Beware of the ides of March, as they say. On March 15, 2022, the Office of Federal Contract Compliance Programs (OFCCP) issued Directive 2022-01, which the agency says is intended to clarify OFCCP’s perceived authority to access and review audits of federal contractor pay equity conducted in accordance with contractor compliance. conditions.

What are the regulatory compliance obligations of contractors?

Federal contractors are aware of their regulatory compliance obligations under Executive Order 11246, Section 503 of the Rehabilitation Act of 1973, and the Vietnam-era Veterans Rehabilitation Assistance Act of 1974 with respect to is about affirmative action. Included in these compliance obligations, at 41 CFR § 60-2.17(b)(3), is the requirement that federal contractors assess their compensation systems to determine whether there are any disparities based on gender, race or ethnic origin.

Often these compensation analyses, which the OFCCP calls “pay equity audits” in the Directive, are conducted with a lawyer and are protected by solicitor-client privilege. Attorney-client privilege covering compensation analyzes proved key in the recent pay discrimination case, Cahill et al v. Nike, Inc.. In that case, a federal district court ruled that Nike was not required to produce its pay equity and promotion analyzes that had been performed before the litigation began because the analyzes had been conducted for legal purposes, under the advice of an attorney, rather than for commercial purposes. the Nike case was seen as a big win for employers and their favored pay analysts.

However, with directive 2022-01, the OFCCP seems to be trying to circumvent the conclusion of the Nike cases by arbitrarily determining that pay equity audits conducted for affirmative action compliance and in conjunction with counsel are do not subject to solicitor-client privilege. While the agency noted that Directive 2022-01 supersedes all Federal Contractors Compliance Manual (FCCM) adversarial procedures and any prior guidance, it also acknowledges that the OFCCP guidance does not change any laws or regulations. governing OFCCP programs, do not establish any enforceable rights or obligations, and Directive 2022-01 shall not have the force of law. Instead, Directive 2022-01 simply provides guidance on how the agency hopes to assess compliance with applicable regulations and laws.

What does the new directive address?

Directive 2022-01 focuses on the federal contractor’s obligation to conduct their own compensation self-audits to comply with applicable affirmative action requirements. According to the OFCCP, during its compliance audits, it will look broadly at a contractor’s workforce (across “job titles, levels, roles, positions, and functions”) to identify patterns of segregation. by race, ethnicity, and gender, which may result from job assignment, placement, or promotion/promotion barriers that result in pay disparities. If the office audit reveals that there are disparities in compensation, the agency may request follow-up and additional information regarding the contractor’s compensation practices. The OFCCP has provided four (4) examples where it might need tracking information:

1. wage disparities or other evidence of wage discrimination between employees who are in a similar situation because of their race, ethnicity and/or gender;
2. employee complaints of wage discrimination or other anecdotal evidence of discrimination;
3. inconsistencies in how the contractor applies its compensation policies; and or
4. statistical analyzes or other evidence that a group of workers is disproportionately concentrated in lower positions or pay levels within a position based on a protected characteristic.

According to the OFCCP, he is entitled to examine a complete copy of the contractor’s pay equity audit(s), including all the groupings that were evaluated, all the variables used and the results of the analyses, as well as the discrepancies noted. The OFCCP also argues that it is entitled to request any model statistics used in the analyzes as well as the frequency of audits, communications to management, and how the results were used to rectify gender-based disparities. , race and/or ethnicity.

OFCCP now argues that it has the authority to make such requests because contractors must retain and make available to OFCCP documentation of their compliance with OFCCP regulations. The agency further states that federal contractors may not withhold such documents by invoking solicitor-client privilege or the attorney’s work product doctrine, even when such reports were written under the direction of a attorney. The OFCCP further argues that failure to provide compensation analyzes during an audit will be considered an admission of non-compliance with regulatory requirements.

Directive 2022-01 further argues that even contractors who are in litigation with the OFCCP cannot withhold pay equity and compliance records by invoking the work product doctrine. The agency came to this curious conclusion by finding that “[b]because the detailed requirements of 41 CFR § 60-2.17(b) mean that the documents would have been prepared in a substantially similar form in the absence litigation, work product privilege does not apply to them.

It is important to note that the current position of the OFCCP has not been evaluated by a court and Directive 2022-01 admittedly does not have the force of law.

Regardless, Directive 2022-01 leaves open the possibility that contractors may continue to perform self-audits of compensation that retain the protection of solicitor-client privilege. The guidance notes that if, during an audit, the contractor produces to the OFCCP a pay equity audit and compliance records sufficient to comply with 41 CFR § 60-2.17(b)(3), the OFCCP “generally” will not request additional privileged analyzes where the contractor demonstrates that it has also conducted a duly privileged pay equity process with an attorney.

How should contractors comply with their obligations while continuing to perform preferred compensation audits?

Entrepreneurs have important decisions to make under Directive 2022-01. The prudent approach would be to consider conducting two compensation audits – one preferred and one non-preferred. Contractors should work with their legal counsel to assess the best approach to performing a privileged audit and a non-privileged audit. Contractors may also consider conducting an additional preferred pay equity audit, not in conjunction with their affirmative action requirements, to maintain attorney-client privilege or the protection of the contractor’s work product. ‘attorney. the Nike case described above provided useful guidance for this approach.

Contractors may also consider removing privileged compensation audits altogether, with the understanding that any compensation analyzes they conduct to meet their regulatory requirements will be submitted in full and “as is” to the OFCCP, regardless of results. However, such an approach could expose the contractor to liability under other federal, state or local laws. Contractors should work closely with their legal counsel to determine the best approach with respect to their compliance obligations and Directive 2022-01. Contractors should also ensure that their approach complies with any other state or local pay equity laws that may apply.