The pay practices of federal contractors will be assessed using only statistically sound methods, according to proposed regulations issued yesterday by the Office of Federal Contract Compliance Programs (“OFCCP”). This is obviously good news for contractors, who were accustomed to the dubious “DuBray Analysis.” However, the change means that contractors may have to work harder to preventively assess their compensation practices, and they may have less leeway to defend themselves in the event that OFCCP finds violations.

First, the good news. The OFCCP has unequivocally disavowed the “DuBray Analysis.” The DuBray Analysis assumed that employees in a given pay grade held equivalent jobs. Thus, if there was an undefined “significant” pay disparity in the grade between women versus men, or minorities versus non-minorities, the employer faced potential liability for pay discrimination. The DuBray Analysis has been rejected by many federal courts.

The new, and vastly improved, method outlined in the proposed regulations will examine actual job duties and other legitimate criteria to determine which employees are truly “similarly situated” for purposes of compensation analysis. In most cases, the OFCCP will conduct multiple regression analyses on groups of similarly situated employees. In the context of a compensation review, multiple regression analysis examines pay (the “dependent variable”) against all the factors that may affect pay (the “explanatory variables”) – for example, experience with prior employers and relevant education.

Only after all legitimate variables are taken into account does the OFCCP presume that a pay disparity is a result of discrimination. And, even then, the OFCCP says that it will not prosecute disparities unless they are statistically significant (more than two standard deviations). Moreover, the new guidelines say that the OFCCP will normally not find discrimination based solely on statistical evidence but will require some “anecdotal” evidence of discrimination as well.

In addition to the guidelines, the OFCCP also issued proposed regulations regarding employer self-evaluation of compensation practices. Although the proposed regulations provide a “safe harbor” for employers who conduct self-evaluations that are not attorney-client privileged, Constangy recommends extreme caution before conducting any compensation analysis that can be disclosed to third parties, including but not limited to the OFCCP.

Comments on both sets of proposed regulations should be submitted no later than December 16, 2004 . . . to none other than Joseph DuBray. If and when a Final Rule is published, Constangy will issue another Affirmative Action Alert outlining the new regulations.

The grain of salt. It is certainly good news that OFCCP will be using a statistically sound method of assessing pay discrimination issues. Presumably, this means that OFCCP will find fewer employers liable for alleged pay discrimination. However, employers may need to be more vigilant than before, now that OFCCP has abandoned its “junk statistics.” When the OFCCP finds a violation under the new methods, employers can expect to have a more difficult time defending themselves.

In that regard, it will be essential for employers to proactively make sure that employees are appropriately grouped for comparison and that all explanatory variables that may affect compensation are identified so that the variables can be included in the OFCCP’s analysis. This will require hard work on the part of Human Resources professionals and/or company attorneys, and it may require that a statistician be retained.In other OFCCP news, Director Charles James has announced that 1,700 selection letters were mailed to employers on November 1 – so, be on the lookout.

If you have any questions relating to the OFCCP’s proposed regulations or need assistance with a selection letter, please contact any member of the Affirmative Action Practice Group, or the Constangy attorney of your choice.

NOTICE: Constangy realizes that not all employers are government contractors and that many of you may not wish to receive our Affirmative Action Alert. If you desire to continue receiving this publication, please e-mail vwhitaker@constangy.com.


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