Equal Pay Day Heralds New Executive Order and OFCCP Directive

On Equal Pay Day (March 15, 2022), President Biden issued an executive order aimed at advancing the effectiveness in federal contracting by promoting pay equity and transparency in tandem with the U.S. Department of Labor’s Office of Federal Contract Compliance Programs’ (OFCCP) first formal directive (DIR 2022-01) during the Biden administration on pay equity in federal contractors. The directive addresses the OFCCP’s position on obtaining compensation related documents sought during the agency’s audits, which includes pay equity review. 

President Biden’s Executive Order

The Biden administration seeks to promote economy, efficiency and effectiveness in federal procurement by enhancing pay equity and transparency for job applicants and employees of federal contractors and subcontractors. The executive order’s intent is to spur the creation of parallel pay equity efforts within the entire federal procurement process, consistent with the anticipated proposed rule that will address the prohibition of the use of salary history in the hiring and pay-setting practices for federal employees.

Executive Order 14069 directs the Department of Labor, the Federal Acquisition Regulatory (FAR) Council, and the heads of executive departments and agencies to consider issuing proposed rules and regulations to promote pay equity and institute appropriate accompanying accountability measures. In particular, the executive order directs the FAR Council to “specifically consider whether any such rules should limit or prohibit Federal contractors and subcontractors from seeking and considering information about job applicants’ and employees’ existing or past compensation when making employment decisions.”

For several years, many states have prohibited private sector employees from asking applicants about their current wage or wage history, screening applicants based upon such information and/or using an applicant’s current or former pay in setting pay. No ban on salary history requests or usage, however, currently exists at the federal level.

OFCCP’s Pay Equity Audit Directive 

The OFCCP states that DIR 2022-01 is “intended to provide guidance to OFCCP staff and/or federal contractors on enforcement and compliance policy and procedures” and to provide clarity on existing legal requirements but notably does not change the laws and/or regulations. The OFCCP, however, then states that supply and service contractors are required as part of their affirmative action obligations to “perform an in-depth analysis” of their compensation systems to determine whether there are gender-, race- or ethnicity-based disparities purportedly as provided in 41 CFR § 60-2.17(b)(3), which the directive calls a “pay equity audit.” The regulations, however, do not require a “pay equity audit” but only that contractors “evaluate” their compensation systems for such disparities.

During a compliance audit, federal contractors have historically been required to provide the OFCCP with data related to employee compensation during the desk audit phase. If the desk audit reveals potential pay disparities or other initial indicators of discrimination, the OFCCP may seek additional information from the contractor so that it may investigate further. In accord with DIR 2022-01, however, the agency states that it also has the audit authority to request contractors’ “pay equity audit” and compliance records to confirm compliance with federal regulations and comes to a legal conclusion that “[c]ontractors cannot withhold these documents by invoking attorney-client privilege or the attorney work-product doctrine.” The OFCCP, however, acknowledges that contractors may conduct a completely separate “pay equity audit” for the purpose of obtaining privileged legal advice rather than for demonstrating compliance with federal regulations. And, provided that the contractor produces “an acceptable pay equity audit sufficient to demonstrate compliance with 2.17(b)(3), the OFCCP will not require production of these separate pay equity audits, to the extent that the contractor can verify that they were conducted under privilege.”

Considering the OFCCP’s continued and increasing targeted interest in pay equity, federal contractors should review their employee compensation data with care with one analysis aimed to confirm regulatory compliance and a separate analysis conducted under attorney-client privilege. While the particular requirements adopted by the FAR Council will be critical to determining compliance, contractors should assume more specific obligations will be imposed beyond the current pay equity strictures imposed by affirmative action plans and that relevant compliance may become a factor in source selection decisions. Should you need help with federal contracting compliance, please contact a member of Faegre Drinker’s OFCCP and affirmative action compliance team.