Government contractors are required to perform pay equity audits as part of their affirmation action obligations. Now, the Office of Federal Contract Compliance Programs (OFCCP) has released a new Directive clarifying its authority to access those pay equity audits and confirming that those audits cannot be sheltered as privileged.

IN DEPTH

A series of Executive Orders requires federal contractors to meet multiple affirmative action obligations. One of the attendant obligations in that process is a requirement for contractors to perform “an in-depth analysis” of their employment practices to determine whether barriers to equal employment opportunity exist. This analysis includes an examination of compensation systems to determine whether barriers to equal employment opportunities exist on the basis of race, gender or ethnicity, as stipulated by federal law, otherwise known as a pay equity audit.[1] If the pay equity audit determines that barriers to equal employment opportunities exist, federal law requires that contractors develop “action-oriented programs” to address the issues.[2]

Now, with this brand-new Directive, OFCCP is (1) establishing how OFCCP reviews contractors’ compliance with their obligation to conduct the pay equity audit; (2) verifying OFCCP’s authority to access and review contractors’ pay equity audits; and (3) confirming that contractors may not claim privilege with respect to those audits:

OFCCP recognizes that federal contractors often retain counsel to assist with the preparation of the pay equity audit and compliance records required by OFCCP’s regulations. OFCCP notes, however, that federal contractors must maintain and make available to OFCCP documentation of their compliance with OFCCP regulations. Contractors cannot withhold these documents by invoking attorney-client privilege or the attorney work-product doctrine.

OFCCP PAY EQUITY AUDIT DOCUMENTATION

OFCCP has the authority to review contractors’ pay equity audits in order to understand the methodology used to perform the audit and to determine compliance with their obligation to conduct the audit. To do this, OFCCP will now request a complete copy of the pay equity audit(s) conducted. This complete copy must include:

• All pay groupings that were evaluated;

• Any variables used by the contractor to conduct the audit; and

• The results of the analyses including any disparities found.

OFCCP may also request any information related to the frequency of pay equity audits, communication to management, and how contractors rectified disparities based on gender, race, and/or ethnicity.

OFCCP PAY EQUITY AUDITS CANNOT BE PRIVILEGED

This Directive (issued and effective March 15, 2022) clarifies that contractors cannot withhold documents from OFCCP by invoking the attorney-client privilege or the attorney work-product doctrine. In the context of an audit, failure to provide the required pay equity audit will be considered by OFCCP as an admission of noncompliance with regulatory requirements.

For other purposes, a contractor may conduct a separate pay equity audit in order to obtain legal advice under the umbrella of those privileges. But, if a contractor conducts an audit for the dual-purpose of performing a pay equity audit for compliance with its OFCCP obligations and obtaining legal advice, OFCCP may obtain those records (i.e., any privilege will be waived).

WHEN OFCCP WILL REQUEST PAY EQUITY AUDITS

During a compliance evaluation, OFCCP will perform a “desk audit” in which it examines a contractor’s affirmative action plans and supporting data. If the desk audit reveals pay disparities (or other concerns about compensation practices), OFCCP may request additional data from the contractor. Examples of this information include, but are not limited to, the pay equity audit, additional compensation data, follow-up interviews, and information on factors that impact compensation such as prior experience or education, promotions, assignments or steering patterns. Contractors will need to be ready for this added burden.

ENDNOTES

[1] 41 CFR § 60-2.17(b)(3) states specifically that contractors “at a minimum” must evaluate compensation system(s) to determine where there are gender-, race- or ethnicity-based disparities.

[2] 41 CFR § 60-2.17 (c) states that a contractor must develop and execute action-oriented programs designed to correct any problem areas identified pursuant to § 60-2.17(b) and to attain established goals and objectives.