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Office of Federal Contract Compliance Program (“OFCCP”) Issues Directive Regarding Pay Equity

The Office of Federal Contract Compliance Program(“OFCCP”) issued a directive on August 18, 2022 regarding the OFCCP’s enforcement and compliance policy and procedures for existing pay equity and compensation analysis requirements for federal contractors. The goal of the directive is to provide guidance on how OFCCP will evaluate federal contractors’ compliance with compensation analysis obligations and clarify OFCCP’s authority to access and review documentation of compensation analyses conducted pursuant to 41 CFR 60-2.17(b)(3). A directive restating already established procedures may signal the OFCCP’s intent to increase review of contractor’s wage and compensation analysis requirements under the federal regulations. Federal contractors should review their OFCCP pay equity and compensation analysis process and affirmative action plans to ensure a smooth audit.

OFCCP Analysis Requirements Overview

The regulations at 41 CFR 60-2.10(c) require contractors to “maintain and make available to the OFCCP documentation of their compliance with” 41 CFR 60-2.11 through 60-2.17, which include the obligations to conduct a compensation analysis (41 CFR 60-2.17(b)(3)) and to implement action-oriented programs to address any problem areas identified pursuant to that analysis (41 CFR 60-2.17(c)). This documentation allows the OFCCP to accomplish its work more efficiently and to assess, among other things, whether a contractor has performed a sufficient evaluation and whether it “has made good faith efforts to remove identified barriers, expand employment opportunities, and produce measurable results.” 41 CFR 60-2.17(c).

As part of federal contractor’s affirmative action obligations, supply and service contractors are required to perform an in-depth analysis of their total employment processes, including their compensation systems, to determine whether and where impediments to equal employment opportunity exist.  When conducting that analysis, it must include, at minimum, an evaluation of your compensation systems to determine whether there are gender-, race-, or ethnicity-based disparities, as provided in 41 CFR 60-2.17(b)(3).By proactively conducting this compensation analysis, contractors can determine whether impediments to equal employment opportunity in pay exist and “develop and execute action-oriented programs designed to correct any problem areas,” as provided in 41 CFR 60-2.17(c).

This proactive analysis and action-oriented program development is critical to a smooth audit. The OFCCP will require documentation that demonstrates, at a minimum:

• the nature and extent of any pay disparities found, including the categories of jobs for which disparities were found, the degree of the disparities, and the groups adversely affected;

• whether the contractor investigated the reasons for any pay disparities found;

• that the contractor has instituted action-oriented programs designed to correct any problem areas identified;

• the nature and scope of these programs, including the job(s) for which the programs apply and any changes (e.g., pay increases, amendments to compensation policies and procedures) the contractor made to the compensation system; and

• how the contractor intends to measure the impact of these programs on employment opportunities and identified barriers.

Your analysis and action items must meet the Office’s minimum standards to pass an audit. Your compensation process and internal audit should address each of the minimum requirements to ensure a streamlined and efficient audit.

The OFCCP is entitled to review your analysis documentation. Because as a contractor you are aware of this requirement, your must prepare your documentation in compliance with 41 CFR 60-2.17(b)(3), and must make it available to the OFCCP (see 41 CFR 60-2.10(c)). This documentation is not “confidential,” and the privilege does not attach to it. See Fisher v. United States, 425 U.S. 391, 403 (1976) (The attorney-client privilege attaches to confidential communications made between an attorney and client for the purpose of obtaining legal advice); United States v. (Under Seal), 748 F.2d 871, 874 (4th Cir. 1984) (A communication is not confidential if it is intended to be disclosed to a third party). If your analysis and pay documentation contains attorney-client privileged information there are some steps you will be required to take to supply to necessary information to the OFCCP. First, a contractor may make available a redacted version of its compensation analysis, provided that the non-redacted portions include the required facts described below. Alternatively, a contractor may conduct a separate analysis during the relevant AAP period that does not implicate privilege concerns and provide that analysis to OFCCP in full. Finally, a contractor may generate a detailed affidavit that sets forth the required facts described below but does not contain privileged material.

If you are a federal contractor, or looking to become one, our office can help ensure your construction firm meets the OFCCP’s requirements. Call us today to discuss your current compensation processes and to discuss how to become complaint.

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