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Federal Contractors Bracing for More Government Pay Bias Probes

March 24, 2022, 8:56 AM

Companies doing business with the federal government are likely to see more enforcement demands from the U.S. Department of Labor’s contractor watchdog, under a proposed rule that would ease limits on the agency’s ability to bring pay discrimination claims.

Under its proposal to roll back a Trump-era rule, the Office of Federal Contract Compliance Programs would have the right to add violations in each stage of an investigation, and contractors would have a shorter period to respond to allegations. It also would give the office authority to issue a show-cause notice before a predetermination notice or notice of violation, if the contractor hasn’t given the OFCCP information it’s requested.

Contractors should start preparing for lengthy information requests without much explanation from the OFCCP, said Alissa Horvitz, an attorney with Roffman Horvitz PLC who specializes in federal contractor compliance.

“They’re setting us up for a battle involving pay and pay analysis,” Horvitz said. “By writing this sentence in this regulation, they’re about to wield show-cause threat much more often to try and get contractors to comply with requests for data.”

Patricia Shiu, a labor and employment consultant who led the OFCCP under former President Barack Obama, said the earlier rule, to which the proposed rule largely would revert, “provided valuable opportunities to resolve cases and I think served the interests of OFCCP and federal contractors.”

Ramping Up Enforcement

Companies expecting an OFCCP audit should be prepared to hand over troves of data, particularly as it relates to pay equity, attorneys said.

The proposed rule followed an agency directive saying that it would more closely scrutinize pay equity audits on contractors, and the rollout of an online portal for certification of contractors’ affirmative action plans.

The 2020 rule “imposed inflexible evidentiary requirements early in the compliance evaluation process” that constrained the agency from exercising its full enforcement authority, OFCCP Director Jenny Yang said in a blog post announcing the proposal.

According to Yang, the current rule wastes agency resources because of “time-consuming disputes” about whether the agency met the evidentiary standards. But, according to attorneys representing contractors, that rule led to a more efficient exchange between them and the OFCCP because they knew what specific claims they were facing.

“As a general rule if the employer knows what they’re facing in terms of a potential enforcement action brought by the OFCCP they can make a better informed decision, and that should lead to efficiency,” said Matthew Camardella, co-lead of Jackson Lewis P.C.'s OFCCP and government contract compliance practice.

The pay equity directive issued last week makes clear that contractors being audited should be prepared to hand over all information about their internal pay analyses.

The OFCCP publishes a Corporate Scheduling Announcement Letters list each fiscal year naming companies slated for audit. Companies that find themselves on the CSAL list should consider privileged self-audits and prepare to cough up pay data, Horvitz said.

‘Fishing Expedition’

The intention for the 2020 rule was to allow the agency to reach quick resolutions for workers facing discrimination, said Craig Leen, who led the office during the Trump administration.

“The goal here is not to do a fishing expedition,” said Leen, who is now a partner with K&L Gates LLP. “It is to audit contractors in a regular manner, and when disparities are found, correct them quickly. That’s the best use of OFCCP in my view.”

The agency and contractors’ disagreements boil down to whether a contractor gets due process when it is informed of potential noncomplianace.

If OFCCP detects evidence of discriminatory practices and wants more information, it issues a predetermination notice as a preliminary move, and requests more data.

Under the new rule, if the data shows potential noncompliance—or if contractors refuse to produce the data—the agency may file a notice of violation. If a resolution isn’t met, the agency follows with a show cause notice, which asks the contractor to prove why the OFCCP shouldn’t go forward with enforcement proceedings.

Just like in a trial court, the OFCCP should be able to conduct discovery after identifying signs of noncompliance, the agency said. The 2020 rule also limits the number of contractors the office can audit because they must meet the heightened evidentiary standard once they see preliminary signs of discrimination, which in turn takes up agency resources, the agency said.

To contact the reporter on this story: J. Edward Moreno at jmorenodelangel@bloombergindustry.com

To contact the editors responsible for this story: Keith Perine at kperine@bloomberglaw.com; Martha Mueller Neff at mmuellerneff@bloomberglaw.com