Compensation Practices of Financial Services Companies Likely to Be Targeted by OFCCP
With the release of President Obama’s budget for the DOL on February 9, 2016, the Office of Federal Contract Compliance Programs (“OFCCP") announced two top enforcement priorities for 2016. First, the OFCCP will continue to identify and address systemic pay discrimination in its efforts to reduce the gender and race-based pay gap. Second, the OFCCP will establish regional centers staffed with “highly skilled and specialized compliance officers” to conduct “large, complex compliance evaluations” in specific industries, including the financial services industry.
When President Obama signed the Lilly Ledbetter Fair Pay Act after taking office seven years ago, he made clear his commitment to equal pay for equal work. Since then, the OFCCP has taken steps to fulfill that commitment. With the release of the OFCCP’s 2017 budget, government contractors can count on larger, more complex and thorough compliance investigations specifically aimed at rooting out unlawful pay discrimination. Financial services companies are in an industry specifically targeted by the OFCCP and should expect more audits and greater scrutiny of their compensation practices. The OFCCP’s scrutiny of companies within its jurisdiction at a minimum will include requiring a company to produce compensation data on each U.S.-based employee located at the audited facility, identify factors used to determine employee compensation, and submit policies and documentation concerning the company’s compensation practices.
The OFCCP has jurisdiction pursuant Executive Order 11246 over any financial services company that (i) holds a single government contract or subcontract in excess of $10,000; (ii) holds government contracts or subcontracts that combined are in excess of $10,000 in any 12-month period; (iii) holds government bills of lading; (iv) is a depository of federal funds in any amount; or (v) is a financial institution that is an issuing and paying agent for U.S. savings bonds and notes. Those with contracts in excess of $50,000 are required to maintain written affirmative action programs. The thresholds are higher under the Rehabilitation Act of 1973 and the Vietnam Era Veterans’ Readjustment Assistance Act.
Often overlooked, financial institutions with federal share and deposit insurance, whether with the Federal Deposit Insurance Corporation (“FDIC”) or the National Credit Union Association (“NCUA”), are considered contractors subject to OFCCP jurisdiction. Although the FDIC and NCUA do not use government-appropriated funds, and are not subject to the Federal Acquisition Regulation, the OFCCP maintains that they are contracting government agencies for affirmative action purposes, and by definition, government contracts include contracts for nonpersonal services, including insurance services.
In another recent development, the OFCCP final rule implementing President Obama’s Executive Order 13665 (“Final Rule”) went into effect January 11, 2016. The Final Rule extends pay transparency protections to all employees and applicants. The Final Rule prohibits contractors subject to the Executive Order, when entering into a new or modified contract on or after that date, from discriminating against any employee or applicant for employment for inquiring about, discussing, or disclosing his or her compensation, or the compensation of another employee or applicant. Although the National Labor Relations Act provides similar protections, it does not extend the protections to supervisors, managers, agricultural workers, and employees of rail and air carriers. Under the Final Rule, however, those employees are protected. Contractors are required to notify employees and applicants of their rights by including the Pay Transparency Nondiscrimination Provision prepared by the OFCCP in their employee manual or handbook and either electronically posting the provision on contractor’s career web page or posting a copy in conspicuous places at their facilities.
Finally, on January 29, 2016, the U.S. Equal Employment Opportunity Commission (“EEOC”) proposed revisions to the Employer Information Report (“EEO-1 report”). As proposed, contractors and employers with 100 or more employees would have to submit pay data on their workforce when filing their EEO-1 report. In addition to disclosing the number of employees working in each EEO-1 job category by gender and race/ethnicity, contractors and employers would be required to provide pay data on each employee’s W-2 earnings, along with the total hours worked by the employee. The pay data and hours worked would be submitted in the aggregate showing the total number of employees, and the total number of hours of employees, by gender and race/ethnicity within each EEO-1 job category slotted into 12 pay bands. Each pay band provides a range of compensation received by employees and is used to distinguish different levels of compensation. For example, employees earning from $49,920 to $62,919 would fall within Pay Band 6, while employees earning $208,000 or more would fall within Pay Band 12.
The new EEO-1 report would allow the EEOC and OFCCP to use the employer pay data to “assess complaints of discrimination, focus investigations, and identify employers with existing pay disparities that might warrant further investigation.” Specifically, the pay bands would allow the EEOC and OFCCP to compute within-job-category variation, across-job-category variation, and overall variation, looking at W-2 pay distribution within an establishment, and comparing the establishment's data to aggregate industry data, which would support their ability to detect potential discrimination. While the proposed revisions are now subject to comments and possible changes, going forward, it is clear that the OFCCP, in partnership with the EEOC, will be stepping up its efforts during compliance reviews, specifically scrutinizing contractors’ compensation practices, in an attempt to root out pay discrimination and close the earnings gap.