Shortly after the release of Directive 2022-01 back in March, 2022, alarm bells and outcries rang out that the “OFCCP is coming for your privileged pay equity audits!!”.  As BCGi’s Matt Nusbaum noted in his post, the OFCCP does not get to sidestep the longstanding precedent of attorney-client privilege.  This revision settles the issue once and for all: the OFCCP is not coming for your privileged audits. Directive 2022-01 Revision 1 also includes several other significant changes from the original directive:

1. Contractors have several options to consider when providing the OFCCP documentation on their pay equity audit
2. The required documentation from contractors during an OFCCP audit has been expanded, as well as the recommended documentation
3. The OFCCP is holding contractors accountable to any disparities they uncover in the compliance-oriented pay equity audit and contractors will need documentation showing their action-oriented programs to address those disparities.

We break down each of these new revisions for you below.

This revision is a much-welcomed clarification among contractors, legal counsel, and pay equity consultants!  While the confirmation that privileged pay equity audits will remain protected, there are a few other not-so-subtle additions and changes to DIR 2022-01 Revision 1 that are noteworthy in Section 7.b.:

1. Contractors have several options for the documentation they must produce to the OFCCP during an audit. Contractors have essentially three options for gathering information about their pay equity analyses:

• Make available a redacted version of its full compensation analysis, provided the non-redacted portions have the required information
• Conduct a separate analysis during the relevant AAP period NOT under privilege and provide the entire analysis
• Generate a detailed affidavit containing the necessary information and may exclude the privileged information

These three options afford contractors flexibility in both the documentation they provide and the source of the information they use to produce those documents.  The main take-away here is unless you plan to give all of your pro-active pay equity audit information to the OFCCP, ensure that you engage legal counsel to conduct the pro-active audit under privilege for legal risk purposes.

2. The required documentation now includes a wealth of information not previously required:

• Date the analysis was completed
• Number of employees included and excluded in the analysis
• Types of compensation analyzed (e.g., base pay, bonus, total compensation)
• Analysis by race, ethnicity, and gender
• The statistical methods used (e.g., multiple regression, meta-analytic tests of z-scores, comparatio regression, average pay ratio, etc.).

There are two major points here.  First, there is a major shift here in the requirement for provision of all of this information in a compliance evaluation.  None of this is terribly difficult to provide and would likely be provided regardless during an audit, but DIR 2018-05 and DIR 2022-01 did not explicitly state this information was required. Second, and more importantly, is the example list of statistical methods.  Contractors will now see a variety of terms they have likely not previously seen or heard, including things like “meta-analysis.”  Biddle and the OFCCP recently co-presented at the 2022 NILG Conference to introduce this concept to the contractor community.  While this will not be the ‘norm’ for some time to come, the OFCCP is making it very clear that their intention is to step up the level of rigor in their pay equity analyses and are expecting contractors to follow suit.  While using statistical analyses is not a requirement, the contractor must at least describe the analysis the did use.  Keep in mind that the list of analyses in the revision are merely examples, and it just so happens that the list of examples does not include what most contractors provide, which is simple averages by protected group by SSEG (e.g., job title). That is still completely acceptable for compliance purposes, so do not be intimidated by the long list of more technical examples.  However, do take note that during an audit, you may encounter such analyses from the OFCCP and you should be prepared to answer to any disparities that are found using such analyses.

3. In, addition to the required information above, the OFCCP recommends contractors also provide the following:

• The employee groupings evaluated (i.e., SSEGs)
• An explanation of how the SSEGs were created
• Control variables used in the analysis (e.g., time in company, performance ratings)
• Model statistics from the analysis (e.g., b-coefficients, F-tests)

Providing this information on a voluntary basis is another step by the OFCCP to lead contractors into thinking they need to conduct regression or other statistical analyses for compliance purposes.  You do not.  The employee groupings, or SSEGs, would be a given in the results and is almost unnecessary to be listed here.  Contractors should think carefully about providing the remaining three pieces of information voluntarily.

4. Finally, in a significant addition, the OFCCP is now holding contractors accountable to act on any disparities found in the pay equity analyses they submitted for compliance purposes.  The OFCCP will now require documentation of:

• The nature and extent of any pay disparities found, including the SSEGs, degree of impact, groups affected
• Whether the disparity was investigated
• That the contractor has instituted an action-oriented program to correct the disparity
• The nature and scope of the program (e.g., pay increases, changed to practices)
• How the impact of the program will be evaluated

In sum, the directive provides some much-needed clarity to the issue of attorney-client privilege and the OFCCP’s right to view contractors’ pro-active pay equity audits.  It is clear now that the OFCCP is not coming for those privileged analyses.  However, the signaling from the OFCCP to conduct more rigorous pay equity audits AND to address any disparities is abundantly clear in this revision.  Contractors would be wise to revisit their current pay equity analyses and evaluate their position in a potential audit.  The OFCCP is saying it loud and clear now: step up the rigor in your pay equity analyses and take action to resolve problems.

If you have additional questions about the OFCCP Directive 2022-01 Revision 1, please contact us at bcgi@biddle.com.