OFCCP Rescinds Compensation Standards and Will Develop New 'Case-by-Case' Investigative Approach

  • February 27, 2013

In an effort to provide the Office of Federal Contract Compliance Programs and its compliance officers “more flexibility” in the review of employer pay practices, the Agency has announced that it has taken off the books the compensation standards by which it determines whether covered contractors have engaged in prohibited pay discrimination. The OFCCP announced on February 26, 2013, that it will officially rescind the 2006 Compensation Standards, effective February 28, 2013. This move has been long-awaited by the contractor community — OFCCP initially announced its intent to rescind these standards in January 2011. The Agency simultaneously released Directive 307, which sets out the process for compensation reviews going forward. The Notice of Rescission and supporting Directive are a “game changer” for the contractor community. 

The 2006 Compensation Standards established the analytical framework for the Agency when reviewing contractor compliance with pay equity requirements and prior to issuing a Notice of Violation. In her statement on the rescission, OFCCP Director Pat Shiu categorized the Standards as “arbitrary restrictions” that prevented the Agency from “effectively protecting workers from illegal pay discrimination.” The Notice of Final Rescission states the Standards “do not favor aggregation” and “make it more difficult for OFCCP to test for larger patterns across groups of jobs.” 

OFCCP stated it does not intend to replace the Standards with any formal rule. Instead, it will rely on “subregulatory materials” such as compliance manuals, directives and training to inform contractors (and compliance officers) on processes governing pay investigations going forward. To that end, the Notice of Final Rescission sets forth the Agency’s intended process for review of compensation during compliance evaluations scheduled on or after February 28, 2013, and the Agency has already put into place a Directive that sets out the process for compensation reviews going forward. 

OFCCP states its approach to investigating and enforcing non-discrimination with respect to pay will “follow Title VII principles.” Based on this, it commits to developing a “case-by-case” approach to investigating pay and sets forth “five principles” compliance officers will consider when reviewing contractor pay. These five factors are:

  • Determining the most appropriate and effective approach from a range of investigative and analytical tools;
  • Considering all employment practices that may lead to compensation discrimination;
  • Developing appropriate pay analysis groups;
  • Investigating large systemic, smaller unit and individual discrimination; and
  • Reviewing and testing factors before including them in analysis.

Most notably, OFCCP’s states that it will begin its analyses by testing large groups of employees that may be based on groups larger than job title and job groups. This means that OFCCP will “start big” and aggregate contractor data to analyze the largest groups of employees possible.

OFCCP says it believes the increased flexibility “does not necessarily lead to greater inconsistency” and has “committed to ensuring that it does not.” However, the Agency reiterated extensively throughout the Notice of Rescission that, going forward, OFCCP will take a “case-by-case” approach to its pay investigations. 

Jackson Lewis attorneys will continue to monitor and will soon provide a more detailed update on how this development affects contractors. If you have any questions, please contact the Jackson Lewis attorney with whom you work.

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