis on increased predictability and transparency;
  • recognition of need for the use appropriate control variables,
  • approval of outlier review; and
  • use of age as a proxy for experience in appropriate circumstances.

The “Not So Good”

However, the panel also focused on the “not so good” side of Directive 2018-05 and its enforcement by OFCCP.   The contractor representatives criticized OFCCP’s narrow focus on regression as the only tool for compensation analysis.  This focus has caused OFCCP to force the aggregation of non-similarly situated employees into the same Pay Analysis Group (“PAG”) for the sole purpose of ensuring adequate pool size and statistical power.   For example, OFCCP has formulated rules including that PAGs must have at least 30 employees, at least 10 employees for every variable included in the model, and at least 5 observations for every variable.  Through strict adherence such rules OFCCP has inappropriately aggregated  non-similarly situated employees, dropped variables that help explain pay variability, and combined dissimilar variables that are not appropriately interacted.   The result is that the Agency: (1) creates PAGs that do not conform to Title VII of the Civil Rights Act of 1964’s mandate that comparisons be made only of similarly situated employees; (2)  ignores important aspects of a contractor’s own compensation systems; and (3) combines dissimilar levels of categorical variables.

Other issues raised by the panel include OFCCP’s lack of a definitions related to indicators of systemic discrimination, practical significance and tainted variables. For example the panel posited that OFCCP is inappropriately assuming that mere “correlation” is enough to show a variable is tainted.  In fact, OFCCP needs to show, among other things, how that a variable is related to a specific pay process that discriminates to establish that a variable is tainted.

Contractor Recommendations

To address these concerns, the contractor representatives recommended that OFCCP should:

  • use regression analysis only when appropriate, and use other forms of analyses, such as rank sum, T-Tests adjusted for degrees of freedom, matched pair/cohort analyses, a combination of such tools,  when not.
  • carefully evaluate a contractor’s pay system and include what it learns in its models – i.e., how does the contractor pay; what factors does it consider, etc.;
  • group similarly-situated employees carefully and in accordance with Title VII; OFCCP should not aggregate, add or drop groups or variables solely for the purpose of statistical power;
  • accept the contractor’s units of analysis if at least 70% of the facility’s workforce is covered by some type of legitimate compensation analysis;
  • provide a specific definitions related to systemic discrimination and tainted variables; and
  • adopt the following rules for practical significance:
      • if there is a less than a 2% pay disparity, regardless of whether statistical analysis results are significant, there should be no further review.
      • if there is 2 to 5% pay disparity, OFCCP should review differences with understanding that result may not be practically significant.

OFCCP’s Response

Bob LaJeunesse and David Garber responded to many of the items noted above.  Both emphasized that OFCCP is investigating for indicators of systemic discrimination, which are often not isolated to a single group of similarly-situated employees.  According to OFCCP, its focus on systemic issues necessitates a broader view of PAGs, especially in cases where trend or other analyses show a pattern favoring one group over another.   If there are a series of extremely small units of analysis, which show such a trend, then OFCCP cannot commit itself to using such small groups as PAGs because such tests do not allow one to control for legitimate differences in pay.  In sum, OFCCP claims it is balancing the similarly situated standard with the “need” for statistical power.

In defending such practices, Mr. LaJeunesse and Mr. Garber emphasized that the Agency models its regression analyses in a very careful and deliberative way.   For example, OFCCP uses a “nearest nesting” approach to avoid the aggregation of dissimilar variables.   Mr. Garber stated that it is “common place in social science statistics to engage in variable fusion,” such as the combination of performance ratings into larger groupings.  They both further emphasized that OFCCP looks at more than just differential distributions is determining a tainted variables and that its models “follow what we learn, not the other way around.”

Conclusion

The panel discussion succeeded in highlighting several points of disagreement between contractors and OFCCP regarding the best means to investigate potential compensation discrimination.  At the same time, certain points of agreement were reached during the discussion.   For example, both sides agreed that pay discrimination is an important societal issue that the Agency should be investigating and remedying.  In addition, all agreed that contractors and OFCCP alike benefit from transparency and consistency when it comes to the process and the methods of compensation analysis.

At this point the Agency committed to taking the recommendations under review and continuing the dialog.

As of today, federal contractors have a new tool for understanding a variety of compliance obligations enforced by the Office of Federal Contract Compliance Programs (“OFCCP”). The Agency has launched a Contractor Compliance Institute (“CCI”) where contractors can take free, on-demand courses on a variety of OFCCP-related topics.

The CCI is designed to help contractors learn more about their obligations; evaluate current personnel and affirmative action practices; and stay current with OFCCP initiatives, according to a news release from OFCCP.

To access the courses, contractors must create an account at the CCI website. After registering, the contractor is directed to a training module depending on the organizational role of the participant. There is currently posted a single training for each of the following:

  • Compensation Manager
  • Hiring Manager
  • Human Resources Manager
  • Front Line Supervisor/Manager
  • Recruiter

The CCI website also includes definitions of Section 503 Disability Focused Reviews and Functional Affirmative Action Plans (FAAPs), as well as links to OFCCP’s existing pages that contain downloadable posters and self-identification forms.

The Agency created the tool in furtherance of its commitment to providing meaningful technical assistance to contractors.

It seems the end has finally come for at least one part of the pay data reporting story.  Today, Judge Chutkan ordered the EEO-1 Component 2 pay data reporting portal closed.  The closing of the portal signals the end of the required collection of pay data for 2017 and 2018 from eligible employers.

The direction for the next turn in the story hinges on what EEOC decides to do about collecting pay data going forward.  Stay tuned.

In a surprising turn of events, the White House has announced today President Trump’s intent to nominate current OFCCP Director Craig Leen to the position of Inspector General of the Office of Personnel Management.

There were not details around timing or potential OFCCP Director candidates provided in the release.  He would need to be confirmed by the Senate before moving into the role.

We will provide more details as soon as they are known.

The recently updated Construction Contractors Technical Assistance Guide (“TAG”) provides construction contractors substantial guidance in understanding their AAP obligations and how to fulfill those obligations.  Helpfully, the TAG addresses both technical compliance as well as best practices to achieve the spirit of the relevant statutes.

The TAG is organized coherently and practically, beginning with an explanation of the Office of Federal Contractor Compliance’s (“OFCCP”) mission and the laws it has been charged to enforce: Executive Order 11246, Section 503 of the Rehabilitation Act of 1973 (“Section 503”), and Vietnam Era Veterans’ Readjustment Assistance Act of 1974 (“VEVRAA”), and their enforcing regulations.

Executive Order 11246 Obligations

The TAG explains how a covered construction contractor must “take affirmative action” through postings, notices, and taglines in job postings, including:

  • EEO and Pay Transparency Postings and Notices
  • Notice to Unions
  • Job Advertisement Taglines
  • Listing Jobs with the Employment Service Delivery System
  • Notification to OFCCP of Construction Contract Award
  • Mandatory Notices in Bids and Contracting Documents

The TAG next details construction contractors’ mandatory record keeping obligations; specifically, what to keep, for whom records are required to be kept, the acceptable format of record keeping, and how long records must be maintained.

Unlike traditional affirmative action planning, construction contractors are not required to conduct a “utilization analysis” of females and minorities in its workforce.  Instead, the TAG explains the regulatory requirement for construction contractors to develop participation goals for women and minorities. The TAG provides how the goals are established and directs contractors to resources to help assess adherence to the established goals. Notably, the Executive Order requires construction contractors to analyze the relevant onsite construction workforce by project, rather than by establishment.

Additionally, under Executive Order 11246, construction contractors are not required to prepare written affirmative action plans (“AAPs”); rather, they must adhere to sixteen affirmative action steps (and properly document the steps taken). In a helpful and logical way, the TAG organizes the steps outlined in the regulations according to the step’s place in the employment life cycle (not necessarily in the order they appear in the regulations): Recruitment Practices, Training, EEO Policy and Implementation, Personnel Operations, and Contracting Activity. These sixteen steps make up the bulk of the construction contractor’s affirmative action obligations.

Section 503 and VEVRAA Obligations

Not to be overlooked, and somewhat confusingly, construction contractors and supply & service contractors share the same obligations with respect to veterans and individuals with disabilities under VEVRAA and Section 503.  Section 503 and VEVRAA regulations obligate all contractors to prepare written, establishment-based affirmative action plans with specific components.  Thus, Section 503 and VEVRAA plans include both construction and non-construction workers.   As such, construction contractors need to evaluate which establishment their onsite construction workforce should “roll up to” for these plans. Generally, an individual worker will roll up through his or her supervisor’s reporting chain to determine the appropriate establishment for Section 503 and VEVRAA AAP purposes.

The TAG provides fundamental information regarding construction contractors’ options in preparing their plans (for example, combining the Section 503 and VEVRAA plans into a single AAP or developing plans either by geographical area or company-wide), and proceeds to detail what the regulations require and what the OFCCP recommends regarding various written AAP components:

  • EEO Policy
  • Disseminate EEO Policy Internally and Externally
  • Review of Personnel Processes
  • Review of Mental and Physical Job Qualifications
  • Reasonable Accommodations
  • Develop and Implement Procedures to Prevent Harassment
  • Undertake Outreach and Positive Requirement
  • Design and Implement an Audit and Reporting System
  • Designation of Responsibility
  • Training
  • Data Collection Analysis

Final Thoughts

The guide concludes with a reminder of contractors’ mandatory annual reporting obligations, and notably and perhaps most helpfully, how to prepare for a compliance evaluation. The TAG outlines the OFCCP’s purpose in conducting compliance evaluation, what compliance officers are likely to ask for, and how a construction contractor can proactively prepare an answer for such inquiries. Lastly, the TAG has robust appendices including glossaries of terms and abbreviations, sample mandatory notices and invitations to self-identify, frequently asked questions, and participation goals for women and minorities.

Now that the TAG has been issued it will be interesting whether we start to see more construction contractors appear on OFCCP’s CSAL lists going forward.

While it feels like we just finished the EEO-1 reporting season, the time is here again to start preparing for filing of the “traditional” annual EEO-1 survey.  As it has for years, EEOC will again this year look to collect race and gender data from eligible employers.  Component 1 of the EEO-1 (not to be confused with the controversial and litigation-embroiled pay data Component 2) is currently due to be filed with the EEOC by March 31, 2020.  However, the EEO-1 reporting portal is not yet opened.

As a reminder, last year, in the height of the Component 2 pay data reporting frenzy, EEOC submitted a request to the Office of Management and Budget (OMB) seeking approval to continue to collect the historical Component 1 report without again collecting the pay data report that is Component 2.  EEOC is still awaiting a response to its request.  As a result, the EEO-1 Survey portal remains closed.  The following message appears on the 2019 EEO-1 Survey Portal:

The 2019 EEO-1 survey is not yet opened. The EEOC is currently in the process of seeking approval under the Paperwork Reduction Act (PRA) to collect the EEO-1 survey for 2019, 2020, and 2021.  The EEOC is seeking to collect Component 1 of the survey and to discontinue the collection of Component 2 pay data.  See, EEO-1 60-Day PRA Notice. The opening of the collection will be announced by posting a notice on the EEOC home page and sending a notification letter to eligible EEO-1 filers. When the survey opens, the EEOC will provide online resources to assist filers with their submissions and the EEOC’s helpdesk will be available to respond to filer inquiries and to provide additional filing assistance (including, for example, guidance on processing mergers and acquisitions and other corporate changes).

The timeline for the opening of the portal is unknown at this time.

As for Component 2, the reporting portal remains open. EEOC has requested, and is still awaiting guidance from the court as to when the reporting obligation should be deemed satisfied allowing the agency to close the reporting portal.

We will provide any updates on either of the reports as soon as we have additional information.

The most recently authorized version of the National Defense Authorization Act (NDAA) includes a provision that will limit the ability of federal contractors to inquire into the criminal backgrounds of certain potential employees.  Beginning in December 2021, the Fair Chance Act will prohibit federal contractors from inquiring about a job applicant’s criminal background in certain cases in the initial stages of the application process.

It is not new for the NDAA to be used to promulgate obligations and rules for federal contractors.  (Remember the part the NDAA played in the TRICARE drama years ago?)

Click here for our full length article on the NDAA’s new limitation for federal contractors.

Checking off another of the Agency’s “To Dos”, OFCCP has published revisions and updates to the Federal Contractor Compliance Manual (FCCM).  The manual is the Agency’s “instruction manual” providing

guidance for OFCCP’s compliance officers in conducting compliance evaluations and complaint investigations . . .

Revisions to the guide have been promised for years, and the Agency under the leadership of Director Craig Leen has finally accomplished it in furtherance of its commitment to transparency to the contractor community.

The Agency has made changes to a good number of the Manual’s sections but they’ve emphasized highlight the following changes:

  • Revisions to align with the Agency’s new directives
  • Addition of protected bases to align with OFCCP’s authority
  • Updated language and direction with respect to disability and veteran requirements

The Agency has published a list of the changes but encourages review of “the entirety of the referenced section(s) in which an update occurred . . . in order to better understand the full context of the update.”

We are in the process of digesting and comparing the this new version of the manual to the previous edition and will be back soon with more specific insights.

OFCCP has published a Notice of Proposed Rulemaking (NPRM or Proposed Rule) proposing to codify procedures the agency uses to resolve potential violations of the affirmative action laws the agency enforces.  If approved, the regulation would significantly clarify (if not alter) both the procedures and substantive rules according to which OFCCP seeks to resolve allegations of discrimination in employment decisions, including pay practices.

Director Craig Leen believes the proposal

aims to provide greater certainty and transparency about the procedures that OFCCP follows during compliance evaluations to resolve employment discrimination and other material violations.

The proposal seeks to do this by

  • clarifying the strength (and type) of evidence agency staff must find before issuing a PDN  or NOV, and
  • codifying procedures for the two formal notices, the Predetermination Notice (PDN) and Notice of Violation (NOV), that OFCCP uses when the Agency finds potential violations.

As we noted in mid-November, OFCCP is seeking to translate its Directive 2018-01 – Use of Predetermination Notices (PDN) into a more durable set of regulatory requirements that would be harder for a subsequent administration to undo.  Consistent with the agency’s overarching objectives, the current effort appears to be one to make the resolution of discrimination allegations more transparent and efficient.

However, as discussed in greater detail below, the Proposed Rule is in some respects much broader than the PDN Directive.

Statistical & Non-Statistical Evidence Requirements

In a so-called discretionary limitation of its own practices, the Proposed Rule states that OFCCP will require “corroborating nonstatistical evidence” of discrimination in all instances where statistical indicators of discrimination are between 2 and 3 standard deviations – roughly equivalent to a probability value (p value) below .05 but above .01.

In other words, unless a selection or compensation disparity reaches, 3 standard deviations, OFCCP is proposing to not issue a PDN without bolstering the statistical indicator with some other evidence of “an intent to discriminate”.  As OFCCP explains in footnote 11:

The proposed rule clarifies that, absent nonstatistical evidence, OFCCP will only pursue a matter when discrimination is indicated by statistically significant evidence at the 99 percent confidence level (i.e., three standard deviations, or a p value of 0.01 or less).

However, where the statistical evidence is “very” or “exceptionally strong” – at or above 3 standard deviations (below a p value of .01) – OFCCP proposes it may issue a PDN and pursue enforcement without any corroborating non-statistical evidence.  Before issuing a PDN, the proposed rule sets out that the agency may also considers whether nonstatistical evidence, such as a cohort analysis, demonstrates an intent to discriminate.

The Proposed Rule also defines statistical and non-statistical evidence as the following:

Statistical evidence means hypothesis testing, controlling for the major, measurable parameters and variables used by employers (including, as appropriate, other demographic variables, test scores, geographic variables, performance evaluations, years of experience, quality of experience, years of service, quality and reputation of previous employers, years of education, years of training, quality and reputation of credentialing institutions, etc.), related to the probability of outcomes occurring by chance and/or analyses reflecting statements concluding that a difference in employment selection rates or compensation decisions is statistically significant by reference to any one of these statements:

(1) The disparity is two or more times larger than its standard error (i.e., a standard deviation of two or more); (2) The Z statistic has a value greater than two; or (3) The probability value is less than 0.05.

Nonstatistical evidence may include testimony about biased statements, remarks, attitudes, or acts based upon membership in a protected class; differential treatment through review of comparators, cohorts, or summary data reflecting differential selections, compensation and/or qualifications; testimony about individuals denied or given misleading or contradictory information about employment or compensation practices; testimony about the extent of discretion or subjectivity involved in making employment decisions; or other anecdotal or supporting evidence.

OFCCP notes some exceptions to these limitations.  For example, OFCCP may pursue indicators of discrimination below 3 standard deviations (above a p value of .01) without corroborating non-statistical indicators if it finds “similar patterns of disparity in multiple years or at multiple establishments of a federal contractor…”  In footnote 11 to the Proposed Rule, OFCCP further clarifies:

that for multiple findings of discrimination without nonstatistical evidence present at a given contractor establishment, or at multiple facilities of the same contractor, OFCCP may issue a PDN where at least one finding is supported by statistically significant evidence at the 99 percent confidence level and may include additional findings that are supported by statistically significant evidence at the 95  percent confidence level (i.e., two standard deviations, or a p value of 0.05 or less) or above.

What this appears to mean is that:

  1. Patterns of disparities (below 3 standard deviations) across multiple years or multiple establishments may suffice as corroborating evidence to issue a PDN for alleged discrimination without non-statistical evidence; and,
  2. Where there appear to be patterns of discrimination across years or establishments without any corroborating non-statistical evidence, OFCCP may pursue a PDN if there is at least one statistical indicator at 3 standard deviations or above.

Procedures for PDNs, NOVs and Conciliation Agreements

 OFCCP’s effort to put the procedures for issuing PDNs and Notices of Violations (NOV) into regulations is no less significant.  Consistent with the substantive thresholds discussed above, OFCCP may issue a PDN only after considering these factors:

  • Whether a statistical disparity is “both practically and statistically significant”;
  • Whether, when required, corroborating non-statistical evidence “demonstrates an intent to discriminate”; and,
  • Whether the statistical indicator is at or above 3 standard deviations (p value less than .01).

Noticeably absent is the requirement present in the PDN Directive that the Office of Solicitor and OFCCP National Office review and approve all PDNs before they are issued.  Nonetheless, we hope OFCCP will continue to follow this aspect of the Directive absent codification, although leaving this requirement out of the regulation would make it susceptible to rescission by another administration.

Regarding NOVs, the first aspect of the Proposed Rule (and Directive) is that OFCCP cannot issue an NOV for alleged discrimination unless it first issues a PDN.  In contrast, OFCCP may skip the PDN and go straight to an NOV for material violations which did not include allegations of discrimination.

The Proposed Rule does not substantively modify the existing regulation regarding conciliation agreements, except to add a provision that contractors may waive the foregoing PDN and NOV procedures in favor of entering directly into a conciliation agreement.

What Does This All Means for Contractors?

  1. Opportunity to Comment
    • As with any proposed rule, OFCCP may modify this Proposed Rule based on consideration of public comments, as well as further reflection on the most efficient methods to achieve its objectives.  In that regard, contractors and other interested parties may submit public comments until January 29, 2020 at the regulations.gov website.
  2. Earlier Insight into Audit Findings
    • Perhaps most significantly, the Proposed Rule would codify the requirement that OFCCP issue PDNs in cases of alleged discrimination, thus giving contractors the opportunity to better understand and respond to OFCCP’s allegations before receiving an NOV.  Such transparency may also facilitate earlier resolution of alleged discrimination indicators.  For whatever reason, OFCCP had for many years fallen out of the practice of issuing PDNs, despite the fact they are set forth in OFCCP’s own manual for conducting audits – the Federal Contractor Compliance Manual (FCCM).  Approval of the Proposed Rule would elevate the binding effect of these procedures.
  3. Transparency and Guidance around Statistical Thresholds
    • As for OFCCP’s decision to require “corroborating nonstatistical evidence” where statistical indicators fall below 3 standard deviations, this appears to be a step towards streamlining OFCCP’s focus on more problematic indicators of potential discrimination.  That could prove to be a benefit to contractors.  However, given that 1.96 standard deviations is the well-accepted threshold for statistical significance, statisticians may argue that the 3 standard deviation threshold is arbitrary, and could/should justifiably be set at 4 or more standard deviations.
    • Moreover, there is a legal argument that OFCCP’s decision to dispense with the need for corroborating non-statistical evidence to demonstrate discriminatory intent is contrary to some Title VII case law requiring some measure of anecdotal evidence of intent in all Title VII cases.  It may be that OFCCP means that statistical indicators of 3 standard deviations and above may be sufficient only to state a prima facie claim of intentional discrimination (“pattern or practice” of discrimination), but not necessarily to prove such a claim.
    • Practically speaking, it remains to be seen how OFCCP would implement these thresholds and requirements during compliance evaluations.  For example, to what extent will OFCCP investigate disparities below 3 standard deviations where there is no clear non-statistical evidence?  The answer to that question will likely dictate whether or not the proposed thresholds lighten the burden on federal contractors or, possibly, increase the burden as OFCCP searches for non-statistical evidence through interviews and document requests.
    • Perhaps more importantly, while the Proposed Rule would require OFCCP to consider practical significance (in addition to statistical significance), it does not define practical significance.  Practical significance is addressed only in footnote 6 and in reference to sub-regulatory Frequently Asked Questions on the OFCCP website.  Because OFCCP has not sought to codify definitions or types of practical significance, this significant concept could be severely limited by subsequent administrations.

Please consider submitting comments regarding the Proposed Rule and check back for updates on this and other OFCCP topics.

EEOC has filed another Motion with the court seeking an Order deeming Component 2 pay data collection complete.  In its most recent filing, EEOC requests the Court to revisit its previous decision and deem the collection obligation satisfied or, in the alternative, provide clarification “regarding the response rate at which the Court will deem the EEOC’s collection to be complete.”  As a reminder, EEOC’s previous motion requesting the permission to close the portal was denied.  Instead Judge Chutkan ordered the agency to keep the portal open until at least January 2020 to allow for additional data collection.  EEOC reports it is costing approximately $150,000 a week to maintain the site.

As of October 8, 2019, 75.9% of eligible filers had submitted the requested data.  As of December 18, 2019, EEOC reported that 85.6% of eligible files have submitted the Component 2 data.  EEOC calculates the average response rate for reporters who submitted EEO-1 data within the grace period (rather than at the deadline) in previous years is 84.5%.  Thus, at this point EEOC is reporting that it has collected Component 2 data at a rate that exceeds the average EEO-1 response rate, taking into consideration additional time for submission, and believes therefore, the collection should be deemed complete.

EEOC’s filing indicated Plaintiffs in the matter oppose the motion.

We’ll provide further updates as they happen so stay tuned.