The recent update to the OFCCP’s race and gender, disability, and veterans regulations (41 CFR Parts 60-1, 60-2, 60-300 60-741), entitled “Procedures to Resolve Potential Employment Discrimination”, incorporates elements of the Predetermination Notice Directive (PDN Dir. 2018-01) to formalize substantial changes to the OFCCP’s operating procedures. The changes are very important, not just because of the complex legal issues addressing transparency, but because they codify and incorporate the “transparency” into the OFCCP’s audit process promised in the “sub-regulatory guidance” of the PDN directive.1 This is significant because directives can be rescinded at any time by a new OFCCP Director. Once they are made part of the regulations, they cannot commonly be changed without having to go through rulemaking.2
Under the updated regulations, if the OFCCP finds issues during your audit, it must tell you what it believes the problem areas are, and needs to tell you early. The OFCCP must detail its position: sharing its legal theory of why the audit warrants further review, what evidence it relies on, what specific policy or practice caused adverse impact and, upon the employer’s request, what statistical model and variables it relies on if compensation is an issue.
Except in certain limited circumstances, the update requires that the OFCCP close an audit unless it has “qualitative”, i.e., non-statistical, evidence such as testimony, statements or documents to support its position. (The OFCCP’s “Overview” commentary included with the rule changes admits that the Agency has relied too exclusively on statistics alone in the past. Requiring qualitative evidence is important, because statistics only demonstrate the likelihood something happened, not the certainty that it did.)
Kudos, in addition, for the statement in the Overview that there are situations when statistical review is simply inappropriate. (Sometimes there are just not enough employees to review, or the employees’ roles are too different to allow them to be properly included in the same statistical model.)
Also, the OFCCP’s acknowledgement of the utility of “cohort review” is welcome. Cohort review in this context is a form of pay analysis that involves comparison of employees’ work records. It is a good tool when, for reasons such as those outlined above, statistical review is problematic. In addition, it is a form of analysis that the non-statistician Affirmative Action practitioner can perform.
It is also good news that the OFCCP provides rules of thumb for “practical significance.” This is technical parlance for determining when the difference between what is being compared, in our world commonly the difference in selection rates or in rates of pay, warrants the employer’s concern and the OFCCP’s attention. The OFCCP’s Overview to the rule changes states that differences in pay of less than 2% are unlikely to warrant the Agency’s attention. This detail will be helpful when performing cohort analyses.
The regulation changes and the Agency’s Overview discussing them stop short of giving needed additional detail. There are no rules of thumb for determining which employees to include in a cohort, or which of an employer’s job groups the OFCCP might aggregate (review together) when performing a statistical analysis of pay. This lack of detail is unfortunate given the Agency’s predilection for devising “global tests” comparing the pay of employees with different roles and responsibilities. The Overview makes it clear that the Agency will continue to use global tests. This may square poorly with its embrace of small tests such as cohort review. Additionally, the OFCCP has in the past utilized global tests in manners that may not reflect some employers’ pay practices which may run the risk of not meeting Title VII requirements.
Still, the good news is that if an employer does not understand why the OFCCP takes issue with its pay or other practices, it can ask for the explanation provided for in the updated regulations – and can expect a detailed answer.
Early communication increases the OFCCP’s efficiency, by helping the Agency focus on truly problematic audits. (The transparency and efficiency codified in the new regulations has led to the OFCCP closing more audits and securing more damage awards than it has for many years.) Early communication allows employers to make the case for early closure, by helping iron out misunderstandings. The final rule could have gone farther, but it is still very much a win-win.
2 The regulatory changes have more staying power than the “sub-regulatory” directives, FAQs and other explanatory communications put out by OFCCP. Unless Congress rejects them at the opening of the upcoming legislative session, which most feel is unlikely, the rules cannot be jettisoned without going through the “notice and comment” procedure required under the Administrative Procedures Act, 5 U.S.C. Sec. 553, the process just completed for the new rules.
3The final rule touches on nearly all phases of the OFCCP’s pre-litigation practice. It extends the Predetermination Notice (PDN) practices to standards for issuance of Notices of Violation (NOVs). Additionally, the exchange of information the rule now requires at the PDN stage is available earlier in the audit process, at least for now. In its “Overview of the Rule”, the Agency notes that “OFCCP’s current practice is to engage in the equivalent of a pre-PDN conference through regular contact with the contractor, and the agency is committed to continuing to do so.”
4The Agency states that additional rulemaking or guidance on statistical modeling is “under consideration”. The upcoming administration may, or may not, follow through.
