Thursday, March 17, 2022
OFCCP to Require Contractor Pay Equity Analysis as Part of Audit Process
We recently wrote about the Office of Federal Contract Compliance Programs' (“OFCCP”) upcoming requirement for contractors to certify their affirmative action program ("AAP") compliance starting March 31, 2022. In forging ahead with its oversight function, on March 15, 2022, the OFCCP issued Directive 2022-01, Pay Equity Audits (the “Directive”), which requires contractors to produce internal pay equity analyses as part of their audit responses. This is the first OFCCP directive under the Biden Administration and it adds yet another significant element to contractor AAP compliance efforts.
Federal supply and service contractors with 50 or more employees and that have a contract valued at $50,000+ are subject to the requirements under 41 C.F.R. Part 60-2 (Affirmative Action Programs). The regulation provides, among other things, that "the contractor must perform in-depth analyses of its total employment process to determine whether and where impediments to equal employment opportunity exist" and that the contractor must evaluate their "[c]ompensation system(s) to determine whether there are gender-, race-, or ethnicity-based disparities." 
That compensation analysis, described by OFCCP as the “pay equity audit,” is an important component of a contractor’s AAP. That is, by proactively conducting pay equity audits, contractors can determine whether any pay inequities exist within their organization and develop remediation programs to address those issues. And, while federal contractors subject to AAP compliance obligations have always been required to annually perform a review of pay equity, the AAP regulations did not go into detail about the format or content of the required analysis. Many contractors interpreted the requirement as one mandating a review of their compensation systems to determine if any pay inequities existed. The Directive adds teeth to the requirement not only by requiring pay equity documentation to be furnished during an audit but also by providing additional context into what OFCCP might be looking for with respect to a contractor’s pay equity analysis. 
To begin, the Directive makes clear that OFCCP has authority to “access and review” the documents, stating that “OFCCP will request that the contractor provide a complete copy of the pay equity audit(s) conducted pursuant to 2.17(b)(3).” Next, as part of the contractor’s pay equity analysis, the Directive suggests that OFCCP specifically will be looking for “all pay groupings that were evaluated, any variables used, and the results of the analyses, including any disparities found.” Further, the Directive also states that OFCCP may also request additional “information relating to the frequency of pay equity audits, the communication to management, and how the results were used to rectify disparities based on gender, race and/or ethnicity.”  As for timing, the Directive provides that OFCCP may request pay data and other documentation covering a period beginning two years before the date the contractor receives a Scheduling Letter.
Interestingly, in anticipating privilege defenses, the Directive also explains that "OFCCP recognizes that federal contractors often retain counsel to assist with the preparation of the pay equity audit and compliance records required by OFCCP’s regulations" and that "federal contractors must maintain and make available to OFCCP documentation of their compliance with OFCCP regulations." The Directive then states that, despite the common practice of relying on counsel from attorneys, contractors will not be permitted to withhold documents related to pay equity by invoking attorney-client privilege or the attorney work-product doctrine.
Consistent with its view that documents must be submitted regardless of any legal protections that may be attached to them, OFCCP provided a comprehensive legal analysis of the attorney-client privilege and work product doctrine to bolster its position. Ultimately, OFCCP concluded that section with: “[f]ailure to provide the required pay equity audit will be considered by OFCCP as an admission of noncompliance with these regulatory requirements.” That being said, so long as the contractor complies with the pay equity requirements under 41 C.F.R. § 60-2.17(b)(3), OFCCP also maintains that it would not seek additional privileged analyses where the contractor demonstrates that it also conducted a properly privileged pay equity process with an attorney.
Now that OFCCP will begin requiring contractors to furnish fulsome pay equity analyses as part of an OFCCP desk audit, contractors should carefully review the Directive to fully understand the scope and substance of what OFCCP is expecting as part of a contractor’s pay equity analysis. And, while OFCCP discussed at length its legal rationale regarding why the attorney-client privilege and work product doctrine cannot be invoked to cabin or otherwise shield a contractor’s document production, there still may be some value in engaging attorneys to perform the pay equity analysis. That is, while the pay equity summary likely must be provided to OFCCP during a desk audit, the contractor’s raw data, preliminary findings, or draft results and conclusions created by a contractor’s attorney for the purpose of providing legal advice might still be subject to privilege protections.
 The Directive provides that, during a desk audit, OFCCP may request additional information, including a contractor's pay equity audit, if the following types of issues are present:
- pay disparities or other evidence of potential pay discrimination among similarly situated employees based on race, ethnicity, and/or gender;
- employee complaints of pay discrimination or other anecdotal evidence of discrimination;
- inconsistencies in how the contractor is applying its pay policies; and/or
- statistical analyses or other evidence that a group of workers is disproportionately concentrated in lower paying positions or pay levels within a position based on a protected characteristic.
 The Directive also provides: "For compensation regression or statistical analysis results, OFCCP may request the model statistics (such as b-coefficients, significance tests, R-squared, adjusted R-squared, F-tests, etc.) for all variables or comparisons in the model."
Please reach out to a member of Maynard Cooper's Government Solutions Group if you have any questions or need assistance.