In recent months, various agencies tasked with enforcing federal labor and employment laws have been a hotbed of activity — publishing guidance memoranda, enforcement directives, and the like. The Office of Federal Contract Compliance Programs (OFCCP) is no exception.
On February 28, 2013, the OFCCP rescinded the June 2006 Systemic Compensation Standards and Voluntary Guidelines for Self-Evaluation of Compensation Practices and issued OFCCP Directive 307 titled, “Procedures for Reviewing Contractor Compensation Systems and Practices.” Although it has received much press, at its core, Directive 307 simply states that the OFCCP:
With regard to the particular procedures that the OFCCP will use in assessing a federal contractor’s compensation data, Directive 307 indicates that the contractor will be asked to provide compensation data as part of the initial desk audit scheduling letter. The compliance officer will then typically:
Directive 307 also makes it clear that “the order in which these procedures occur may vary based on the facts and circumstances of each review. At any stage in the process, OFCCP may determine, based on the evidence, that it is appropriate to close the review or may determine that further review is warranted.”
Many of the investigation techniques and procedures described in Directive 307 have already been used by the OFCCP during recent years and therefore are not necessarily “new.” However, the OFCCP’s current approach to compensation analysis (now made explicit by Directive 307) will likely continue to increase costs for those contractors who are audited by the OFCCP.
For instance, contractors will be forced to evaluate the pay groups created by the OFCCP and argue for modification of groups that contain dissimilar employees. Additionally, contractors will have to provide legitimate, non-discriminatory reasons for nearly all pay differences. Finally, as the OFCCP manipulates and analyzes compensation data in a variety of ways and using various techniques, contractors will likely be asked to respond to multiple supplemental data requests over an extended period of time.
In light of these additional costs and burdens, in advance of an audit or upon receiving notice of an audit by the OFCCP, contractors should take the following actions (in conjunction with inside or outside counsel) to prepare for the OFCCP’s eventual compensation analysis:
By taking these steps in advance of an audit (or during the very early stages of an audit), contractors will be better able to properly defend against the more burdensome compensation investigations that appear likely in light of Directive 307.