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NELI experts: OFCCP compensation enforcement erroneously focused, not transparent

October 17th, 2013  |  Cynthia L. Hackerott

Although the OFCCP’s focus on current pay, rather than on pay decisions does not comport with the relevant legal standard following the Supreme Court’s 2007 decision in Ledbetter v Goodyear Tire & Rubber Co (89 EPD ¶42,827), contractors should still analyze current pay in addition to decisions impacting pay, according to experts speaking at the National Employment Law Institute’s (NELI) Thirty-First Annual Affirmative Action Briefing in Chicago, Illinois. In addition to its erroneous focus on current pay, the OFCCP’s enforcement policy allows the agency to operate without any consistent standards, the experts said.

Ledbetter decision and statute. Attorney David A. Copus, recently retired from Ogletree Deakins in Morristown, New Jersey, explained that the Ledbetter decision contained the following two parts:

  1. Title VII claimants must challenge specific pay decisions; and
  2. The aggrieved employee must file a charge within 180/300 days of the allegedly discriminatory pay decision.

Congress only addressed the second part of the High Court’s decision in the Lilly Ledbetter Fair Pay Act of 2009, Copus noted, emphasizing that all the Act does is extend the charge filing period indefinitely when a Title VII claimant challenges a discrete pay decision. It does not however, change the requirement that Title VII claimants must identify and challenge discrete pay decisions. In other words, the Ledbetter Act nixed the second part of the Supreme Court’s decision, but didn’t do anything to change the first part.

The OFCCP concedes it is bound by Title VII when conducting compensation enforcement under Executive Order (EO) 11246. Thus, the Ledbetter decision applies with full force to the OFCCP, which means that the agency should be focusing on pay decisions, not current pay, Copus said. Ledbetter “crushed” the OFCCP’s compensation strategy, but the agency has “put its head in the sand” by ignoring that decision’s mandate to focus on pay decisions, according to Copus.

United Space Alliance ruling. At the beginning of a standard OFCCP compliance review, the agency conducts a preliminary analysis of the summary compensation data it receives from the contractor in response to Paragraph #11 of the “Itemized Listing” that accompanies the agency’s audit scheduling letter.  Based on this preliminary analysis, the OFCCP may ask the contractor for more information, including individual employee-level data.  The practice of making these supplemental data requests was upheld in a November 2011 ruling by Royce Lamberth, Chief Judge of the federal district court in D.C. With this decision, the “highly respected” Judge Lamberth gave the OFCCP a “slam-dunk victory” that, in essence, allowed the agency leeway to make up its pay data analysis standards as it goes along, according to Copus.

In United Space Alliance, LLC v Solis (94 EPD ¶44,325), Judge Lamberth ruled against the contractor’s attempt to seek relief from an April 11, 2011, order of the DOL’s Administrative Review Board adopting an earlier Administrative Law Judge order requiring the contractor to submit to the OFCCP additional data for analyses beyond that which the contractor had submitted in response Paragraph #11 of the “Itemized Listing.” Rejecting the contractor’s assertions that the OFCCP’s actions violated the Fourth Amendment, the Administrative Procedure Act, the Paperwork Reduction Act, and other laws, the court wrote, “[s]ubmission to such lawful investigations is the price of working as a federal contractor.”

Directive 307. In late February 2013, the OFCCP issued Directive No 307 (Renumbered on September 16, 2013 as DIR 2013-03), entitled, “Procedures for Reviewing Contractor Compensation Systems and Practices.” It was issued in conjunction with the agency’s announcement of a flexible, case-by-case approach to its analysis of systemic compensation discrimination. According to Copus, this directive adopted the United Space Alliance ruling “with a vengeance.”

In Directive 307 and related policy statements, the OFCCP asserts that its enforcement standards are based on “Title VII principles,” but the agency doesn’t specify any standards or analytical models. Although the OFCCP claims this directive “clarifies” the information it is looking for in evaluating compensation, any OFCCP claims of transparency are “bogus” and the agency is “purposely trying to hide the ball,” Copus countered.

On a similar note, labor economist Paul F. White, Ph.D., Managing Director of ERS Group’s Washington, D.C. office, said that the OFCCP has, in a way, “rewritten the rules so that they don’t have to follow any rules.”

Moreover, the OFCCP’s revised Federal Contract Compliance Manual, publicly released on August 23, 2013, provides no guidance on the standards the agency will use in evaluating compensation, Copus pointed out. As such, the contractor community “[doesn’t] have a clue” as to what is going on.  Consequently, contractors have no way to predict what analytical models, if any, the OFCCP will use when determining whether to seek information beyond that which the contractor has provided in response to Paragraph #11 of the “Itemized Listing” or at any other stage of the agency’s review process.

Regression analysis. While the analytical models the OFCCP may use at any given stage of its compensation review process are not clear, contractors should run multiple regression analyses on their compensation data for both current pay and pay decisions, the experts advised.

Regression is the statistical analysis method most accepted by the courts for analyzing compensation disparities, White said, describing it as the “gold standard.”  But all regression analyses are not the same, he noted, and just because the OFCCP does a regression analysis on a contractor’s data doesn’t mean that it was done correctly. Accordingly, a contractor should run its own regression analyses prior to providing the OFCCP with any data files, so that the contractor can identify disparities and understand why these disparities exist.

It is very important that contractors always conduct their regression analyses under attorney-client privilege, added John C. Fox, a former OFCCP official and current president of Fox, Wang & Morgan P.C. in San Jose, California.

Job group cautions. Directive 307 provides that the agency will examine three key questions in every case: (1) is there a measurable difference in compensation on the basis of sex, race, or ethnicity?; (2) is the identified difference in compensation between comparable employees under the contractor’s wage or salary system?; and (3) is there a legitimate explanation for the difference (i.e. is the difference based on “an appropriate comparison”)?

When determining what employees are comparable, the OFCCP will seize upon contractors’ Affirmative Action (AAP) job groups, and assert that putting jobs in the same group for AAP purposes is an admission on the part of the contractor that these jobs are similar for the purpose of compensation discrimination analysis as well, according to Fox. Therefore, contractors need to be aware of their AAP job groups and carefully review them, he advised.

Focus on the nail, not the hammer. Importantly, neither Directive 307 nor any current OFCCP policy statement acknowledges Ledbetter’s requirement that discrimination claims must be based on pay decisions rather than current pay, Copus observed. Instead, the agency is only seeking information on current pay.

Analogizing to a hammer hitting a nail, Copus said statistical models such a regression analysis, are, like hammers, merely tools. While “it is important to pick the right hammer,” he said, the focus should be hitting the right nail, i.e. pay decisions. Thus, discussions of how to conduct regression analysis are only addressing what tool to use, rather than what nail to hit, he pointed out.  Simply analyzing current pay, while ignoring pay decisions, is not viable compliance strategy, he emphasized.

Yet, many attorneys do not advise their clients to analyze pay decisions, and instead focus only on current pay, said Fox. Attorneys who don’t put their clients on notice that they should analyze pay decisions are risking malpractice suits, he warned.

What’s a contractor to do? Nevertheless, contractors should still run a regression analysis on their current pay data, advised employment law attorney Brian W. Bulger of Meckler Bulger Tilson Marick & Pearson in Chicago. The OFCCP will disregard contractor’s assertions regarding the correct legal standards until they are faced with litigation on this issue, he said. Because contractors won’t be able to talk the OFCCP out of its focus on current pay, contractors should analyze that in addition to pay decisions.

White, who presented a detailed primer on how to conduct regression analysis, agreed. The bottom line is that the OFCCP will analyze current pay, so contractors should as well, he said, adding that contractors may want to analyze current pay for other reasons.

Nevertheless, when complying with OFCCP information requests that focus on current pay, contractors should, to protect their legal rights, add a disclaimer noting that the correct legal standard is to focus on pay decisions, Bulger said.

“I would definitely protest a request for current pay [information]” under Ledbetter, Copus said in a similar vein. That way, the contractor can establish its objection for the record. Noting that many contractors are more sophisticated in this area than most OFCCP compliance officers, Copus advised that such objection statements include the following information:

  • A note that, under Ledbetter, the relevant focus is pay decisions, not current pay;
  • A list of the three primary types of pay decisions — starting pay, merit increases; and promotional increases – and emphasize that current pay is a result of years of pay decisions; and
  • A note pointing out the OFCCP’s repeated statements of the agency’s commitment to follow Title VII law on compensation.

The presenters. Copus has more than 35 years of litigation and counseling experience and has regularly represented employers in OFCCP  matters, including hundreds of standard OFCCP compliance evaluations and “glass ceiling” audits. He began his legal career in 1969 at the Equal Employment Opportunity Commission (EEOC), where for many years he headed the National Programs Division. Since 1977, he has been in private practice representing employers, and he has recently retired from Ogletree Deakins in Morristown, New Jersey.

White is the Managing Director of ERS Group’s Washington, D.C. office. His practice areas cover all aspects of employment discrimination cases, including: compensation, hiring, promotion, and termination. Dr. White has testified numerous times on behalf of plaintiffs and defendants, in local, state, and federal courts. He served as the case manager or testifying expert witness in several prominent cases, and designed statistical analyses of pay and promotion data on behalf of defendant in the national class action Dukes v Wal-Mart Stores, Inc.

Fox is the President and a founder of Fox, Wang & Morgan P.C. He leads large and complex litigation matters in state and federal courts, in cases involving wage-hour and discrimination class actions, trade secret claims, employment contract disputes, wrongful termination, corporate investigations, and the use of statistics in employment matters. Fox previously served as Executive Assistant to the Director of the OFCCP, where he was responsible for all enforcement and policy matters.

Bulger, a founding partner of Meckler Bulger Tilson Marick & Pearson in Chicago, has advised and represented public, private, union and non-union employers on all aspects of the employment relationship for over 25 years. He holds an AV rating in the Martindale-Hubbell Law Directory, the highest possible distinction for legal ability and ethical standards. In addition, the National Law Journal named Bulger as one of the nation’s “Best Litigators in Employment Law.”

NELI’s Thirty-First Annual Affirmative Action Briefing was held in Chicago on October 3-4, 2013. For more information on NELI, including its publications and future programs, call (303) 861-5600 or go to NELI’s website at: www.neli.org.

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