The Office of Federal Contract Compliance Programs ("OFCCP") recently announced that it has revised its practices with respect to analyzing whether compensation discrimination has occurred. As background, the OFCCP enforces Executive Order 11246, which requires federal government contractors and subcontractors to provide equal employment opportunities through affirmative action and to prohibit discrimination based on race, color, national original, religion and sex. Contractors and subcontractors are also prohibited from engaging in compensation discrimination. If your company does business with the federal government, you may be subject to Executive Order 11246. In general, all employers holding federal contracts and federally assisted construction contracts and subcontracts exceeding $10,000 must comply with Executive Order 11246.

With regard to how the OFCCP previously determined whether a contractor was engaged in compensation discrimination, the OFCCP previously relied on documents entitled "Interpreting Nondiscrimination Requirements of Executive Order 11246 with Respect to Systemic Compensation Discrimination" ("Standards") and the "Voluntary Guidelines for Self-Evaluation of Compensation Practices for Compliance with Executive Order 11246 with Respect to Systemic Compensation Discrimination" ("Voluntary Guidelines"). The Standards and Voluntary Guidelines both utilized a narrow analysis of pay discrimination issues relying upon limited evidence and a highly specified analytic framework. Both documents were criticized as being "one size fits all" documents that failed to allow OFCCP investigators to truly investigate and analyze whether discriminatory pay practices were in place.

In future investigations, the OFCCP compliance officer will now utilize a case-by-case approach that is not limited to a single analytical method. Rather, investigations will be specifically designed to analyze an individual contractor’s overall compensation systems and practices. In conducting investigations, the OFCCP will now analyze both quantitative factors (e.g., the size of the overall average pay difference based on race and gender, the number of employees affected by race and gender, etc.) and qualitative factors (e.g., compliance history, anecdotal evidence, etc.).

In making compliance determinations, the OFCCP will consider factors that the contractor considered in making compensation decisions. Specifically, the OFCCP will consider (1) whether the data regarding the factors is complete and accurate; (2) whether the factor is relevant to compensation terms of the contractor’s policy and how it was applied; and (3) whether the factor was consistently applied and whether the factor prevents adverse impact issues. After the final compliance evaluation is completed, the OFCCP will determine whether the contractor engaged in compensation discrimination. Penalties imposed by the OFCCP can include monetary penalties and the potential risk of debarment from working within the federal government.

Although this revised enforcement practice should benefit federal contractors by eliminating some of the rigidity of prior discrimination analysis, employers subject to Executive Order 11246 should still carefully and periodically analyze their compensation systems to ensure there are no direct and indirect discriminatory effects of the same.

For questions or further information about the issues raised in this NewsFlash, please contact one of the attorneys in Koley Jessen’s Employment, Labor and Benefits Practice Group.

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