OFCCP Self Audit Option: A Trojan Horse?

The Office of Federal Contract Compliance Programs’ recent gift to contractors — a program under which contractors can submit their own analyses of equal-pay compliance — might prove to be a Trojan horse. The OFCCP is asking companies to do its work for it by performing internal evaluations of equal-pay compliance. In return, the OFCCP will accept and defer to the employer’s self-evaluation if the evaluation conforms to OFCCP guidelines.

The incentives for employers to choose this self-evaluation route are not insignificant: audits conducted by the OFCCP are invasive, time consuming and in many cases the OFCCP auditors make questionable decisions regarding which employees are to be considered “similarly situated.” In addition, OFCCP auditors often do not disclose their methodology when claiming to have discovered a compensation disparity, making it extremely difficult or impossible for the contractor to rebut noncompliance charges. By performing a self -evaluation, the contractor avoids these problems and gets to play on its own turf.

However, there is a huge downside: Companies that accept the self-evaluation incentive leave themselves open to having their self-evaluations discovered by plaintiffs and used as evidence in discrimination actions. In addition, the self-evaluation option locks the employer in to whatever it selects as “similarly situated employee groups.” This selection can come back to haunt the employer in employment-discrimination litigation — once an SSEG designation is made for purposes of the self-evaluation, it will be difficult to argue that a protected employee claiming discrimination is not part of a similarly situated group.

The self-evaluation option is potentially much more trouble than it is worth. Law firms are warning employers against choosing the self-evaluation option, at least without extremely careful consideration.

Littler Mendelson, the national labor and employment firm, has taken a resistant stance on its Web site, cautioning employers to simply say no to the self-evaluation option: “Given the OFCCP’s admission about the extent to which its investigative processes produce ‘false positive’ and ‘false negative’ results, it makes no strategic sense that employers would want to proactively disclose to the OFCCP their confidential and proprietary compensation data, their strategies and thought processes in developing the SSEGs and regression models, documents evidencing pay disparities for women and minorities, an the amount of any remedies awarded.”

Morgan Lewis, another leading national firm, suggests on its Web site that employers conduct a privileged assessment of compensation data prior to responding to any OFCCP inquiries. Presumably, the privilege would result from outside counsel overseeing the analysis — the analysis would be considered attorney work product.

This option has its advantages: a preliminary, quick and relatively cheap internal audit might uncover red flags that might trigger OFCCP enforcement action and give the employer time to address whatever problems might exist.

What would such a preliminary, privileged analysis entail? Economists at the Center for Forensic Economic Studies have developed a series of easily administered statistical tests that would indicate any OFCCP compliance problem areas. These Chi-square tests and T-tests mimic the first-tier assessment the OFCCP would use. The tests, analyzing data typically kept by employers and generally not requiring extensive data-gathering, can quickly reveal any statistically significant pay disparities. If such disparities exist, full-blown regression analyses might then be conducted that could isolate mitigating variables explaining the disparity, or, failing that, the employer could rectify any disparities. If the tests are performed under the direction of outside counsel, they are privileged under attorney-client and attorney work product protections.

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