October 21, 2021

Volume XI, Number 294

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After Record Settlements in 2020, Contractors Should Expect More Pay Equity Enforcement Under Biden

Come Jan. 20, former Vice President Joe Biden will be inaugurated as the U.S.' 46th president. In the run-up to the election, the Biden campaign focused on pay equity issues and closing the wage gap as part of its platform to appeal to female voters.

For federal government contractors, this focus is likely to translate to renewed enforcement efforts on pay discrimination issues from the Office of Federal Contract Compliance Programs. Contractors should expect this increase in enforcement activity notwithstanding the fact that the Trump-era OFCCP extracted a record amount of discrimination settlements from federal government contractors in 2020. Although the OFCCP focuses on countering alleged discrimination by federal contractors in a variety of personnel transactions — such as hiring, promotions, pay and terminations — its compensation audits have been a source of particular frustration for contractors. The Obama-era OFCCP, which is the best predictor for the expected behavior of the upcoming Biden OFCCP, aggressively pursued pay discrimination enforcement against federal contractors.

Contractors, and the attorneys who represent them, frequently complained that the agency operated in a nontransparent and unpredictable manner, issuing findings of sex and race-based compensation discrimination based on purely statistical analyses that contractors could not replicate and that did not consider important features of the contractor's compensation frameworks.

This approach to compensation audits recently received a stunning rebuke from Administrative Law Judge Richard M. Clark, in the form of a 278-page order squarely rejecting an OFCCP enforcement action against Oracle America Inc., which alleged systemic pay discrimination against employees at its headquarters.

The Oracle enforcement action was filed in the last days of the Obama administration and, in seeking to recover $400 million in wages allegedly underpaid to female, Asian and Black employees, was the OFCCP's largest-ever action.

The administrative law judge's ruling against the OFCCP reads as a laundry list of common contractor complaints, noting the OFCCP's failure to identify an actual discriminatory practice causing the alleged pay disparity, lack of relevant anecdotal — i.e., nonstatistical — evidence of discrimination, disregard of important elements of Oracle's compensation framework and aggregation of dissimilar groups of employees for statistical comparison without addressing major nondiscriminatory factors that led to differences in their pay.

As contractors frequently complain, the OFCCP focused on a statistical pay disparity without showing any credible evidence of pay discrimination, i.e., the illegal action or motive causing the disparity.

The OFCCP's Oracle defeat followed a 2019 ruling against the agency in OFCCP v. Analogic Corp., rejecting its Obama-era enforcement action against Analogic that was based on similar deficiencies in the OFCCP's evidence and statistical analyses.

On Dec. 9, 2020, OFCCP Director Craig Leen announced that the agency would not appeal the Oracle decision and promised that the "OFCCP will learn from the decision in an effort to continue improving the efficacy of its critically important compensation program." Leen devoted much of his tenure toward attempting to rein in some of the excesses in the OFCCP's compensation practices, which were on display in Oracle through a series of subregulatory directives and, ultimately, new regulations that became effective on Dec. 10, 2020.

Among other things, the new OFCCP compensation regulations require the agency to control for major, measurable criteria used by the contractor in determining compensation, produce nonstatistical evidence of discrimination supporting alleged violations in addition to identifying statistical compensation disparities, and identify specific contractor practices that allegedly cause statistical disparities in disparate impact cases.

The regulations also require the agency to provide contractors with a predetermination notice prior to issuing a notice of violation and pursuing enforcement, and to disclose with the predetermination notice the agency's qualitative and quantitative evidence, as well as its statistical model and the reason for excluding any factors proposed by the contractor from its statistical analysis.

The predetermination notice provides the contractor with an opportunity to address and refute the agency's claims, or seek resolution, prior to the commencement of formal enforcement proceedings.

Despite Leen's statement that the OFCCP has learned from its Oracle defeat, and similar comments about the prior Analogic case, it is not clear whether this sentiment is widely held among the agency's staff.

At least one key career employee in the Department of Labor's Office of the Solicitor, which litigated Oracle on behalf of the OFCCP, has filed a whistleblower complaint alleging that the OFCCP's decision to forego an appeal of the administrative law judge's decision in Oracle was based on unlawful political influence and interference.

Moreover, as the old Washington, D.C., adage goes, "personnel is policy." Unlike other Department of Labor posts like the administrator of the Wage and Hour Division, the OFCCP's director does not require U.S. Senate approval. Under Biden, a progressive OFCCP director could immediately begin undoing Leen's subregulatory directives.

Although it would take significantly longer for a new director to amend or eliminate the recent compensation audit regulations through a new round of notice and comment rulemaking, the regulations would also be vulnerable to change under a new administration.

Even if Leen's regulations are not formally amended by the Biden OFCCP, they may not prove to be significant guardrails tempering the aggressiveness of the new administration's enforcement activity against federal contractors. The regulations are somewhat limited in scope, and do not address several agency practices that limit contractors' ability to counter the agency's pay discrimination analyses.

For example, the regulation's listing of contractor compensation factors for which the agency should control in its statistical analyses does not include market compensation studies, which are often a significant factor used by private-sector employers in setting salary ranges for positions. The OFCCP frequently compares employees across positions while resisting controlling for the market compensation of the respective positions, claiming that market compensation is a tainted variable.

Although the regulation's listing of factors is nonexclusive, the inclusion of market compensation would have bolstered contractors' legitimate reliance on market studies against the OFCCP's skepticism. The regulation also does not address the formation of pay analysis groups that aggregate groups of employees for statistical analysis.

Contractors commonly argue that such groups result in pay comparisons among employees who would not be deemed similarly situated or perform equal work under Title VII and other federal nondiscrimination laws. Because these issues are not addressed in the regulation, the Biden OFCCP could use such methods to evade the spirit of the regulations even without repealing them.

The new compensation regulations also contain ill-defined exceptions that could be broadly construed by a new administration.

For example, the requirement that the OFCCP confirm its findings of statistical disparities with nonstatistical, qualitative evidence of discrimination is inapplicable if the statistical disparity is extraordinarily compelling. This standard could be watered down to attempt to justify cases based on purely statistical disparities without relevant non-statistical evidence of discrimination.

Another example is the suspension of the requirement that the agency identify a specific discriminatory policy or practice in disparate impact claims where the OFCCP demonstrates that the different elements of the contractor's selection procedures cannot be separated for analysis.

One tempering factor on the OFCCP's ability to aggressively interpret these exceptions, however, is the existence of the Oracle and Analogic decisions, which provide powerful arguments for contractors seeking to oppose defective statistical analyses and weakly supported pay discrimination claims. In addition, the OFCCP's well-publicized losses in those cases could lead more contractors to dig in their heels and resist the agency's discrimination findings.

Contractors could also face more aggressive OFCCP action under a Biden administration due to the new administration's expected revival of the requirement for federal contractors — and others — to submit employee pay data as part of their annual EEO-1 submission.

The Obama administration first implemented the requirement that contractors and other employers submit compensation data with the EEO-1 filing, and despite the Trump administration's attempt to discontinue the requirement, the U.S. District Court for the District of Columbia ordered the collection to go forward for the calendar years 2017 and 2018. The Trump-era OFCCP disclaimed any intention to review or rely upon EEO-1 pay data, claiming that it would not be useful to the OFCCP's mission.

The Biden administration is expected to reinstate the requirement, and the Biden OFCCP could decide to review contractors' EEO-1 submissions to locate potential pay discrimination issues. This would present another avenue for contractors to face OFCCP scrutiny, in addition to the agency's annual compliance evaluations, and potentially give rise to increased Fourth Amendment litigation as contractors resist any OFCCP reviews that may be initiated based on EEO-1 submissions.

Contractors should prepare for four years of increased OFCCP enforcement in the area of compensation. Even during the Trump administration, the agency prioritized enforcement efforts in the financial services, professional services and technology industries, and those dynamic and growing sectors of the economy will likely continue to face heightened scrutiny.

Federal contractors should proactively prepare for an uptick in OFCCP activity by regularly conducting privileged pay equity audits to identify and resolve gender and race based compensation disparities. Doing so will not only assist contractors in escaping OFCCP enforcement but will also provide a valuable boost to the contractor's diversity, equity and inclusion efforts.

© Polsinelli PC, Polsinelli LLP in CaliforniaNational Law Review, Volume XI, Number 5
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About this Author

Jack Blum Polsinelli Employment Attorney
Associate

Jack Blum is an associate in the firm’s Employment Disputes, Litigation, and Arbitration practice, where he represents employers in connection with a wide range of employment law issues. Jack has extensive experience in defending employers against claims by their employees in federal and state courts, as well as before government agencies like the EEOC, Department of Labor, and state human rights commissions. Jack aggressively defends his client’s personnel practices and decisions while not losing sight of their underlying business goals and objectives. Jack represents clients in all...

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