For companies that do business with the federal government, two recent announcements may lead to increased scrutiny on their salary equity practices.

On March 15, 2022, the U.S. Department of Labor’s Office of Federal Contract Compliance Programs (“OFCCP”) issued a new directive regarding contractors’ obligation to evaluate their compensation systems. Such evaluations are to be used “to determine whether there are gender-, race-, or ethnicity-based disparities,” as required by 41 CFR 60-2.17(b)(3). The OFCCP, according to the Directive, has the authority to access and review contractor records reflecting the evaluation of a contractor’s compensation system, and would even override claims of attorney-client privilege.

The same day, President Biden issued an Executive Order on Advancing Economy, Efficiency, and Effectiveness in Federal Contracting by Promoting Pay Equity and Transparency. The Executive Order gives the Federal Acquisition Regulatory Council the authority to consider whether to issue proposed rules to limit or prohibit federal contractors from seeking and considering job applicants’ or employees’ past pay history.

During a compliance evaluation, contractors must provide the OFCCP with individual employee compensation data to enable the Agency to review and determine whether the contractor has a compliant affirmative action program and is satisfying its nondiscrimination obligations. If that review “reveals disparities in pay or other concerns about the contractor’s compensation practices,” the new Directive states, “OFCCP may request additional information . . . including [the contractor’s] pay equity audit conducted pursuant to [41 CFR § 60-2.17(b)(3)].”

Specifically, the Directive states that the OFCCP may request contractors subject to compliance reviews to provide:

• a complete copy of the pay equity audit(s) conducted that shows all pay groupings that were evaluated, any variables used, and the results of the analyses, including any disparities found;
• the model statistics showing all variables or comparisons in the model; and
• “information relating to the frequency of pay equity audits, the communication to management, and how the results were used to rectify disparities based on gender, race and/or ethnicity.”

Contractors “may not withhold” their pay equity audit and compliance records “by invoking attorney-client privilege or the attorney work-product doctrine,” according to the Directive. The Directive warns that “[f]ailure to provide the required pay equity audit will be considered by OFCCP as an admission of noncompliance with these regulatory requirements.”

Contractors performing the evaluation under the attorney-client privilege should develop alternative means of satisfying the regulatory obligation, to protect the usually confidential and privileged analyses from production, such as through commissioning an independent, non-privileged study. OFCCP will not require production of these separate pay equity audits, to the extent that the contractor can verify that the separate pay equity studies were conducted under privilege. Companies which already provide goods or services to the federal government as well as those seeking to enter that arena should consult with counsel prior to instituting changes to their salary related policies and procedures. Once such changes are made, the federal contractors should also rely on outside counsel to ensure continued compliance.

For more information: Stewart Banner – Crystal & Giannoni-Crystal, LLC