On September 15, 2014, the Office of Federal Contract Compliance Programs (“OFCCP”) released its Notice of Proposed Rulemaking (“Proposed Rule”) implementing President Obama’s Executive Order 13665 (“EO 13665”) banning contractors from taking adverse action against employees and applicants who discuss their pay. When President Obama signed EO 13665 on April 8, 2014, he instructed OFCCP to issue a proposed rule prohibiting federal contractors from discharging or discriminating against employees or applicants who inquire about, discuss, or disclose their own compensation or compensation of other employees and applicants. In a Fact Sheet on the Proposed Rule, OFCCP stated that the purpose of the Proposed Rule is to narrow the pay gap disadvantaging women and minorities by allowing them to discuss their pay and know if they are “being underpaid compared to [their] peers.” OFCCP also believes the Proposed Rule would “reduc[e] pay discrimination and ensur[e] that qualified and productive employees receive fair compensation”, by enabling them to discuss their pay without fear of adverse action.
Tag Archives: compensation
OFCCP Releases Proposed Rule Prohibiting Adverse Action Against Employees and Applicants Discussing Pay
On August 6, 2014, the Office of Federal Contract Compliance Programs (“OFCCP”) released a Notice of Proposed Rulemaking requiring federal contractors and subcontractors with 100 or more employees to submit an annual equal pay report. This compensation data tool was published in response to President Obama’s April 8, 2014 Presidential Memorandum calling for proposed regulations to be published within 120 days.
The equal pay report will have a significant impact on federal contractors. According to OFCCP, the equal pay report will “enable OFCCP to direct its enforcement resources toward federal contractors whose summary data suggests potential pay violations, while reducing the likelihood of reviewing companies that are less likely to be out of compliance.” The proposed rule was officially published in the Federal Register on August 8, 2014. There is a 90-day public comment period with comments due by November 6, 2014.
Who Must File
The proposed rule applies to prime contractors and first tier subcontractors (and construction subcontractors of any tier) who are required to file EEO-1 Reports, have more than 100 employees, and have a federal contract, subcontract, or purchase order amounting to $50,000 or more lasting for at least 30 days (including modifications).
OFCCP is also considering covering postsecondary academic institutions that file the IPEDS report with the Department of Education.
Requirements of Equal Pay Report
The NPRM contemplates requiring covered federal contractors to submit an equal pay report that includes the following information:
- Total number of workers within each EEO-1 job category by race/ethnicity and sex;
- Total W-2 wages for all workers in each EEO-1 job category broken down by race/ethnicity and gender; and
- Total hours worked for all employees in each EEO-1 category by race/ethnicity and gender.
No individual employee pay data will be required.
OFCCP plans to design a web-based portal for covered contractors to report and maintain compensation information. OFCCP indicates that the webportal would be protected by applicable government IT security standards where contractors key in their data electronically or upload their forms into the system using the standard formats provided by OFCCP.
Data May be Basis for Audit Not Sanctions
Data from the proposed equal pay report would not in itself result in any sanction or adverse action against the contractor for compensation discrimination, according to OFCCP. However, OFCCP will use the information to prioritize contractors for compliance evaluations. If OFCCP selects a contractor for a compliance evaluation, that review would cover compensation data beyond what is in the contractor’s equal pay report and would involve a more specific and detailed data request that are typical in an OFCCP compliance evaluation.
OFCCP is also considering publishing aggregate information based on pay data collected from the equal pay report, but the data will not be specific to any particular contractor. The data could include ranges or averages by industry, labor market, or other groupings.
OFCCP is proposing an annual reporting window of January 1 to March 31. The data in this report would be based on W-2 earnings for the prior calendar year (Jan. 1- Dec 31) for all employees included in the contractor’s EEO-1 report for that year, which will generally align with the time period covered under a contractor’s W-2 filings.
The practice of OFCCP using the equal pay report to target its enforcement efforts could potentially eliminate OFCCP’s current random audit selection process and replace it with a targeted selection process. Despite the potential constitutional concerns, contractors should strongly consider conducting proactive pay equity analyses now, so that any areas of concern can be addressed before data is reported to OFCCP. This should include a total compensation analysis since contractors will need to report total compensation (i.e., all wages contained in the Form W-2) rather than just base salary.
Contractors should also be wary of potential confidentiality issues. Although OFCCP attempted to allay contractors’ confidentiality fears, the data, much like EEO-1 reports, could be turned over to private plaintiff’s attorneys for use in civil litigation. OFCCP believes that the Freedom of Information Act (“FOIA”) would exempt the disclosure of contractor data if it can be shown that (1) the contractor is still in business (2) the data is confidential and sensitive, and (3) the release of data would subject the contractor to commercial harm. For now, it is unclear whether these exemptions would actually shield contractors’ pay data in all cases.
The Office of Federal Contract Compliance Programs (“OFCCP”) plans to issue proposed rules implementing President Obama’s recent executive actions on the compensation practices of federal contractors. As we reported last month, President Obama took two executive actions to further his pay equity agenda: (1) he signed Executive Order 13665 prohibiting federal contractors from discriminating and retaliating against employees or applicants for discussing their compensation with one another; and (2) he issued a memorandum (“Memorandum”) directing OFCCP to publish regulations requiring federal contractors and subcontractors to submit pay data by race and gender for their employees.
According to the Department of Labor’s spring 2014 regulatory agenda, OFCCP intends to publish its proposed rules on the Memorandum in August 2014 and the proposed rules under EO 13665 in September 2014. OFCCP also revealed that it was pushing back dates for two key regulatory changes, presumably to accommodate the presidential mandate for OFCCP to publish rules on EO 13665 and the Memorandum. In its 2014 regulatory agenda for the year, OFCCP indicated that it would be issuing proposed rules on its regulations for construction contractors in April 2014 and on its Sex Discrimination Guidelines in May 2014. Now, OFCCP has announced that it will not be issuing the proposed updates to the Sex Discrimination Guidelines until September 2014 and moved the date for the proposed overhaul of its regulations for construction contractors until January 2015.
President Obama Takes Executive Action Reinforcing the Regulatory Agenda on Investigating Federal Contractors’ Compensation Practices
In recognition of National Pay Equity Day, President Obama took two executive actions on April 8, 2014 to continue his pay equity agenda: (1) President Obama signed Executive Order on Non-Retaliation for Disclosure of Compensation Information (“Executive Order”) amending Executive Order 11246 to prohibit federal contractors from discriminating or retaliating against employees or applicants for discussing their compensation with one another; and (2) President Obama issued a memorandum directing the Department of Labor (“DOL”) to publish regulations requiring federal contractors and subcontractors to submit pay data, by race and gender, for their employees (“Compensation Memorandum”). These executive actions, along with President Obama’s Executive Order to increase the minimum wage for employees working on federal contracts, mark another significant step in this Administration’s push for increasing enforcement and oversight over federal contractors’ compensation practices.
The Executive Order mandates that federal contractors cannot “discharge or in any manner discriminate against” employees and applicants who have “inquired about, discussed, or disclosed” their own or another employee’s or applicant’s compensation information. The Executive Order explains that the reason for this change is that it will “enhance the ability of Federal contractors and their employees to detect and remediate unlawful discriminatory practices, which will contribute to a more efficient market in Federal contracting.”
The Executive Order excludes from this protection unauthorized disclosures by employees who learn of the compensation information as part of their essential job functions (e.g., HR and compensation managers) unless (1) they are disclosing compensation information to someone who already has access to that information; or (2) they are disclosing that in response to a formal complaint or charge in furtherance of an investigation. DOL will be required to issue regulations implementing this requirement by September 15, 2014.
The Compensation Memorandum is premised on a claim that the pay gap between men and women is a direct result of a “lack of sufficiently robust and reliable data on employee compensation.” It directs DOL to propose regulations requiring federal contractors and subcontractors to submit data on the compensation paid to their employees, including data by sex and race.
When creating the proposed regulations, the Executive Order instructs DOL to consider:
- “maximiz[ing] efficiency and effectiveness” by focusing efforts on contractors where the reported data shows pay violations;
- using the data to “encourage greater voluntary compliance” with compensation laws by federal contractors and “analyz[ing] industry trends”;
- minimizing the burden on federal contractors, particularly small businesses; and
- “avoid[ing] new record-keeping requirements” by relying on “existing reporting frameworks to collect the summary data.”
Despite DOL’s announcement in its current regulatory agenda that OFCCP planned to publish a Notice of Proposed Rulemaking (“NPRM”) on the compensation data collection tool in January 2014, no proposal has yet been published. The Presidential Memorandum will expedite the publication of NPRM because it directs the DOL to propose regulations by August 6, 2014.
Impact on Federal Contractors
The Executive Order prohibiting discrimination and retaliation against employees and applicants does not change much for federal contractors. Sections 7 and 8 of the National Labor Relations Act already provide employees and applicants the right to discuss their compensation information.
The effect of the Compensation Memorandum’s requirement that contractors to disclose their compensation information could be significant, but the precise impact will depend on the details of the regulations. As of now, it is unclear whether OFCCP will develop new or additional compensation reporting requirements and how OFCCP will use the compensation tool to store and analyze compensation data.
We expect OFCCP to continue to ratchet-up its investigation of contractors’ compensation information during audits. This means that contractors should be vigilant about reviewing their compensation practices now and proactively addressing pay disparities before an audit. Now is the time for contractors to consider undertaking pay equity studies and reviews of their compensation policies and practices under the protection of the attorney-client privilege.
OFCCP Continues to Overhaul Its Investigatory Platform with the Release of the New Federal Contractor Compliance Manual
Late last week, OFCCP released the much anticipated update to the Federal Contractor Compliance Manual (“FCCM”). The FCCM provides the procedural framework compliance officers use when auditing federal contractors and subcontractors. The last version of the FCCM was published in the late 1980s, and OFCCP has been hinting over the last couple of years that it would be releasing a new FCCM.
The new 500-plus page FCCM includes the same basic structure as the previous version, but adds a new section for reviews of functional affirmative action plans. The FCCM has also been updated to reflect OFCCP’s current policies and procedures regarding investigating contractor’s practices for compliance and the remedies it will pursue if violations are uncovered. For example, the new FCCM contains new procedures for compliance officers to use when conducting adverse impact analyses, reviews of compensation, and calculating back pay awards for discrimination.
The new FCCM covers the following topics:
- Desk audits of contractors’ compliance with OFCCP’s laws;
- Onsite reviews of contractors’ establishments;
- Compliance reviews of construction contractors;
- Procedures for conducting Corporate Management Compliance Evaluations;
- Compliance reviews of FAAPs;
- Investigations of individual and class complaints;
- Designing remedies for employment discrimination violations; and
- Procedures for resolving violations during compliance evaluations.
The FCCM also contains a glossary of key words and phrases and includes examples of model forms, letters, and worksheets compliance officers can use during compliance evaluations.
OFCCP was quick to note that the revised FCCM is nonbinding and is “subject to change without public notice.” OFCCP released the new FCCM internally to its compliance officers earlier this summer, so many of them are prepared to implement the new procedures in the FCCM. OFCCP also held a public webinar explaining the updated FCCM on August 27, 2013 and will be making the slides and recording from the webinar available on its website.
We anticipate that with the official release of the FCCM, contractors will notice a change in the posture of audits. For the last several years, OFCCP has been overhauling its entire investigatory platform “piece-by-piece,” including revamping how it investigates contractors’ compensation systems. The new FCCM is yet another signal that OFCCP will be conducting more intensive and far-reaching reviews of contractors’ practices.
On February 26, 2013, the Office of Federal Contract Compliance Programs (“OFCCP”) announced a significant shift in its approach to analyzing contractors’ compensation decisions during audits. In the press release, OFCCP stated that it was rescinding its “Voluntary Guidelines” and “Compensation Standards” from 2006 because they “limited OFCCP’s ability to conduct full investigations and use every enforcement tool at its disposal to combat pay discrimination.” In its place, OFCCP issued Directive 307, which establishes many new practices and procedures OFCCP will follow when investigating contractors’ compensation practices during audits. The new procedures took effect on February 28, 2013.
On November 7, 2011, the Office of Federal Contract Compliance Programs (“OFCCP”) and the Equal Employment Opportunity Commission (“EEOC”) entered a new Memorandum of Understanding (“MOU”) that allows for greater sharing of information between the agencies and collaboration on enforcement initiatives. The stated goal of the MOU is “to promote greater efficiency and coordination, and to eliminate conflict and duplication of effort” between the agencies. There has been a MOU between the two agencies since 1970. Although the MOU has been updated several times (e.g., 1974, 1981, and 1999), the agencies have rarely coordinated or collaborated on enforcement initiatives.