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.

In a welcome turn for federal contractors, OFCCP last week submitted a proposed regulation to codify Directive 2018-01 – Use of Predetermination Notices (PDN).  The regulation would require OFCCP to issue a Predetermination Notice (PDN) in every audit summarizing the Agency’s preliminary “discrimination” findings before issuing a Notice of Violation (NOV).

Regular issuance of PDNs, after approval from the Solicitor’s Office and the National Office of OFCCP, provides transparency to contractors and facilitates resolution of alleged violations before OFCCP issues an NOV.

The proposed regulation is not, yet, publicly available but can be tracked at the Office of Information and Regulatory Affairs (OIRA):  RIN 1250-AA10.  Given the current status – awaiting for approval for publication in the federal register for public comment – we do not know what the actual details of the proposal will encompass.

By way of background, OFCCP issued Directive 2018-01 in February 2018, as interim guidance regarding PDNs until it updated the Federal Contractor Compliance Manual (FCCM).  The Directive provides that rather than leaving the issuance of a PDN to the discretion of regional and district OFCCP offices, they must issue PDNs in some instances.  The Directive also provides oversight of regional and district office discrimination allegations via a mandatory pre-issuance review of all PDNs by the regional Office of the Solicitor and the OFCCP National Office.

In October 2019, President Trump issued Executive Order 13892 – Promoting the Rule of Law Through Improved Agency Guidance Documents – making it more difficult for OFCCP and other agencies to issue guidance document without public review and comment.  And also removing the use of sub-regulatory guidance as the basis for enforcement actions.  The Executive Order favors regulation instead of guidance due to the requirement of rigorous government review, as well as public notice and comment before a regulation may go into effect.  Compliance with this Executive Order as well as providing certainty and transparency in enforcement are likely the driving force behind this proposal.

We will be back with updates once OFCCP publishes the proposed regulations so stayed tune.

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In the words of OFCCP, the contractors spoke and OFCCP listened.  OFCCP is also listening to the Government Accountability Office and its detailed review of the Agency.

In response to the GAO’s Strengthening Oversight Could Improve Federal Contract Nondiscrimination Compliance report and on the heels of OFCCP’s Compliance Assistance Town Halls, the Agency has developed a path to address “three general areas of focus:  training, communication and trust” through a Town Hall Action Plan.  OFCCP reports it developed the action plan “consistent with its existing budgetary and human resources” and that that the agency

further expects that this plan will not only respond to the three common themes identified in the town halls in FY 2017, but will also contribute to the agency’s response to recommendations four, five, and six in the 2016 GAO report.

The Plan is founded on three initiatives:

  1. Review and Enhance Contractor Compliance Assistance
  2. Assess and Improve the Quality of Contractor and Compliance Officer Training and Education
  3. Increase Transparency and Communication

Perhaps of most interest to contractors are the issues of transparency, communication and consistency addressed in the third initiative.  The initiate states OFCCP will “create a ‘roadmap’ or written guide to the compliance evaluation process for contractors” which will further its goal of enhancing communications between contractors and OFCCP, improve the transparency in OFCCP’s work, and begin to address trust issues.

In addition to the Agency’s previously-announced renewed reliance on predetermination notices, OFCCP “will develop policy guidance for creating greater transparency around the identification of indicators of a violation, explaining the basis for a supplemental data request, and conducting a meaningful compensation self–assessment.”  This initiative is consistent with recent reports regarding the possible rescission of OFCCP’s controversial Directive 307 regarding audit compensation analyses.

The Town Hall Action Plan also previews what OFCCP is referring to as a “Bill of Rights” titled “What Contractors Can Expect.”  This document, to-be-entitled What Contractors Can Expect, will outline certain OFCCP principles that contractors can expect to exist during an engagement with OFCCP.  These principles are expected to “include, but are not limited to, things such as timeliness, accuracy, communication, confidentiality, and professionalism.”

And the Agency isn’t done listening.  For those contractors who received OFCCP’s survey, you still have time to give your feedback – the deadline to respond is May 4th – let your voice be heard.

We applaud the Agency’s initiatives and look forward to learning more about the details, which we will share as they  become available.

by Laura A. Mitchell and Christopher T. Patrick

Under the leadership of new OFCCP Director Ondray Harris, the Agency has issued its first policy directive of 2018. Directive 2018-01, effective February 27, addresses an area of concern discussed at length during the Agency’s listening sessions earlier this year: the need for increased transparency.

The Directive instructs all OFCCP offices to issue a Predetermination Notice (“PDN”) prior to issuing a Notice of Violations when the Agency has concluded its review and believes findings of discrimination may be appropriate. A PDN is a letter OFCCP uses to inform contractors of the Agency’s preliminary findings of employment discrimination and serves as a way to provide contractors an opportunity to respond to preliminary findings prior to OFCCP deciding to issue discrimination violations.

Before the Directive, OFCCP

typically reserved use of the PDN for systemic discrimination cases and permitted regional and district offices discretion in whether to issue the PDN prior to issuing a Notice of Violation (NOV).

But now, PDNs are required and, it is Agency policy that,

OFCCP will issue PDNs for preliminary individual and systemic discrimination findings identified during the course of compliance evaluations.

This is welcome news for contractors facing aggressive, protracted compliance reviews in which it was uncertain whether they would have notice of OFCCP’s preliminary findings. This additional step in the process will hopefully foster an open dialog between contractors and OFCCP to clarify misunderstandings and correct errors in analyses.

The Directive also suggests increased National Office oversight and review of potential violations before the Agency concludes that discrimination violations are appropriate – requiring that the regional Solicitor review all PDNs and submit them to OFCCP’s national office for a “review and final decision.” It even halts violations that are drafted but not yet issued, and requires that local office issued a PDN instead so that the contractor may respond before any formal allegations of discrimination are issued.

While the ultimate impact of this Directive is still unclear, it an encouraging policy step in Director Harris’s young tenure.

This Directive is new, and it’s implementation still developing. The Directive indicates OFCCP will be updating the Federal Contractor Compliance Manual (FCCM) consistent with the Directive.  We will keep you posted as we learn more.