OFCCP Revises Guidance on Federal Contractors’ Compliance with “Pay Equity Audits” | CDF Labor Law LLP

On March 15, 2022, the Office of Federal Contract Compliance Programs (“OFCCP”) issued guidance regarding the OFCCP’s expectations for compliance with the regulatory provisions of 41 CFR 60-2.17(b)(3). Regulations require qualified contractors to implement an equal employment opportunity and affirmative action program, which must include an assessment of the existence and location of wage disparities based on gender, race or ethnicity. The directive explained how, during a compliance review, the OFCCP would investigate a contractor’s compliance, including access to internal pay equity audits. The directive drew heavy criticism because it seemed to claim the right to compel contractors to disclose their pay equity analyzes, even when they were potentially protected by solicitor-client or work product secrecy.

In response to criticism, on August 18, 2022, the OFCCP released the revised version Directive 2022-01 Revision 1, Advancing pay equity through compensation analysis. The revised and reissued guidance aims to update and clarify its guidance on how the OFCCP will assess federal contractors’ compliance with compensation analysis obligations, including its authority to access and review documentation required compensation analyses. This revised guidance makes clear that the OFCCP intends to challenge contractors if they rely on privilege objections to refuse to demonstrate compliance, while acknowledging the privilege issues and giving contractors alternatives to demonstrate compliance with regulatory provisions where privilege issues exist. The key points of the revised guidance are summarized below.

The OFCCP will not require contractors to produce pay equity analyzes protected by attorney work product or attorney-client privilege

Federal contractors are required to “retain and make available to the OFCCP documentation of their compliance” with the requirement to conduct compensation analyzes and implement action-oriented programs to resolve any issues identified as a result of this analysis. Compensation analyzes should include an assessment of the contractor’s compensation system to determine if there are any disparities based on gender, race or ethnicity. One of the problems with the original guidance was that it did not recognize that a contractor’s compensation analysis could contain privileged communications between lawyer and client or work product. The revised directive attempts to clarify this issue.

Under the revised guidance, the OFCCP will not require contractors to produce pay equity analyzes and related communications protected by the attorney’s work product-to-client communication privileges. However, “merely claiming privilege” and not providing documentation is not an acceptable form of compliance. Indeed, according to the OFCCP, the documents showing that the contractors have complied with their regulatory obligations are not all privileged in themselves. For example, the underlying facts explaining what a contractor did to comply with 41 CFR 60-2.17(b)(3) are not covered by solicitor-client privilege. However, OFCCP recognizes that a contractor’s full analysis may contain inside information. In such a scenario, the revised directive provides acceptable alternative methods to demonstrate compliance.

Where a Contractor’s Compensation Analysis Contains Preferred Content, Revised Guidance Provides Alternatives for Establishing Compliance

OFCCP compliance discourages an all-or-nothing approach to documentation production. Instead, it provides alternatives for establishing compliance under 41 CFR 60-2.17(b)(3), including:

  1. produce a redacted version of its compensation analysis;
  2. conduct a separate analysis during the relevant period of the affirmative action plan that does not involve privilege issues; Where
  3. Generate a detailed affidavit that sets out required compliance but does not contain privileged material.

The OFCCP also identifies the following “non-inside” information that contractors are always expected to produce, including:

  1. when the compensation analysis was completed;
  2. the number of employees included in the compensation analysis and the number and categories of employees excluded from the compensation analysis;
  3. what forms of compensation were analyzed and, if so, how the different forms of compensation were separated or combined for the analysis;
  4. that compensation was analyzed by gender, race and ethnicity; and
  5. the method of analysis used by the contractor.

While this guidance addresses concerns about legal privileges, the OFCCP still has full control over the review process and the determination of what constitutes sufficient compliance. Questions remain as to whether the implementation of this revised guidance will resolve the tension between OFCCP documentation requirements and the assertion of any legal privilege.

OFCCP Further Clarifies Document Required to Demonstrate Good Faith Efforts to Address Issues Identified in Contractor Compensation Analyzes

Compensation analyzes can reveal “problem areas (including pay disparities based on gender, race or ethnicity) that require the entrepreneur to develop and execute a plan to correct them. To assess the developed program and ensure that good faith efforts are being made to eliminate identified wage disparities, the OFCCP will require documentation of compliance, including:

  1. the nature and extent of any wage disparity found, including the job categories for which disparities were found, the degree of the disparities and the groups adversely affected;
  2. whether the entrepreneur has investigated the reasons for the observed pay gaps;
  3. that the Contractor has instituted programs designed to correct any problems identified;
  4. the nature and scope of these programs, including the work for which the programs apply and any changes made by the contractor to the remuneration system; and
  5. how the entrepreneur intends to measure the impact of these programs on the employment opportunities and obstacles identified.

Such documentation may inherently contain inside information. As such, contractors must carefully evaluate and determine an acceptable way to comply with regulations without waiving any lien rights.

Conclusion

The revised OFCCP guidance makes it clear that regulatory compliance cannot be avoided by simply asserting an attorney-client communication or work product privilege and not producing any documents. While acknowledging that federal contractors have the right to protect their privileged information, the OFCCP believes that many documents in a pay equity audit are inherently non-privileged and that it should ultimately determine what is considered as sufficient non-inside information to demonstrate the contractor’s regulatory compliance.

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