On August 18, the Office of Federal Contract Compliance Programs (OFCCP) issued Directive 2022-01 Revision 1. This revision is in response to significant criticism from the contractor community and their representatives regarding OFCCP’s Directive 2022-01, Pay Equity Audits, issued on March 15, 2022. By way of background, Directive 2022-01 set out OFCCP’s expectations with respect to contractors’ compliance with the regulatory requirement in 41 CFR 60-2.17(b)(3) to perform an in-depth analysis of their total employment process, including their compensation program. The Directive also required contractors to produce the methodology and results of their “pay equity audits” if requested by OFCCP in the course of a compliance review.
The revised Directive includes a number of amendments including:
- OFCCP explicitly reaffirms that it will not require contractors to produce pay equity analyses and related communications protected under the attorney work product and attorney-client communication privileges. However, OFCCP also states that there are limits to these privileges.
Documentation that contractors have complied with their regulatory obligations is not inherently privileged. Specifically, facts regarding what a contractor did to comply with 41 CFR 60-2.17(b)(3) are not “communications covered by the attorney-client privilege.” (citations omitted)
- All references to “pay equity audits” have been removed and the required assessment is now referred to as a “compensation analysis.” This change appears to be in response to confusion among contractors as to whether OFCCP was requiring production of their proactive privileged pay equity analyses.
- OFCCP underscores that 41 CFR 60-2.17 authorizes the agency to review documentation of a contractor’s compensation analysis to confirm that it evaluated its pay system for race, ethnicity and gender-based disparities. It further notes that “the most useful form of documentation is a contractor’s full compensation analysis.” (emphasis added) Unfortunately, the Directive does not define a “full compensation analysis.”
- If a contractor believes that its full compensation analysis is protected from disclosure pursuant to the attorney-client and/or attorney work product privileges, it may provide other evidence that an analysis was conducted. OFCCP will accept a non-privileged analysis limited to the establishment or FAAP under review for the time period at issue in the audit. This is a practice FordHarrison attorneys have successfully used in a number of prior audits.
Alternatively, contractors may provide a redacted version of their compensation analysis or an affidavit that includes the following information:
- date when analysis was completed;
- number of employees included in the analysis;
- number and “categories” of employees excluded from the analysis;
- which elements of compensation were included in the analysis and which were excluded (e.g. base pay, bonus, etc.);
- whether elements of compensation were analyzed separately or at a total compensation level; and
- the method of analysis used (e.g. multiple regression, decomposition regression, meta-analytic tests of z-scores, compa-ratio regression analysis, rank-sums tests, career stall analysis, average pay ration, cohort analysis, etc.).
OFCCP expressly states that it does not view any of this information to be privileged.
- The Directive also recommends that contractors provide all evaluated pay groupings, an explanation of how employees were grouped for purposes of analysis, variables or controls considered, and the “model statistics” for race, ethnicity, and gender-based variables. OFCCP does note that it understands that this information may be privileged but underscores that production of this information would be helpful to bring an audit to a close.
- Where a contractor’s analysis identifies “problem areas”, OFCCP will require documentation of its compliance with 41 CFR 60-2.17(c), including
- the nature and extent of any pay disparities found;
- whether the contractor investigated the disparities;
- confirmation that the contractor implemented “action orientated programs” to address any problem areas, including the jobs these programs target, any pay increases that were provided, and/or any changes to the compensation system, policies or procedures; and
- a commitment that the contractor intends to measure the effectiveness of the action orientated programs.
- Contractors that fail to provide sufficient non-privileged documentation of their compliance with 2.17(b)(3) will be found not in compliance.
Directive 2022-01 Revised is a significant improvement from the original Directive. OFCCP expressly recognizes the legal privileges and provides alternatives for demonstrating compliance. However, OFCCP will be the arbitrator of what constitutes “sufficient non-privileged documentation.” Contractors who are currently on the scheduling list should contact counsel to discuss strategies for complying with 2.17(b)(3) and ensuring that legal privilege over proactive pay equity assessments is well documented.
If you have any questions regarding the issues addressed in this Alert, please contact the author, Nancy Holt, nholt@fordharrison.com, partner in our Washington, DC office. Of course, you can also contact the FordHarrison attorney with whom you usually work.