The Department of Labor’s Office of Federal Contract Compliance Programs (OFCCP) has published a final rule in the Federal Register codifying several existing procedures for resolving discrimination allegations.

The new rule is complex and well worth the read for compliance practitioners and attorneys and is meant to “provide contractors with greater certainty” regarding what to expect from the OFCCP during compliance evaluations and complaint investigations. Among the many notable provisions, the new rule:

• clarifies evidentiary standards;
• establishes new terms to describe the type of evidence the OFCCP must identify for different discrimination theories;
• codifies the consideration of “practical significance” in assessing potential violations;
• more clearly differentiates the procedures and burdens for disparate treatment and disparate impact theories;
• requires the OFCCP to explain the basis of findings, including details of statistical models; and,
• codifies the early resolution procedures currently used by directive.

The rule officially updates the agency’s regulations implementing Executive Order (E.O.) 11246, Section 503 of the Rehabilitation Act, and Section 4212 of the Vietnam Era Veterans’ Readjustment Assistance Act (VEVRAA). In doing so, the OFCCP has made several agency directives more “official” and binding on the agency.

The procedures are also more “permanent” in that major changes would require formal rule making, rather than simply rescinding or revising directives (which are sub-regulatory guidance documents that are not enforceable). This is not necessarily a nefarious move by any measure, though, and should provide a degree of stability in the upcoming change in White House administration.

Brief Background

Under current Director Craig Leen, the Department of Labor’s Office of Federal Contract Compliance Programs (OFCCP) has engaged in several initiatives to bring the agency’s enforcement practices back within the four corners of the law and established jurisprudence, and to increase transparency, communication, and information-sharing between the agency and federal contractor employers during the course of OFCCP audits and complaint investigations.

The agency has issued 19 new directives since 2018 on myriad issues along these lines such as:

• use of predetermination notices (PDNs);
• focused reviews;
• compensation analyses;
• transparency;
• compliance review procedures;
• efficiency in compliance evaluations;
• ombud service; and
• opinion letters and help desk.

The OFCCP has also issued a variety of additional guidance in the form of “frequently asked questions” (FAQs) providing much needed additional clarity to the agency’s enforcement approach and expectations.

Much to federal contractors’ frustration, however, the on-the-ground execution of OFCCP national office policies among the various regional and district offices has proven to be somewhat inconsistent, particularly with regard to standard procedures for evaluating potential employment selection discrimination and/or discrimination in compensation. Codifying these policies and practices in the agency’s implementing regulations should result in more uniformity.

Evidentiary Standards

Perhaps the largest frustration shared by any federal contractor that has undergone an OFCCP audit is the “moving target” of evidence to establish a discrimination violation, whether the allegation involves employment selection procedures or compensation practices. The agency has considerable leverage over federal contractor employers when bringing allegations of discrimination, knowing that most are unprepared and/or unwilling to engage in a protracted legal battle. This has, over the years, been subject to some degree of abuse, allowing the agency to skirt established jurisprudence and force settlements that otherwise might not hold up in court.

The new rule largely brings the OFCCP back in line with well-established Title VII enforcement principles and evidentiary standards in a number of ways, such as: explicitly recognizing and describing the requirements to bring allegations under differing theories of discrimination (disparate treatment vs. disparate impact); codifying a role for the consideration of practical significance; and more clearly defining statistical analysis methods and thresholds for inferring discriminatory practices.

Disparate Treatment or Disparate Impact?

The two theories of discrimination the OFCCP might employ are “disparate treatment” involving intentional adverse treatment based on protected characteristics, and “disparate impact” involving an otherwise neutral business practice that nonetheless has a discriminatory effect. While these two theories are very different, they do share some similarities, particularly in the use of statistical evidence.

Both disparate treatment and disparate impact claims can be established using statistical evidence, but the former also requires a showing of intent. Outside of complaint investigations, the OFCCP relies almost entirely on a disparate impact framework, which does not require intent. However, when the statistical analyses indicate discrimination, that presumption is rebuttable and, if the employer can demonstrate that the practice in question is a legitimate “business necessity,” the claim will likely fail unless the plaintiff can demonstrate that alternative practices exist that would meet the business needs of the employer without discriminatory effect or if intent is introduced as a factor.

If that all sounds complicated, it’s because it is! And the OFCCP is often confused about what is required to bring a disparate impact claim vs. a disparate treatment one. A common practice over the years has been to either simply refuse to specify the discrimination theory being alleged, or to allege both, leaving contractor employers to guess at how to mount a sufficient defense. Those practices should end with this new rule.

“Qualitative” vs. “Quantitative” Evidence

If the brief discussion above regarding disparate treatment vs. disparate impact theories of discrimination was confusing, it gets even more complicated when we talk about the types of evidence required for each, why, and when. As noted, both can be established through statistical evidence, and the OFCCP tends to prefer to pretend that statistical evidence is all that is ever required.

When the difference in selection rates among protected groups is large enough, the statistical evidence alone can establish a claim. But when the difference is enough to be suspicious but not conclusive and/or the sample sizes are small, demographics of the selection pool are particularly lopsided, etc.. At that point, “anecdotal” evidence is often required by courts to eliminate other possible explanations for the complained-of disparity. In a disparate treatment claim, anecdotal evidence is critical to establish intent.

The new rule jettisons the relatively strict terms, “statistical evidence” and “anecdotal evidence,” in favor of the broader terms, “quantitative” and “qualitative,” respectively. This is largely because “statistical” evidence is too narrow and potentially excludes non-statistical evidence such as cohort comparisons and summary data. Statistical models are often very powerful and useful evidence, but do have limitations, and the OFCCP wants to make sure that other “numbers” evidence is included under the “statistical” umbrella for the purpose of showing discrimination. This is not particularly controversial, though, and mostly acts as a clarification of existing practice.

Practical Significance

To further complicate the discussion surrounding statistical evidence of discrimination, common analysis models can, in certain circumstances, “show” discrimination in an employment practice where the actual harm is relatively minor. While the OFCCP would like to eliminate all degrees of employment discrimination (as would most employers), the practical reality is that compliance and enforcement resources are limited. The general consensus is that those resources should be engaged where they can do the most good first; i.e., eliminating the most harm. Spending months and months investigating and potentially litigating a case in which an employment practice may have resulted in just one or two people being adversely affected over a 12-18 month period (the typical relevant period in an audit) is arguably a waste of resources if practices that harm dozens or even hundreds go unchecked.

Enter the concept of practical significance. The new rule describes it this way:

“The concept focuses on the contextual impact or importance of the disparity, rather than its likelihood of occurring by chance as in measures of statistical significance. OFCCP uses measures of practical significance as a tool of enforcement discretion to ensure it is targeting the strongest cases in its compliance reviews with the most compelling evidence, as well as a safeguard against the limitations of statistical modeling when attempting to explain complex human phenomena.”

By and large, this is good news for federal contractor employers as it allows them to allocate and focus their own compliance resources where they can do the most good first without fear of punishment by the OFCCP. However, it is worth noting that practical significance can go “both ways.”

We typically think of practical significance as a sort of “stop gap” against making a mountain out of a molehill—in other words, where there is clearly statistical significance though the impact is relatively slight. But the OFCCP is very interested in another scenario in which the statistical significance is slight, or even questionable, but the practical impact is relatively large. The concept of practical significance can, in certain circumstances, bolster a relatively weak statistical case into something the OFCCP can deem worthy of pursuit.

Information Sharing

Perhaps one of the most important aspects of the new rule is codifying the agency’s recent efforts regarding transparency and information sharing. For years, contractors have struggled to get basic information out of the OFCCP regarding the basis of their claims. If challenged in court, there would be discovery and full disclosure of evidence and analysis methodologies by both sides, but the OFCCP knows that contractors are far more likely to settle rather than buckle up and pay for a protracted legal battle. So, while grousing about contractors’ tendency to “hide the ball” in audits and investigations, the agency has often responded by keeping contractors in the dark and unable to mount any sort of defense.

Those practices have largely ended under current OFCCP Director Craig Leen, but not entirely. The new rule codifies the agency’s responsibility to “show its cards” when bringing discrimination allegations and should result in more transparency and more uniformity of practice across the various OFCCP field offices.

Conclusion

As noted above, the new rule should generally be welcomed by the federal contracting community. But, as in all things, the devil is in the details. BCGi strongly recommends that compliance personnel and legal professionals familiarize themselves with the new rule and be prepared to hold OFCCP compliance officers and district and regional directors to these new provisions.

If you have any questions or concerns, feel free to contact your BCG consultant or BCGi at bcgi@biddle.com.