OFCCP Revises Recent Directive on Compensation Analysis

On August 18, 2022, the U.S. Department of Labor’s (DOL) Office of Federal Contract Compliance Programs (OFCCP) revised Directive 2022-01 (DIR 2022-01) to clarify its earlier guidance addressing federal government contractors’ regulatory requirement to evaluate compensation as part of their affirmative action programming. Originally referred to as the “pay equity audit,” OFCCP Director Jenny Yang noted in her accompanying DOL blog post that the change in terminology from “pay equity audit” to “compensation analysis” was made to avoid any confusion regarding the nature of contractor obligations.  

Along with the change in terminology, revised DIR 2022-01 states that supply and service contractors are required as part of every contractor’s affirmative action obligations to “perform an in-depth analysis” of their compensation systems to determine whether there are gender-, race- or ethnicity-based disparities in accordance with 41 CFR § 60-2.17(b)(3). However, the regulations do not explicitly require a “compensation analysis,” but rather provide only that contractors must “evaluate” their compensation systems for such disparities. 

Nonetheless, the OFCCP maintains in its revised directive that supply and service contractors are required to conduct the analysis and “must maintain and make available to OFCCP documentation of their compliance with. . . [41 CFR] 60-2.17” pursuant to 41 CFR 60-2.10. In accord with the revised DIR 2022-01, the OFCCP states that it has the audit authority to request contractors’ compensation analysis and compliance records to confirm compliance with federal regulations. Therefore, contractors are encouraged to make their full compensation analyses available as the most useful documentation for demonstrating compliance. 

The OFCCP reiterated its position that contractors who believe their full compensation analysis contains privileged attorney-client communications may provide the required information in a form that does not breach attorney client privilege. The OFCCP gave three examples for the provision of non-privileged information:

• Submitting a redacted compensation analysis 
• Conducting an additional non-privileged analysis 
• Generating an affidavit setting forth the required information 

However, revised DIR 2022-01 warns that contractors will not be found in compliance with their compensation analysis obligations if they simply invoke privilege without providing sufficient documentation of compliance because documentation of contractor compliance is not inherently privileged.

As previously reported, given the OFCCP’s continued interest in pay equity and its expansion of the compensation analysis requirement, federal contractors should consider carefully reviewing their employee compensation data with one analysis aimed to confirm regulatory compliance and a separate analysis conducted under attorney-client privilege. Should you need help with federal contracting compliance, please contact a member of Faegre Drinker’s OFCCP and affirmative action compliance team.