In a Directive published today, the Office of Federal Contract Compliance Programs says that it has the right to access contractors' compensation analyses, which have traditionally been considered privileged and confidential.

The regulations implementing Executive Order 11246 set forth specific components to be included in contractors’ annual affirmative action programs. One component is an evaluation of the contractor’s “[c]ompensation system(s) to determine whether there are gender-, race-, or ethnicity-based disparities.” 41 C.F.R. § 60-2.17(b)(3). Typically, contractors satisfy this requirement by engaging counsel to conduct analyses and to provide advice and guidance under the attorney-client privilege. In the past, the OFCCP has respected the confidential nature of these analyses and has not required contractors to produce them.

That is no longer the case.

Directive 2022-01, Pay Equity Audits puts contractors on notice regarding how the OFCCP will evaluate compliance with § 60-2.17(b)(3) and “clarify[ies] OFCCP’s authority to access and review pay equity audits” conducted by contractors.

During a compliance evaluation, the OFCCP analyzes a contractor’s compensation data and will request additional information to clarify or explain differences in compensation. In addition to requesting more compensation data, interviews, and employment records, the OFCCP may now also seek the contractor’s evaluation under § 60-2.17(b)(3), which the OFCCP dubs the “pay equity audit.”

The OFCCP says that it has the authority to review the contractor’s pay equity audit to verify compliance:

OFCCP will request that the contractor provide a complete copy of the pay equity audit(s) conducted pursuant to 2.17(b)(3) that shows all pay groupings that were evaluated, any variables used, and the results of the analyses, including any disparities found. For compensation regression or statistical analysis results, OFCCP may request the model statistics (such as b-coefficients, significance tests, R-squared, adjusted R-squared, F-tests, etc.) for all variables or comparisons in the model. OFCCP may also request 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.

The OFCCP contends that contractors’ pay equity analyses are not privileged because contractors are legally required to conduct the analyses and to provide records to the OFCCP upon request. 41 C.F.R. § 60-2.10(c). According to the OFCCP, this regulatory “obligation defeats any expectation that the pay equity audit and compliance records prepared with the assistance of counsel would remain confidential.” The agency says that contractors can obtain separate analyses that are conducted for the purpose of obtaining legal advice, and that these analyses may remain privileged. However, they will not satisfy the contractor’s obligations under     § 60-2.17(b)(3).

Finally, if a contractor fails or refuses to provide the compensation evaluation required by § 60-2.17(b)(3), the OFCCP will consider this an admission of non-compliance. The Directive includes a warning that OFCCP regulations provide that the failure to preserve records required by the regulations can lead to a presumption that the information would have been unfavorable, citing 41 C.F.R. § 60-1.12(e).

Interestingly, § 60-1.12(e) relates to the failure to preserve and the destruction of records, not to the failure to create records or analyses in the first place. This may undercut the OFCCP's position. 

In any event, the OFCCP Directive represents a significant departure from the OFCCP’s past practices relating to contractors’ internal compensation analyses. Contractors should review the Directive carefully and consult with counsel to avoid missteps.