OFCCP’s Second Opinion Letter: Contractors Can Seek Advance Approval of PAGs, But…
On July 22, 2019, OFCCP issued its second published opinion letter addressing whether “contractors can work with OFCCP to develop a PAG [Pay Analysis Grouping] structure that OFCCP would accept as valid for use in future OFCCP audits.” PAGs are groupings of what should be similarly-situated employees or positions used by OFCCP for compensation analysis purposes. OFCCP will compare employees within PAGs to determine whether there are statistical indicators of discrimination. For obvious reasons, the individuals included or excluded from a particular PAG can impact the outcome of a compensation analysis. In many cases, a contractor’s own PAGs will show no indicators of discrimination, but the same data when examined using OFCCP’s PAGs will lead to different results. As such, it appears the entity that submitted the inquiry sought a method to obtain advance notice of the PAG structure OFCCP would find acceptable so that it could analyze its compensation practices using the same approach and avoid an “audit surprise.”
In the letter, OFCCP responded to the inquiry stating that “contractors [have] the opportunity to submit their PAG structure for review and to receive feedback from OFCCP, which OFCCP would take into account in future compliance evaluations.” It does not say how or to whom such submissions should be made.
But, such a determination would be of little value to a contractor. The opinion letter makes clear that even if a contractor submits its PAG structure for review and receives the OFCCP’s blessing, OFCCP
is unable to conclusively agree that it will rely upon specific, predetermined PAGs in all future compliance evaluations as there may have been material changes to factors considered by OFCCP in its initial evaluation of the contractor’s PAGs. OFCCP must conduct its analyses based on the contractor’s pay systems, functions, and workforce organization as they exist or existed during the period under review, and thus if those have materially changed since OFCCP’s prior review, OFCCP will need to make a new determination as to whether the PAGs are appropriate.
In other words, where a contractor has submitted its PAGs to OFCCP for review and receives OFCCP’s approval of its PAGs, OFCCP will not be bound by its feedback in a subsequent compliance evaluation.
In light of this warning, it is unclear what benefit a contractor would receive from voluntarily submitting PAGs to OFCCP for its review. As such, perhaps the most useful aspect of the opinion letter are the statements it makes concerning Directive 2018-05 and its approach to pay analysis generally. For example, the statement that OFCCP should take into account “any compensation policy or practice that has a disparate impact on a protected group but is job-related and consistent with business necessity,” and that “Directive 2018-05 require[s] OFCCP to attempt to design its compensation analysis based on the contractor’s compensation hierarchy and job structure.” Of course, this letter must be read through the lens of Directive 2019-03 – which created OFCCP’s opinion letter initiative. Specifically, while opinion letters “provide guidance on the application of OFCCP regulations to fact-specific situations” they “do not establish any legally enforceable rights or obligations.”
We encourage our readers to stay informed of OFCCP’s opinion letters. We will continue to report on note-worthy opinion letters as they become available.