OFCCP Says Employer Compensation Analysis No Longer Privileged

A new Office of Federal Contract Compliance Programs directive claims the agency has the right to obtain federal contractors' compensation analyses conducted by outside counsel, which have traditionally been considered privileged and confidential. According to the directive, refusal to provide such compensation evaluation will be considered an “admission of non-compliance.”

OFCCP regulations require federal contractors to periodically evaluate their compensation systems to determine if there are any gender, race, or ethnicity-based disparities. Contractors often use outside counsel to conduct the analysis and simultaneously to provide advice and guidance to address any shortcomings under the attorney-client privilege. Historically, OFCCP has respected the confidential nature of these analyses and has not required contractors to produce them during the agency’s affirmative action audits. Last November, in an HR Policy webinar, OFCCP Director Jenny Yang signaled the agency would reassess that approach 

The new directive asserts “OFCCP’s authority to access and review pay equity audits” conducted by contractors. During compliance evaluations, OFCCP may now ask for a contractor’s pay equity audits in addition to requesting more compensation data, interviews, and employment records. Pay audits done for purposes of compliance with OFCCP requirements, regardless of whether they are conducted by outside counsel, will no longer be protected by attorney-client privilege. However, separate pay audits conducted for purposes unrelated to OFCCP compliance purposes—such as for legal advice—may still be protected by attorney-client privilege.

Step in the wrong direction? HR Policy has been advocating for incentivizing employers to perform self-audits of their pay practices by providing a safe harbor against litigation or enforcement. Having the ability to conduct privileged audits is key to providing that incentive.

Meanwhile, a new executive order directs the FAR Council to “consider” publishing rules banning federal contractors from using applicants’ salary history in employment decisions. Under the EO, the Federal Acquisition Regulation Council is expected to propose rules limiting or prohibiting the use of any current or past salary information from employees and applicants in employment decisions. Currently, 19 states and 21 local jurisdictions have enacted some form of salary history ban. It would take the FAR Council at least 90 days to propose and finalize rules regarding salary histories.

Takeaways: The new OFCCP directive represents a significant change from the agency’s past practices and signals OFCCP will be aggressive in exploring compensation issues during audits. Contractors should carefully review their processes and consult with counsel to ensure they can demonstrate compliance with regulatory requirements while also protecting privileged compensation analyses.