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OFCCP issues new directive on calculating back pay relief in discrimination cases

By Cynthia L. Hackerott, J.D.

The OFCCP has issued a new directive (No 310) entitled, “Calculating Back Pay as a Part of Make-Whole Relief for Victims of Employment Discrimination.” In awarding back pay to aggrieved individuals under the laws it enforces, the OFCCP follows the principles and case law derived from Title VII, and the Labor Department’s Administrative Review Board has upheld the OFCCP’s reliance on Title VII back pay principles, according to directive. It explains that there are two distinct models for calculating back pay relief — formula relief and individual relief. The directive, dated July 17, 2013 and posted on the OFCCP website on July 22, outlines when each of these models is appropriate to use and the relevant elements, pursuant to each model, when calculating back pay. In addition, the directive covers issues such as the relief period, mitigation, attrition, interest, and tax liability.

Agency compliance officers must make a determination of which relief model to use when calculating back pay on a case-by-case basis, and compliance officers should not interchange the two models for calculating back pay, the directive instructs. The OFCCP maintains that the agency makes the decision as to which model is used in determining relief in a specific case, not the contractor.

Formula relief. Formula relief is a method used in systemic discrimination cases for calculating a total amount of the back pay for an affected class, that is then divided (pro rata or otherwise) among all the members of that class who are eligible, successfully identified, and agree to participate in the settlement. It may, given the circumstances, also be used to assess other types of class relief. According to the OFCCP, formula relief is a way of approximating losses in circumstances in which it is unrealistic to attempt to compute individual losses with accuracy, such as:

  • When calculating individual back pay relief for numerous aggrieved individuals is difficult because complete information or documentation (i.e., timecards, payroll records, tax returns) is unavailable or missing;
  • When using the individual relief model to calculate back pay for each class member will likely cause significant delay or create an undue burden on individual class members to provide documentation to support their compensation and/or interim earnings;
  • When the number of class members exceeds the number of employment opportunities that are available;
  • When the reconstruction of the employment decision is speculative (e.g., in the instance when there are no lines of progression), which makes it difficult for the OFCCP compliance officer to determine at what specific stage in the employment process the adverse action actually occurred, or any other situation in which (especially for jobs with few minimum qualifications) it would be impossible to determine which class members would have been hired absent discrimination; and/or
  • When the losses can be calculated on a class-wide basis from available data, as may be the case with compensation issues.

Individual relief. Also known as victim-specific relief, individual relief is the assessment of make-whole relief for identified victim(s) of discrimination on an individualized basis. Generally, this method is used to calculate back pay in those individual or small group discrimination cases where the victims of discrimination, and the damages they incurred, can be determined with specificity. In most cases, the OFCCP will use the individual relief model when it has identified a single victim of discrimination, or a small group (e.g., fewer than five members in the class). The individual or victim-specific model provides make-whole relief for each identified victim(s) of discrimination. Unlike the formula relief model, the individual relief model is used whenever it is feasible both to identify individual victims of discrimination and to calculate their individual economic losses.

Circumstances that affect the determination to use individual relief include:

  • The total class size is small (e.g., fewer than five members);
  • The liability period is of short duration (e.g., fewer than six months); and/or
  • The economic losses for each individual victim can be traced and supported with documentation.

Relief period. Provided that the applicable federal contract is in effect when the discrimination occurred, back pay generally can be obtained for a period up to two years prior to the date the contractor receives the relevant OFCCP’s audit scheduling letter (or for a complaint, up to two years prior to the date the complaint is filed). Back pay continues from the date of violation forward until the discriminatory action(s) is stopped by the contractor, or stopped by means of a Conciliation Agreement, Consent Decree, or Final Court/Administrative Order. Calculations of back pay will follow what the OFCCP states are “longstanding OFCCP principles regarding the circumstances under which discrimination is a continuing violation under the Executive Order.” As to these principles, the agency references Chapter Seven of the OFCCP Federal Contract Compliance Manual.

Pursuant to OFCCP policy, a contractor will be in violation of Executive Order 11246 any time it pays wages, benefits, or other compensation that is the result in whole or in part from the application of any discriminatory compensation decision or other practice. This means back pay calculations in compensation cases should remedy any discriminatory pay differences existing during the two years prior to the review forward to the present, or otherwise determined consistent with Title VII principles regarding the “Paycheck Rule” and continuing violation theory.

Interest. In hiring and termination discrimination cases, interest on back pay is calculated on the adjusted back pay calculation after mitigation. Interest on the overall back pay award is then compounded on a quarterly basis at the percentage rate established by the IRS for the underpayment of taxes.

Mitigation. In regard to mitigation, the OFCCP’s position is that the contractor has the burden of proving the amount of interim earnings. According to the OFCCP, victims are required only to accept employment that is substantially equivalent to or the same as that sought or held with the contractor, and it is the contractor’s burden to show that with such diligence the victims were reasonably likely to have found comparable employment. The victims need not take any employment position simply to retain their back pay awards. Nor are the victims required to relocate to accept alternative employment.

Periods when the victim would not have been employed even absent discrimination are excluded from the back pay award (e.g., during periods of incarceration). Also, benefits that are part of the back pay award are not assumed to be subject to mitigation, absent specific evidence the victims of discrimination obtained these benefits.

Continuous employment presumption. The OFCCP will follow the presumption of continuous employment in hiring cases when considering the expected tenure of workers who were not hired due to discrimination, such as in making calculations of predicted attrition to reduce the total back pay due to a class. A contractor may seek to establish by specific evidence that the presumption should be overcome in a particular case, but the contractor has the burden of proof on this issue, the agency asserts. Generally, the OFCCP will not accept simple estimates of generalized attrition to limit the back pay liability period until it has investigated the facts behind the data provided and determined that an attrition factor is appropriate.

Taxes. In most cases, the OFCCP calculates back pay without regard to applicable FICA or other taxes. In OFCCP settlements, contractors are obligated to pay their share of all applicable taxes on the portion of back pay that is calculated and identified as wages, on top of the identified settlement amount, the agency states. Moreover, contractors are obligated to withhold the employee share of Social Security, Medicare and any other applicable taxes, and to provide W-2 forms to each class member indicating taxes paid and withheld.