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March 2013



OFCCP's Great Compensation Discrimination Publicity Stunt of 2013: A Change without a Difference


Amid great press fanfare, OFCCP reported February 26, 2013 via News Release and personal phone calls that it had released, effective February 28, 2013, the shackles the agency felt the Bush Administration had placed on the agency in 2006 and which had prevented OFCCP for the last 6 years from effectively prosecuting compensation discrimination:

"Today, we are lifting arbitrary barriers that have prevented our investigators from finding and combating illegal pay discrimination, said OFCCP Director Patricia A. Shiu, a member of the President's National Equal Pay Task Force", the Department of Labor's News Release intoned.

"Prior to this action, OFCCP was constrained by a methodology adopted in 2006 that made it harder for the agency to exercise its full legal authority because it required use of the same narrow formula to review all contractor pay practices, regardless of the industry, types of jobs, issues presented or available data", the News Release further asserted.

"The new approach described in the notice (of final rescission) will enable OFCCP investigators to better examine practices and available evidence to uncover discrimination and evaluate contractor compliance with Executive Order 11246", the News Release concluded.

I was stunned by two things in the wake of OFCCP's announcement.
  1. He did it!: That OFCCP would blame the Bush Administration for the agency's current failure to find widespread compensation discrimination. There are many reasons to which I can (and have) attributed OFCCP's failure to find the "widespread" compensation discrimination OFCCP has claimed, without foundation for the past 4 years, is rampant in America. While the Bush Administration was guilty of many acts of omission and commission, what the Bush OFCCP did in 2006 as to compensation discrimination is not one of the reasons the Obama Administration has been unsuccessful in finding widespread compensation discrimination (systemic or individual); and

  2. The Pied Pipers: That the competition for OFCCP business is as keen as it is, as measured by the many vendors and large private law firms which immediately announced webinars on the topic of OFCCP's announcement with blaring "Chicken Little" headlines and warnings that the sky was falling and that federal contractors should head for the bomb shelters and take cover because…because why?…because OFCCP was announcing its intent to investigate compensation discrimination, to use Title VII standards to do so and was going to use standard discrimination agency investigative techniques long in play at OFCCP and the federal civil rights agencies? Huh? Really? What was all that vendor hullabaloo about?

    Boy, a lot of vendors swallowed OFCCP's bait…hook, line and sinker and magnified the OFCCP's trumpet blast! The first webinar announcement I received came from a vendor only hours, in fact, after I received Pat Shiu's gracious personal phone call to alert me to OFCCP's as of yet unpublished News Release and coming February 28, 2013 Federal Register Notice rescinding two 2006 OFCCP compensation notices (described below). But, the hullabaloo did not stop there. Within 48 hours, my e-mail in-box was daily collecting more webinar announcements I received either directly, or which clients and friends around the country forwarded to me, from vendor and law firm mailing lists to which they subscribed. And, I just received yet another today (#20+, I believe) from an eminent statistician whose regression analysis the U.S. Supreme Court approved 30 years ago. His announcement promised that many changes were coming from OFCCP because of its Final Rescission Notice. One would have thought from the vendor reaction that OFCCP's announcement was the single most important thing OFCCP had announced or done in this Administration.

    Meanwhile, my partners and I told those who asked us to put on webinars that OFCCP's announcement was not sufficiently newsworthy to announce a special webinar. There was nothing new: "same old, same old." One prospective vendor asked how that could be "since everyone else is scheduling webinars and seminars." I politely explained that OFCCP's announcement was simply not that newsworthy while fighting back the urge to repeat my pioneer Mother's refrain, repeatedly drilled into me as a child as she struggled to teach me to think for myself: "Just because 9 other people jump off a cliff, doesn't mean you have to be the 10th one."
I write about OFCCP's compensation announcement today, about a month after OFCCP's announcement, to be tidy and catalogue all OFCCP developments which move the Richter scale even a little, because people have asked me to write about the announcement and more importantly, to quell the riot of vendor magnification of OFCCP's simple "cover-its-butt" announcement.
  1. What Exactly Did OFCCP Do?

    OFCCP did five primary things:

    1. Issued its "Free at Last" News Release dated February 28, 2013 announcing that it had taken the below next referenced three actions:

    2. Issued a Notice ("Rescission Notice") 78 Federal Register 40, 13508-13520, February 28, 2013 rescinding OFCCP's June 16, 2006 Federal Register Notice (71 Federal Register 116, pp. 35124-35121, titled: "Interpreting Nondiscrimination Requirements of Executive Order 11246 with respect to Systemic Compensation Discrimination" ("Systemic Compensation Standards") Emphasis added; and

    3. OFCCP's February 28, 2013 Rescission Notice also rescinded OFCCP's June 16, 2006 Federal Register Notice (titled: "Voluntary Guidelines for Self- Evaluation of Compensation Practices for Compliance with Executive Order 11246" ("The Voluntary Guidelines");

    4. Issued a new OFCCP Directive #307 dated February 28, 2013 titled "Procedures for Reviewing Contractor Compensation Systems and Practices"; and

    5. Proclaimed the following;
      1. OFCCP will investigate compensation discrimination among federal contractors;
      2. OFCCP will use Title VII standards when undertaking compensation investigations and prosecutions of federal contractors;
      3. OFCCP will use all available investigation techniques including cohort analyses of individual compensation discrimination cases (comparing "Harry's pay", for example, to "Sally's pay") and regression analyses in class investigations and prosecutions.

  2. What Exactly is OFCCP Proposing to do Going Forward as to Compensation Investigations and How does that Allegedly "New" Something Compare to What the Bush, Clinton, Bush and Obama (term 1) Administrations did as to Compensation Investigations?

    This is a true case of "Back to The Future". Nothing has substantively changed, as you will see. OFCCP has investigated individual compensation discrimination for over a quarter century, systemic discrimination since 2006 and has reviewed and second-guessed the compensation of every employee in every audit since June 4, 2010.

OFCCP Will Investigate Compensation Discrimination

OLD NEW
In 1988, OFCCP revised its Federal Contract Compliance Manual (FCCM) to render guidance for the first time on compensation investigations, but only when pay discrepancies leaped out at OFCCP investigators during the extensive Desk Audits the agency then conducted. The FCCM, nevertheless, thus directed 25 years ago routine application of what became known as "cohort analyses".

2P COMPENSATION ANALYSES*


  • 2P00 GENERAL
    While reviewing the workforce analysis for potentially discriminatory placement patterns, the EOS should be especially alert to potential disparities between the wages or salaries shown in the underrepresented areas as compared to those in areas of concentration. For example, the same or similar job titles may appear in both areas, but show different wage rates or salary ranges, with the higher wages/salaries shown in those areas where minorities, members of a particular minority group or women are under-represented.

    2P01 WAGE AND SALARY DATA
    As noted earlier in the discussion regarding the reasonableness of a workforce analysis, coded salary data are acceptable for desk audit purposes. However, the workforce analysis (wage coded or not) must show titles in wage rate order within each department or similar organizational unit and the coding must be consistent across departments/units. Therefore, when a workforce analysis contains alpha or numeric codes for salary designations, a salary analysis may still be conducted by assigning numeric equivalents to the codes (1 to the lowest code, 2 to the second lowest, etc.) and averages computed. Where potential problems are identified, the areas should be flagged for further investigation onsite. Actual salary information and/or the keys to the codes for flagged areas should be obtained from the contractor at that time.

    2P02 IDENTIFICATION OF JOB TITLES FOR COMPARISON
    During the desk audit the EOS should also identify specific job titles which are held by both minorities (or members of a particular (sic) minority group) and non-minorities, or both women and men, for onsite comparison of actual salaries.

    2P03 METHODS USED TO DETERMINE PAY
    The EOS should also plan to review onsite how starting pay levels (wage or salary) are established, and how raises (wage or salary) are determined.
*OFCCP (1988) FCCM at Chapter 2.
"This action (to rescind the two Bush Administration 2006 Compensation Notices)*** is intended to protect workers and strengthen OFCCP's ability to identify and remedy different forms of pay discrimination": Pat Shiu quoted in DOL News Release 02-26-13.

"Rescinding these prior guidance documents will improve OFCCP's ability to enforce the Executive Order's ban on pay discrimination." OFCCP Federal Register Final Rescission Notice 2-28-13, p. 13508, column 1.
In 1991, Cari Dominguez, in the George H. W. Bush Administration (#40), first launched routine compensation investigations as part and parcel of OFCCP's newly created "Glass-Ceiling audits". These audits emphasized individual discrimination analyses via cohort analyses. "OFCCP is issuing this Directive (#307) in support of its ongoing policy commitment to address pay discrimination by federal contractors and subcontractors. This Directive specifies the procedures OFCCP field investigators use for reviewing contractor compensation systems and practices." OFCCP Directive 307, 02-27-13 at p. 1.
By 1996, Shirley Wilshire, in the second Clinton (#41) term, made compensation audits a routine part of each and every OFCCP audit of Supply & Service Contractors and not just upon exception when OFCCP personnel noticed troubling discrepancies between similarly situated employees. "During compliance evaluations, OFCCP requests compensation data and analyzes contractors' compensation systems and practices to determine if discrimination exists and, if so, how to remedy it." OFCCP Directive 307, 02-27-13 at p. 2: POLICY.
In 2000, Shirley Wilshire amended OFCCP's "Itemized Listing" (attached to all OFCCP Supply & Service contractor audit Scheduling Letters) to add a new "Paragraph 11" requiring Contractors to deliver, off-site to OFCCP, generalized, annualized (but not employee-specific or "employee-level") compensation data.
By 2004, Charles James, in the first George W. Bush (# 42) term, first hired statisticians & labor economists in-house at OFCCP to analyze compensation data for systemic discrimination (and using statistical tools, for the first time, including regression analyses and many other statistical algorithms known to labor economists) while leaving individual and non-statistical cases of compensation discrimination to local OFCCP Compliance Officers to resolve in the normal course of audits using traditional investigative methods.
On June 16, 2006, Charles James, in the second Bush (#42) term, published the 2006 "Systemic Compensation Guidelines" (which Pat Shiu just rescinded). These Guidelines did not address individual cases of pay discrimination, but rather addressed only, as the title states: "Systemic Compensation".
On June 16, 2006, Charles James, published the "Voluntary Guidelines" (which Pat Shiu just rescinded).

OFCCP will apply Title VII Standards to Compensation Investigations

OLD NEW
On June 28, 1985, Secretary of Labor Ray Donovan, writing as the appellate Judge of last administrative resort within the U.S. Department of Labor, signed the decision in University of Texas v. OFCCP; Case No. CC-10 (OFCCP) holding that OFCCP must come to the same substantive result under Executive Order 11246 as the EEOC would come to under Title VII (meaning: Title VII standards apply under EO 11246 and not some legal standard(s) unique unto the Executive Order). "Now, OFCCP will be using its legal authority to hold contractors to the same legal standards – enshrined in Title VII, the landmark civil rights law – that courts and other federal agencies already apply to these businesses to prohibit job discrimination." OFCCP News Release 02-28-13; bottom.
In 1991, OFCCP Director Cari Dominguez orally announced OFCCP was applying Title VII standards in compensation investigations during Glass Ceiling audits (no seminars were announced since this was an entirely predictable conclusion). "It (this Directive 307) clarifies and improves OFCCP procedures in further support of the agency's efforts to align pay discrimination enforcement with longstanding principles under Title VII of the Civil Rights Act of 1964 (Title VII). OFCCP Directive 307, at p.1, para 4.
In 1996, OFCCP Director Shirley Wilshire announced many times from the podium that OFCCP was applying Title VII standards in all discrimination investigations as she turned the mix of OFCCP investigations heavily toward discrimination law investigations and away from Affirmative Action. "OFCCP enforces Executive Order 11246, including the ban on compensation discrimination, consistent with Title VII's flexible, fact-specific approach to proof." OFCCP Directive 307, 02-27-13 at p. 2: POLICY.
During his 7+ year administration, Charles James (in the Bush (Jr) Administration) repeatedly announced and wrote that OFCCP was following Title VII in discrimination investigations, including compensation prosecutions. "OFCCP enforces the Executive Order's nondiscrimination provisions, including the ban on compensation discrimination, consistent with Title VII." OFCCP Federal Register Final Rescission Notice 2-28-13, p. 13508, column 2.
In 2006, Charles James published the just rescinded "OFCCP Systemic Compensation Guidelines" which repeatedly invoke Title VII law and follow precedent from the EEOC Compliance Manual on compensation investigations:
  1. "OFCCP believes that *** was inconsistent with Title VII standards and that there are compelling reasons for ensuring that the nondiscrimination provisions of Executive Order 11246 are interpreted consistently with Title VII. First, this has been OFCCP's historical practice as well as the practice of the Department of Labor in rendering final agency decisions to cases arising under Executive Order 11246. See (case decisions cited) in note 29, below; see also OFCCP Federal Contract Compliance Manual, at Section 3K00C (1988). ("It is OFCCP's policy, in conducting analyses of potential discrimination under the Executive Order, to follow Title VII principles.") Second, OFCCP expects that the federal courts will look to Title VII interpretations when interpreting the nondiscrimination requirements of Executive Order 11246. ***Third, this policy (of adherence to Title VII policy and law) ensures uniformity and consistency with the principal congressional enactment on equal employment opportunity, and with EEOC enforcement standards." OFCCP relied expressly and extensively on the EEOC Compliance Manual chapter on compensation discrimination in developing the interpretive standards."
  2. "Applying title VII standards, and regression analyses, OFCCP pursued 2 compensation cases which "…were the first two compensation cases OFCCP has filed in twenty-five years, and both cases resulted in significant settlements, including a near-record $5.5 million settlement." 2006 OFCCP Systemic Compensation Guidelines, p. 35128, column 3.
"First, OFCCP will be applying Title VII principles as the basis for determining whether a contractor has violated the Executive Order's ban on pay discrimination, just as the agency does in assessing contractor compliance with respect to all other employment practices." OFCCP Federal Register Final Rescission Notice 2-28-13, p. 13509, column 2.
"The Notice explained that OFCCP historically has relied on interpretations of Title VII as a basis for interpreting the nondiscrimination requirements of Executive Order 11246, but that OFCCP had not issued any definitive interpretation of Executive Order 11246 with respect to systemic compensation discrimination." 2006 OFCCP Systemic Compensation Guidelines.
"In adopting the similarly situated standard, OFCCP relied on judicial and administrative interpretations of Title VII. 69 FR 67248–67249. OFCCP stressed that those interpretations were inconsistent with OFCCP's prior 'pay grade' method." 2006 OFCCP Systemic Compensation Guidelines. 69 FR 67248.
The 2006 OFCCP Compensation Systemic Compensation Guidelines noted that the Clinton Administration ''Update on Systemic Compensation Analysis'' reported that ''OFCCP has always applied Title VII principles to its methods of investigation.'' 2006 OFCCP Systemic Compensation Guidelines.

OFCCP Uses Cohort Analyses, Individual Disparate Treatment and Statistical "Systemic Compensation" Analyses, including Regression Analyses

OLD NEW
Weldon Rougeau, OFCCP Director during the Carter Administration, first deployed in 1978 "cohort analyses" in individual discrimination investigations. "When a contractor is scheduled for a compliance evaluation, OFCCP uses the Scheduling Letter to request data and information about the contractor's compensation system and practices. Upon receipt of the data, OFCCP conducts a desk audit. OFCCP may request and review additional compensation data, and conduct an onsite investigation as well as an offsite review of records and data, before making a final determination regarding compliance. During the desk audit and at subsequent stages of the compliance evaluation, the CO should communicate with the contractor, as appropriate, in order to ask clarifying questions about the materials submitted, interpret codes or categories used in the data, identify any missing or incomplete information, and request additional information as needed." OFCCP Directive 307, at p.3, PROCEDURES.
Then OFCCP Director Cari Dominguez directed the use in compensation investigations in 1991/1992 of "cohort analyses" in "individual disparate treatment" investigations. "A. Summary of OFCCP Compensation Investigation Procedures

Below are procedures that the CO follows in reviewing contractor compensation data and information, however it is important to note that the order in which these procedures occur may vary based on the facts and circumstances of each review. At any stage in the process, OFCCP may determine, based on the evidence, that it is appropriate to close the review or may determine that further review is warranted.

Generally, the CO:
  • Conducts preliminary analysis of Summary Data (if necessary or appropriate)
  • Conducts an analysis of Individual Employee-Level Data
  • Determines the approach from a range of Investigative and Analytical Tools
  • Considers all employment practices that may lead to Compensation Disparities
  • Develops Pay Analysis Groups
  • Investigates Systemic, Small Group and Individual Discrimination
  • Reviews and tests factors before accepting the Factors for Analysis
  • Conducts Onsite Investigation, Offsite Analysis, and Refinement of the Model."
OFCCP Directive 307, at p.4, PROCEDURES.
Between 1992 and 2000, then OFCCP Director Shirley Wilcher championed OFCCP's use of "cohort analyses" in individual disparate treatment investigations, especially in compensation investigations. "INTERPRETATION: This Directive does not create new legal rights or requirements or change current legal rights or requirements for contractors. Executive Order 11246, as amended, Section 503 of the Rehabilitation Act of 1973, as amended, the Vietnam Era Veterans' Readjustment Assistance Act of 1974, as amended, OFCCP's regulations at 41 CFR Chapter 60, and applicable case law are the official sources for contractors' compliance responsibilities. Nothing in this Directive is intended to change otherwise applicable laws, regulations or other guidance or to restrict or limit OFCCP's ability to perform compliance reviews, request data, or pursue enforcement of any issue within its jurisdiction." OFCCP Directive 307, at p. 11, INTERPRETATION.
In 2004, Charles James ushered in the modern era of systemic compensation case investigations by hiring labor economists and statisticians into 3 OFCCP Regions and in the Washington D.C. National Office. From the Final Rescission Notice:

"OFCCP's approach to investigating and enforcing non-discrimination in compensation follows Title VII principles. The approach involves factual investigation, and data and legal analyses, which allow OFCCP to identify and remedy all forms of compensation discrimination. OFCCP will tailor the compensation investigation and analytical procedures to the facts of the case as appropriate under Title VII. This case-by-case approach to compensation discrimination includes the use of a range of investigative and analytical tools. Statistical analyses and non-statistical analyses, such as the use of comparators or cohort analysis, will be applied as feasible and appropriate given available data and evidence, and the factual issues being studied. OFCCP will seek anecdotal evidence, but will investigate and remedy instances of compensation discrimination regardless of whether individual workers have reported being underpaid.

This approach is designed to eliminate unnecessary barriers to OFCCP's ability to protect workers from discrimination. It ensures OFCCP fully takes into account any possible explanations or responses from contractors, and that OFCCP conducts an analysis tailored to a contractor's specific compensation systems and practices.

B. Reviewing Contractor Pay Practices

In particular, OFCCP will consider five principles when reviewing contractor pay practices:
  1. Determine the most appropriate and effective approach from a range of investigative and analytical tools;
  2. Consider all employment practices that may lead to compensation discrimination;
  3. Develop appropriate pay analysis groups;
  4. Investigate large systemic, smaller unit and individual discrimination; and
  5. Review and test factors before including them in analysis. Each of these is explained in more detail below."
OFCCP Federal Register Final Rescission Notice 2-28-13, p. 13519, column 1.
On June 16, 2006, Charles James directed the use of regression analyses in OFCCP systemic compensation discrimination Investigations via the now rescinded "Systemic Compensation Standards".
On June 16, 2006, Charles James issued OFCCP's "Voluntary Guidelines" inviting and allowing federal contractors to voluntarily undertake regression analyses and turn those into OFCCP in lieu of responding to Paragraph 11 of OFCCP's Itemized Listing upon audit.

OBSERVATION: What's new is old.

QUESTION: Why did OFCCP go "Back To The Future" if it was not a publicity stunt to explain away the fact that OFCCP has now convincingly proved that there is no "widespread systemic compensation discrimination" in America—following over 12,000 "employee-level" audits of federal contractors over the last 4 years, involving over 10 million employee compensation records during which time OFCCP has collected approximately only $500,000 per year in voluntary settlements with federal contractors and has yet to prove a single instance of unlawful compensation discrimination? The more things change, the more they stay the same.

What's NEXT?: At the April National Employment Law Institute Annual Mid-Year Webinar, David Copus and I will discuss the scary part: the behind the scenes analyses OFCCP is newly undertaking in compensation audits not discussed in the Final Rescission Notice or Directive 307.

Thanks…John

THIS COLUMN IS MEANT TO ASSIST IN A GENERAL UNDERSTANDING OF THE CURRENT LAW AND PRACTICE RELATING TO OFCCP. IT IS NOT TO BE REGARDED AS LEGAL ADVICE. COMPANIES OR INDIVIDUALS WITH PARTICULAR QUESTIONS SHOULD SEEK ADVICE OF COUNSEL.