[Federal Register Volume 69, Number 220 (Tuesday, November 16, 2004)]
[Notices]
[Pages 67246-67252]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-25401]



[[Page 67245]]

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Part III





Department of Labor





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Employment Standards Administration



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Office of Federal Contract Compliance Programs; Interpreting 
Nondiscrimination Requirements of Executive Order 11246 With Respect to 
Systemic Compensation Discrimination; Guidelines for Self-Evaluation of 
Compensation Practices for Compliance With Nondiscrimination 
Requirements of Executive Order 11246 With Respect to Systemic 
Compensation Discrimination; Notices

  Federal Register / Vol. 69, No. 220 / Tuesday, November 16, 2004 / 
Notices  

[[Page 67246]]


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DEPARTMENT OF LABOR

Employment Standards Administration


Office of Federal Contract Compliance Programs; Interpreting 
Nondiscrimination Requirements of Executive Order 11246 With Respect to 
Systemic Compensation Discrimination, Notice

AGENCY: Office of Federal Contract Compliance Programs, Employment 
Standards Administration, Department of Labor.

ACTION: Notice of proposed standards for systemic compensation 
discrimination under Executive Order 11246; request for comments.

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SUMMARY: The Office of Federal Contract Compliance Programs requests 
comments on proposed standards for systemic compensation discrimination 
under Executive Order 11246.

DATES: Comments must be submitted by the following dates:
    Hard Copy: Your comments must be postmarked by December 16, 2004.
    Facsimile: Your comments must be sent by December 16, 2004.

ADDRESSES: Comments should be submitted to Joseph DuBray, Jr., 
Director, Division of Policy, Planning and Program Development, OFCCP. 
Electronic mail is the preferred method for submittal of comments. 
Comments by electronic mail must be clearly identified as pertaining to 
the notice interpreting nondiscrimination requirements of Executive 
Order 11246 with respect to systemic compensation discrimination, and 
sent to [email protected]. As a convenience to commenters, public 
comments transmitted by facsimile (FAX) machine will be accepted. The 
telephone number of the FAX receiver is (202) 693-1304. To assure 
access to the FAX equipment, only public comments of six or fewer pages 
will be accepted via FAX transmittal. Where necessary, hard copies of 
comments, clearly identified as pertaining to the notice of proposed 
standards and methodologies for evaluating contractors' and 
subcontractors' compensation practices, may also be delivered to Joseph 
DuBray, Jr., Director, Division of Policy, Planning and Program 
Development, OFCCP, Room C-3325, 200 Constitution Avenue, NW., 
Washington, DC 20210. Because of delays in mail delivery, OFCCP 
suggests that commenters planning to submit comments via U.S. Mail 
place those comments in the mail well before the deadline by which 
comments must be received. Receipt of submissions will not be 
acknowledged, except that the sender may request confirmation of 
receipt by calling OFCCP at (202) 693-0102 (voice), or (202) 693-1308 
(TTY).

FOR FURTHER INFORMATION CONTACT: Joseph DuBray, Jr., Director, Division 
of Policy, Planning and Program Development, OFCCP, Room C-3325, 200 
Constitution Avenue, NW., Washington, DC 20210. Telephone (202) 693-
0102 (voice), or (202) 693-1308 (TTY). Copies of this notice in 
alternative formats may be obtained by calling (202) 693-0102 (voice), 
or (202) 693-1308 (TTY). The alternative formats available are large 
print, electronic file on computer disk, and audiotape. The Notice is 
available on the Internet at http://www.dol.gov/esa.

SUPPLEMENTARY INFORMATION:

I. Introduction

A. OFCCP Compliance Reviews Focus on Systemic Compensation 
Discrimination

    The Department of Labor's Office of Federal Contract Compliance 
Programs (OFCCP) enforces Executive Order 11246, which prohibits 
covered federal contractors and subcontractors from making employment 
decisions on the basis of race, color, national origin, religion, or 
sex.\1\
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    \1\ The Administrative Review Board, and, before its creation, 
the Secretary of Labor, have turned to Title VII standards for 
determining compliance with the nondiscrimination requirements of 
E.O. 11246. See, e.g., OFCCP v. Greenwood Mills, Inc., 89-OFC-039, 
ARB Final Decision and Order, December 20, 2002, at 5; OFCCP v. 
Honeywell, 77-OFCCP-3, Secretary of Labor Decision and Order on 
Mediation, June 2, 1993, at 14 and 16, Secretary of Labor Decision 
and Remand Order, March 2, 1994. The EEOC has issued guidance on 
compensation discrimination in the form of a chapter in the EEOC 
Compliance Manual on ``Compensation Discrimination.'' EEOC Directive 
No. 915.003 (Dec. 5, 2000). EEOC is the agency with primary 
enforcement responsibility for Title VII and its reasonable 
interpretations of Title VII are given some deference by the courts. 
See Gen. Elec. Co. v. Gilbert, 429 U.S. 125, 141-42 (1976). E.O. 
11246 has been amended several times since its original 
promulgation. For ease of reference, ``E.O. 11246'' or ``Executive 
Order 11246'' as used hereinafter refers to Executive Order 11246, 
as amended.
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    OFCCP conducts compliance reviews to determine whether covered 
contractors have been engaging in workplace discrimination prohibited 
by E.O. 11246. As part of its compliance review process, OFCCP 
investigates whether contractors' pay practices are discriminatory.
    OFCCP compliance reviews typically produce cases that involve 
allegations of systemic discrimination, not discrimination against a 
particular individual employee. OFCCP systemic compensation 
discrimination cases typically are proven under a disparate treatment, 
pattern or practice theory of discrimination.\2\ The burdens of 
persuasion necessary to succeed on a discrimination claim differ 
depending on whether the case involves allegations of a pattern or 
practice of discrimination or allegations that a particular individual 
was subjected to discrimination. In a case involving alleged 
discrimination against a particular individual, the plaintiff must 
establish by a preponderance of the evidence that the employer made the 
challenged employment decision because of the individual's race, color, 
religion, sex, or national origin. United States Postal Service Bd. of 
Governors v. Aikens, 460 U.S. 711, 715 (1983). In a pattern or practice 
case, ``plaintiffs must ``establish by a preponderance of the evidence 
that racial discrimination was the company's standard operating 
procedure--the regular rather than the unusual practice.'' Teamsters v. 
United States, 431 U.S. 324, 336 (1977).'' Bazemore v. Friday, 478 U.S. 
385, 398 (1986).
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    \2\ The term ``systemic compensation discrimination'' used 
hereinafter references compensation discrimination under a disparate 
treatment, pattern or practice theory of discrimination.
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    In addition to differences in the burdens of persuasion as between 
cases involving alleged discrimination against a particular individual 
and an alleged pattern or practice of discrimination, the burdens of 
production necessary to survive a motion for summary disposition are 
different between the two types of cases. In both types of cases, a 
plaintiff bears the initial burden of presenting a prima facie case of 
discrimination. There is no precise set of requirements for a 
plaintiff's prima facie case. ` ``The facts necessarily will vary in 
title VII cases, and the specification * * * of the prima facie proof 
required from [a plaintiff] is not necessarily applicable in every 
respect to differing factual circumstances.' '' Int'l Bhd. of Teamsters 
v. United States, 431 U.S. 324, 358 (1977) (quoting McDonnell Douglas, 
411 U.S. at 802 n. 13). ``The importance of McDonnell Douglas lies, not 
in its specification of the discrete elements of the proof there 
required, but in its recognition of the general principle that any 
Title VII plaintiff must carry the initial burden of offering evidence 
adequate to create an inference that an employment decision was based 
on a discriminatory criterion illegal under [Title VII].'' Teamsters, 
431 U.S. at 358.
    In an individual case, the plaintiff typically must rely on 
evidence pertaining to his or her own circumstances to establish a 
prima facie

[[Page 67247]]

case of discrimination. The prima facie case creates a presumption of 
discrimination that the employer may rebut by articulating a legitimate 
nondiscriminatory reason for the alleged discriminatory employment 
decision. McDonnell Douglas Corp. v. Green, 411 U.S. 792, 802 (1973). 
The employer must produce admissible evidence of a legitimate, 
nondiscriminatory reason for the challenged employment decision. Texas 
Dep't of Community Affairs v. Burdine, 450 U.S. 248, 254 (1981). 
``Th[e] [employer's] burden is one of production, not persuasion; `it 
can involve no credibility assessment.' '' Reeves v. Sanderson Plumbing 
Products, Inc., 530 U.S. 133, 142 (2000) (quoting St. Mary's Honor 
Center v. Hicks, 509 U.S. 502, 509 (1993)). Once the employer 
articulates a legitimate nondiscriminatory reason for the challenged 
employment decision, the plaintiff is afforded the opportunity to prove 
that the employer's articulated reason is a pretext for discrimination. 
McDonnell Douglas, 411 U.S. at 804; Reeves, 530 U.S. at 142. ``Proof 
that the [employer's] explanation is unworthy of credence is simply one 
form of circumstantial evidence that is probative of intentional 
discrimination. * * *'' Reeves, 530 U.S. at 147. ``Other evidence that 
may be relevant to any showing of pretext includes * * * [the 
employer's] general policy and practice with respect to minority 
employment. * * * On the latter point, statistics as to [the 
employer's] employment policy and practice may be helpful to a 
determination of whether [the employer's actions] * * * conformed to a 
general pattern of discrimination * * *'' McDonnell Douglas, 411 U.S. 
at 804-05.
    In a pattern or practice case, the plaintiffs' ``initial burden is 
to demonstrate that unlawful discrimination has been a regular 
procedure or policy followed by an employer. * * *'' Teamsters, 431 
U.S. at 360. ``The burden then shifts to the employer to defeat the 
prima facie showing of a pattern or practice by demonstrating that the 
[plaintiffs'] proof is either inaccurate or insignificant.'' Id. ``The 
employer's defense must, of course, be designed to meet the prima facie 
case of the [plaintiffs] * * * '' which typically focuses on ``a 
pattern of discriminatory decisionmaking.'' Id., at 360 n. 46. However, 
there are no ``particular limits on the type of evidence an employer 
may use.'' Id.
    Despite these differences in the burdens of persuasion and 
production, however, once the plaintiff has offered evidence that is 
sufficient to establish a prima facie case, and the employer has 
produced evidence that is sufficient to rebut the prima facie case, 
then the factfinder must decide whether plaintiffs have demonstrated 
discrimination by a preponderance of the evidence. ``[O]ur decision in 
United States Postal Service Board of Governors v. Aikens, 460 U.S. 711 
(1983), although not decided in the context of a pattern-and-practice 
case, makes clear that if the defendants have not succeeded in having a 
case dismissed on the ground that plaintiffs have failed to establish a 
prima facie case, and have responded to the plaintiffs' proof by 
offering evidence of their own, the factfinder then must decide whether 
the plaintiffs have demonstrated a pattern or practice of 
discrimination by a preponderance of the evidence. This is because the 
only issue to be decided at that point is whether the plaintiffs have 
actually proved discrimination. Id., at 715.'' Bazemore, 478 U.S. at 
398.

B. OFCCP Has Not Issued Significant Interpretive Guidance on Systemic 
Compensation Discrimination Under Executive Order 11246

    In 1970, the Department of Labor published ``Sex Discrimination 
Guidelines,'' codified at 41 CFR Part 60-20, which included a section 
(60-20.5) on ``[d]iscriminatory wages.'' 35 FR 8888 (June 9, 1970). The 
Sex Discrimination Guidelines (SDG) do not provide specific standards 
for determining systemic compensation discrimination for OFCCP or a 
contractor.\3\ Rather, the SDG provide that ``[t]he employer's wages 
(sic) schedules must not be related to or based on the sex of the 
employees,'' and contains a short ``note'' that references the ``more 
obvious cases of discrimination * * * where employees of different 
sexes are paid different wages on jobs which require substantially 
equal skill, effort and responsibility and are performed under similar 
working conditions.'' 41 CFR 60-20.5(a) (2004). OFCCP has not 
promulgated any definitive interpretation of the SDG, nor has a 
definitive interpretation arisen through longstanding agency 
practice.\4\
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    \3\ By contrast to sex-based compensation discrimination, OFCCP 
has published regulations providing specific guidance with respect 
to hiring discrimination. Thus, OFCCP is a signatory to the Uniform 
Guidelines on Employee Selection Procedures (UGESP), which provide 
formal guidance as to how OFCCP evaluates contractors' selection 
procedures to determine compliance with E.O. 11246. See 41 CFR Part 
60-3. Before being published as a final rule, 43 Fed. Reg. 38290 
(August 25, 1978), UGESP was published in the Federal Register as a 
proposed rule and subject to public comment. See 42 Fed. Reg. 65542 
(December 30, 1977).
    \4\ The proposed standards contained in this Notice are intended 
to provide definitive interpretations of both the SDG and E.O. 11246 
with respect to systemic compensation discrimination, regardless of 
the specific basis (e.g., sex, race, national origin, etc.) of the 
discrimination.
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    Instead, OFCCP has provided only a general policy statement about 
compensation discrimination in the preamble to a May 4, 2000 Notice of 
Proposed Rulemaking (NPRM). In the May 4, 2000 NPRM, OFCCP formally 
expressed the Department of Labor's policy regarding compensation 
analysis:
    More recently, an additional objective of the proposed revision has 
been to advance the Department of Labor's goal of pay equity; that is, 
ensuring that employees are compensated equally for performing equal 
work.
    65 FR 26089 (May 4, 2000).
    This stated policy was reflected in several significant settlements 
in systemic compensation discrimination cases in which OFCCP relied on 
sophisticated multiple regression analyses to remedy an alleged 
violation of E.O. 11246. OFCCP has not, however, published formal 
guidance providing any interpretation of E.O. 11246 with respect to 
systemic compensation discrimination.

C. OFCCP's Informal Approaches to Systemic Compensation Discrimination 
in the Late 1990s Involved the Controversial ``Pay Grade Theory''

    In the late-1990s several OFCCP regions began to use a 
controversial ``grade theory'' approach to compensation discrimination 
analysis.\5\
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    \5\ Although used in practice by several OFCCP regions for 
several years, the grade theory was never formally adopted by OFCCP.
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    The basic unit of analysis under the grade theory is the pay grade 
or pay range. Under this theory, it is assumed that employees are 
similarly situated with respect to evaluating compensation decisions 
regarding such employees if the contractor has placed their jobs in the 
same pay grade:
    By the very act of creating a grade level system, where each 
employee has approximately the same potential to move from the minimum 
to the maximum of his/her grade range dependent upon performance, the 
employer has recognized that certain jobs are essentially similar in 
terms of skill, effort and responsibility.
    ``Systemic Compensation Analysis: An Investigatory Approach'' 
(hereinafter ``SCA''), at 5. A later paper, ``Update on Systemic 
Compensation Analysis'' (hereinafter, ``Update''), also described this 
pay grade assumption:

[[Page 67248]]

    Where we determine that each employee in a salary grade system has 
the same opportunity, subject to performance, to move to the maximum 
rate of the salary grade range without a change in job title, we 
believe the employer * * * has already identified certain jobs as 
having similar value to the organization.
    Update, at 6.\6\
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    \6\ OFCCP officials informally distributed the SCA and the 
Update in the late 1990's. They were not published by OFCCP nor did 
they bear any indication of formal agency approval, e.g., they were 
not printed on OFCCP letterhead.
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    After identifying employees in the same pay grade, one version of 
the grade theory method called for a comparison of the median 
compensation of males versus females, and minorities versus non-
minorities in each pay grade. SCA, at 6; Update, at 7. If there was a 
``significant'' difference (although ``significant'' was not defined) 
in median compensation between males/females or minorities/non-
minorities within a given pay grade, then the next step was to assess 
whether this disparity is explained by median or average differences in 
other factors, such as time in grade, prior experience, education, and 
performance. SCA, at 7; Update, at 11. However, this method did not use 
tests of statistical significance in determining whether a pattern of 
compensation discrimination exists. If a ``pattern'' of pay disparities 
(although ``pattern'' was not defined) emerged not explicable by 
analysis of median or average differences in time in grade, prior 
experience, or other factors, OFCCP alleged that the contractor 
violated the nondiscrimination requirements of E.O. 11246. Update, at 
15.
    In another version of the grade theory method used by some OFCCP 
regions in the late 1990s,\7\ the pay grade was included as a factor in 
a regression model that typically covered all exempt employees in the 
workplace within a single, ``pooled'' regression. The regression 
typically included factors such as time in grade, experience, and 
education. This method did rely on tests of statistical significance, 
although rarely did OFCCP develop anecdotal evidence to support the 
statistical analysis under this method.
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    \7\ This method was not described in materials made available to 
the general public. The method was used primarily in OFCCP's 
Southeast Region.
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D. The Pay Grade Theory Is Inconsistent With Title VII Standards

    OFCCP has discontinued using these pay grade methods because the 
agency has determined that the methods' principal assumptions related 
to pay grade or pay range do not comport with Title VII standards as to 
whether employees are similarly situated. OFCCP recognizes that, with 
respect to compensation discrimination, similarity in job content, 
skills and qualifications involved in the job, and responsibility level 
are crucial determinants of whether employees are similarly situated 
under Title VII. See, e.g., EEOC Compliance Manual on ``Compensation 
Discrimination,'' EEOC Directive No. 915.003 (Dec. 5, 2000), at 10-5 to 
10-8 [hereinafter referenced as ``CMCD''] \8\; Block v. Kwal-Howells, 
Inc., No. 03-1101, 2004 WL 296976, at *2-*4 (10th Cir. Feb. 17, 2004); 
Williams v. Galveston Ind. Sch. Dist., No. 03-40436, 78 Fed. Appx. 946, 
949-50, 2003 WL 22426852 (5th Cir. Oct. 23, 2003); Verwey v. Illinois 
Coll. of Optometry, 43 Fed. Appx. 996, 2002 WL 1836507, at *4 (7th Cir. 
Aug. 9, 2002); Lang v. Kohl's Food Stores, Inc., 219 F.3d 919, 922-23 
(7th Cir. 2002); Rodriguez v. SmithKline Beecham, 224 F.3d 1, 8 (1st 
Cir. 2000); Coward v. ADT Sec. Sys., Inc., 140 F.3d 271, 274 (D.C. Cir. 
1998); Aman v. Cort Furniture Rental Corp., 85 F.3d 1078, 1087 (3d Cir. 
1996); Sprague v. Thorn Americas, Inc., 129 F.3d 1355, 1362 (10th Cir. 
1997); Tomka v. Seiler Corp., 66 F.3d 1295, 1310-11 (2d Cir. 1995), 
abrogated on other grounds by Burlington Indus., Inc. v. Ellerth, 524 
U.S. 742 (1998); Mulhall v. Advance Sec., Inc., 19 F.3d 586, 598 (11th 
Cir. 1994); Brinkley-Obu v. Hughes Training, Inc., 36 F.3d 336, 343 
(4th Cir. 1994); Miranda v. B&B Cash Grocery Store, Inc., 975 F.2d 
1518, 1526-31 (11th Cir. 1992); EEOC v. Sears, Roebuck & Co., 839 F.2d 
302, 243-53 (7th Cir. 1988); Marcoux v. State of Maine, 797 F.2d 1100, 
1107 (1st Cir. 1986); Eastland v. Tennessee Valley Auth., 704 F.2d 613, 
624-25 (11th Cir. 1983); Woodward v. United Parcel Serv., Inc., 306 F. 
Supp.2d 567, 574-75 (D. S.C. 2004); Lawton v. Sunoco, Inc., No. 01-
2784, 2002 WL 1585582, at *7 (E.D. Pa. Jul 17, 2002); Stroup v. J.L. 
Clark, No. 99C50029, 2001 WL 114404, at *6 (N.D. Ill. Feb. 2, 2001); 
Donaldson v. Microsoft Corp., 205 F.R.D. 558, 563 (W.D. Wash. 2001); 
Dobbs-Weinstein v. Vanderbilt Univ., 1 F. Supp.2d 783, 803-04 (M.D. 
Tenn. 1998); Beard v. Whitley Co. REMC, 656 F. Supp. 1461, 1471-72 
(N.D. Ind. 1987); Dalley v. Michigan Blue Cross/Blue Shield, Inc., 612 
F. Supp. 1444, 1451-52 (E.D. Mich. 1985); EEOC v. Kendall of Dallas, 
Inc., No. TY-80-441-CA, 1984 WL 978, at *9-*12 (E.D. Tex. Mar. 8, 
1984); Presseisen v. Swarthmore Coll., 442 F. Supp. 593, 615-19 (E.D. 
Pa. 1977), aff'd 582 F.2d 1275 (3d Cir. 1978)(Table).
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    \8\ As noted in footnote 1, supra., the EEOC is the agency with 
primary enforcement responsibility for Title VII, and its reasonable 
interpretations of Title VII are given some deference by the courts. 
See General Elec. Co. v. Gilbert, 429 U.S. 125, 141-42 (1976).
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    Contrary to these standards, the grade theory assumed that 
employers' pre-existing job-groupings, such as pay grades or pay 
ranges, are absolute indicia of similarity in employees' job content, 
skills and qualifications involved in the job, and responsibility 
level. While all of the courts in the above string cite have implicitly 
rejected the grade theory by emphasizing the importance of facts about 
the work employees actually perform, several of these courts have 
expressly rejected the proposition that a pay grade offers absolute 
indicia of similarity in job content, qualifications and skills 
involved in the job, and responsibility level. See Williams, 78 Fed. 
Appx. at 949 n. 9; Cort Furniture, 85 F.3d at 1087; Woodward, 306 F. 
Supp.2d at 574-75. The facts about employees' actual work activities, 
the skills and qualifications involved in the job, and responsibility 
levels in a particular case may, of course, happen to coincide with the 
employer's pay grade or pay range, but the crucial determinant of 
whether the employees are similarly situated is their actual work 
activities, not the fact that the employees have been placed in the 
same pay grade or range.
    In practice, utilization of the grade theory (as defined by the 
discussion above) resulted in groupings of employees performing 
dissimilar work. Indeed, as noted above, this approach was described by 
some as ``identify[ing] certain jobs as having similar value to the 
organization.'' Update at 6. To evaluate discrimination based on the 
``value'' or ``worth'' of work to the employer constitutes the 
comparable worth theory of compensation discrimination which has been 
widely discredited by the courts. See American Federation of State, 
County, and Municipal Employees v. State of Washington, 770 F.2d 1401, 
1404 (9th Cir. 1985)(``The comparable worth theory, as developed in the 
case before us, postulates that sex-based wage discrimination exists if 
employees in job classifications occupied primarily by women are paid 
less than employees in job classifications filled primarily by men, if 
the jobs are of equal value to the employer, though otherwise 
dissimilar.''); Colby v. J.C. Penney Co., 811 F.2d 1119, 1125-26 (7th 
Cir. 1987)(describing comparable worth theory as ``bas[ing] liability 
on the fact that the[] employer paid higher wages to workers in job 
classifications predominantly occupied by men than to

[[Page 67249]]

workers in job classifications predominantly occupied by women, though 
it paid the same wages to men and women within each classification''); 
American Nurses Association v. Illinois, 783 F.2d 716, 720-22 (7th Cir. 
1986)(considering plaintiffs ``charge that the state pays workers in 
predominantly male job classifications a higher wage not justified by 
any difference in the relative worth of the predominantly male and the 
predominantly female jobs in the state's roster.''); Lemons v. City and 
County of Denver, 620 F.2d 228, 229 (10th Cir. 1980)(``In summary, the 
suit is based on the proposition that nurses are underpaid in City 
positions, and in the community, in comparison with other and different 
jobs which they assert are of equal worth to the employer.''); 
Christensen v. Iowa, 563 F.2d 353, 354-56 (8th Cir. 1977)(``Appellants, 
who are clerical employees at UNI, argue that UNI's practice of paying 
male plant workers more than female clerical workers of similar 
seniority, where the jobs are of equal value to UNI, constitutes sex 
discrimination and violates Title VII''); see also County of Washington 
v. Gunther, 452 U.S. 161, 165 (1981)(``Respondents'' claim is not based 
on the controversial concept of `comparable worth' under which 
plaintiffs might claim increased compensation on the basis of a 
comparison of the intrinsic worth or difficulty of their job with that 
of other jobs in the same organization or community.'' [footnotes 
omitted]); Gunther, 452 U.S. at 203 (Rehnquist, J., dissenting)(``The 
opinion does not endorse the so-called `comparable worth' theory: 
though the Court does not indicate how a plaintiff might establish a 
prima facie case under Title VII, the Court does suggest that 
allegations of unequal pay for unequal, but comparable, work will not 
state a claim on which relief may be granted. The Court, for example, 
repeatedly emphasizes that this is not a case where plaintiffs ask the 
court to compare the value of dissimilar jobs or to quantify the effect 
of sex discrimination on wage rates.''); Judith Olans Brown et al., 
Equal Pay for Jobs of Comparable Worth: An Analysis of the Rhetoric, 21 
Harv. C.R.-C.L. Rev. 127, 129 (1986)(`` `Comparable worth' means that 
workers, regardless of their sex, should earn equal pay for work of 
comparable value to their common employer. . . . The basic premise of 
comparable worth theory is that women should be able to substantiate a 
claim for equal wages by showing that their jobs and those of male 
workers are of equal value to their common employer.''); Hydee R. 
Feldstein, Comment, Sex-Based Wage Discrimination Claims After County 
of Washington v. Gunther, 81 Colum. L. Rev. 1333, 1333 (1981)(noting 
comparable worth ``theory holds that employees performing work of equal 
value, even if the work they do is different, should receive the same 
wages.'').
    Based on these considerations, the Department interprets E.O. 11246 
and the SDG as not permitting the grade theory approach to systemic 
compensation discrimination. Instead, the Department interprets E.O. 
11246 and the SDG as prohibiting systemic compensation discrimination 
involving dissimilar treatment of individuals who are similarly 
situated, based on similarity in work performed, skills and 
qualifications involved in the job, and responsibility levels.

E. The Department Has Decided To Promulgate Interpretive Guidance on 
Systemic Compensation Discrimination To Guide Agency Officials and 
Covered Contractors and Subcontractors

    The Department of Labor has decided to formally propose detailed 
standards interpreting E.O. 11246 and the SDG with respect to systemic 
compensation discrimination and to solicit public comment on the 
proposed standards. This interpretive guidance also will provide 
standards and methods for OFCCP evaluations of contractors' 
compensation practices during compliance reviews. This will ensure that 
agency personnel and covered federal contractors and subcontractors 
understand the substantive standards for systemic compensation 
discrimination under E.O. 11246. The Department believes that 
contractors and subcontractors are more likely to comply with E.O. 
11246 if they understand the substantive standards which determine 
whether there is systemic compensation discrimination prohibited by 
E.O. 11246. Further, agency officials will have a stronger basis for 
pursuing investigations of possible systemic compensation 
discrimination because of the transparency and uniformity provided by 
these standards. Finally, the Department will have the benefit of 
commentary from all interested parties in developing final guidelines.
    These proposed standards are intended to govern OFCCP's analysis of 
contractors' compensation practices, and in particular, OFCCP's 
determination of whether a contractor has engaged in systemic 
compensation discrimination. In addition, these proposed standards are 
intended to constitute a definitive interpretation of the SDG and E.O. 
11246 with respect to systemic compensation discrimination.

II.Discussion of the Proposed Standards

    OFCCP proposes to adopt standards for interpreting E.O. 11246 and 
the SDG with respect to systemic compensation discrimination. The 
systemic compensation discrimination analysis as set forth in these 
proposed standards has two major characteristics: (1) the determination 
of employees who are ``similarly situated'' for purposes of comparing 
contractor pay decisions will focus on the similarity of the work 
performed, the levels of responsibility, and the skills and 
qualifications involved in the positions; and (2) the analysis will 
rely on a statistical technique known as multiple regression.
    Under OFCCP's proposed standard, employees are similarly situated 
with respect to pay decisions where the employees perform similar work, 
have similar responsibility levels, and occupy positions involving 
similar qualifications and skills. See discussion and cases cited under 
Section ID, supra.\9\
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    \9\ Federal courts disagree on whether the Equal Pay Act's 
standard of ``substantial equality'' applies to gender-based pay 
discrimination claims under Title VII, absent direct evidence of 
discrimination. See, e.g., Conti v. Universal Enter., Inc., 50 Fed. 
Appx. 690, 2002 WL 31108827, at *7 (6th Cir. Sept. 20, 2002); Clark 
v. Johnson & Higgins, 181 F.3d 100, 1999 WL 357804, at *3-*4 (6th 
Cir. May 28, 1999)(Text in Westlaw); Loyd v. Phillips Bros., Inc., 
25 F.3d 518, 525 (7th Cir. 1994); EEOC v. Sears, Roebuck & Co., 839 
F.2d 302, 243-53 (7th Cir. 1988); Merrill v. S. Methodist Univ., 806 
F.2d 600, 606 (5th Cir. 1986); McKee v. Bi-State Dev. Agency, 801 
F.2d 1014, 1019 (8th Cir. 1986); Plemer v. Parsons-Gilbane, 713 F.2d 
1127, 1133-34 (5th Cir. 1983); see also CMCD, at 10-6 n.18. Because 
an OFCCP enforcement action may be subject to APA review in a 
federal court that does not adopt the ``similarly situated'' 
standard, OFCCP will consult with the Office of the Solicitor to 
address this issue on a case by case basis.
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    The determination of whether employees are similarly situated must 
be based on the actual facts about the work performed, the 
responsibility level of the employees, and whether the positions 
involve similar skills and qualifications. The employer's preexisting 
groupings developed and maintained for other purposes, such as job 
families or affirmative action program job groups, may provide some 
indication of similarity in work, responsibility level, and skills and 
qualifications. However, these preexisting groupings are not 
dispositive, and OFCCP will not assume that these groupings involve 
groupings of similarly situated employees. For example, it cannot be 
assumed that employees are similarly situated merely because they share 
the same pay grade

[[Page 67250]]

or range, or because their pay can progress to the top of a pay grade 
or range without changing jobs.\10\ Thus, OFCCP will investigate 
whether such preexisting groupings do in fact group employees who 
perform similar work, and whose positions involve similar skills, 
qualifications, and responsibility levels, by looking at job 
descriptions and conducting employee interviews. Based on sufficient 
empirical data (e.g., job descriptions and employee interviews), OFCCP 
will determine which employees are in fact similarly situated.
---------------------------------------------------------------------------

    \10\ In this respect, OFCCP will not rely on the grade theory 
assumptions discussed supra., at Sections IC and ID.
---------------------------------------------------------------------------

    In addition to similarity in work performed, skills and 
qualifications, and responsibility levels, systemic compensation 
discrimination under E.O. 11246 requires that the comparison take into 
account legitimate factors that affect compensation. In order to 
account for the influence of such legitimate factors on compensation, a 
statistical analysis known as ``multiple regression,'' must be used. 
Multiple regression is explained as follows:

    Multiple regression analysis is a statistical tool for 
understanding the relationship between two or more variables. 
Multiple regression involves a variable to be explained--called the 
dependent variable--and additional explanatory variables that are 
thought to produce or be associated with changes in the dependent 
variable. For example, a multiple regression analysis might estimate 
the effect of the number of years of work on salary. Salary would be 
the dependent variable to be explained; years of experience would be 
the explanatory variable. Multiple regression analysis is sometimes 
well suited to the analysis of data about competing theories in 
which there are several possible explanations for the relationship 
among a number of explanatory variables. Multiple regression 
typically uses a single dependent variable and several explanatory 
variables to assess the statistical data pertinent to these 
theories. In a case alleging sex discrimination in salaries, for 
example, a multiple regression analysis would examine not only sex, 
but also other explanatory variables of interest, such as education 
and experience. The employer--defendant might use multiple 
regression to argue that salary is a function of the employee's 
education and experience, and the employee--plaintiff might argue 
that salary is also a function of the individual's sex.

Daniel L. Rubenfeld, Reference Guide on Multiple Regression, in Federal 
Judicial Center, Reference Manual on Scientific Evidence, at 181 (2d 
ed. 2000).
    The multiple regression model must include those factors that are 
important to how the contractor in practice makes pay decisions. ``Such 
factors could include the employees' education, work experience with 
previous employers, seniority in the job, time in a particular salary 
grade, performance ratings, and others.'' CMCD, at 10-18. OFCCP 
generally will attempt to build the regression model in such a way that 
controls for the factors that the investigation reveals are important 
to the employer's pay decisions, but also allows the agency to assess 
how the employers' pay decisions affect most employees. One factor that 
must be controlled for in the regression model is categories or 
groupings of jobs that are similarly situated based on the analysis of 
job similarity noted above (i.e., similarity in the content of the work 
employees perform, and similarity in the skills, qualifications, and 
responsibility levels of the positions the employees occupy). This will 
ensure that the analysis compares the treatment of employees who are in 
fact similarly situated.
    In addition, OFCCP will investigate the facts of each particular 
case to ensure that factors included in the regression are legitimate 
and are not themselves influenced by unlawful discrimination, which is 
often discussed in case law as a factor ``tainted'' by discrimination. 
However, OFCCP will not automatically presume that a factor is tainted 
without initially investigating the facts of the particular case. OFCCP 
will determine whether a factor is tainted by evaluating proof of 
discrimination with respect to that factor, but not based on the fact 
that the factor has an influence on the outcome of a regression model 
that includes the factor. See, e.g., Morgan v. United Parcel Service of 
America, Inc., 380 F.3d 459, 470 (8th Cir. 2004) (``Plaintiffs'' only 
evidence of discrimination in past pay is the apparent correlation 
between race and center-manager base pay during the class period. But 
that correlation is what Plaintiffs have evidence of only by omitting 
past pay. They have no evidence, statistical or otherwise, that past 
pay disparities were racially discriminatory. This sort of 
bootstrapping cannot create an inference of discrimination with regard 
to either class-period base pay or past pay.''); Smith v. Xerox Corp., 
196 F.3d 358, 371 n. 11 (2d Cir. 1999) (``Absent evidence tending to 
show that the CAF scores were tainted they should have been included in 
a multiple regression analysis in an effort to eliminate a relatively 
poor performance compared to coworkers as a cause of each plaintiff's 
termination. Certainly, performance is a factor Xerox was permitted to 
consider in deciding whom to retain.''); Ottaviani v. State Univ. of 
New York, 875 F.2d 365, 325 (2d Cir. 1988) (``The question to be 
resolved, then, in cases involving the use of academic rank factors, is 
whether rank is tainted by discrimination at the particular institution 
charged with violating Title VII. Although appellants reiterate on 
appeal their claim that rank at New Paltz was tainted, it is clear that 
the district judge accepted and considered evidence from the parties on 
both sides of this issue, and that she rejected the plaintiffs' 
contentions on this point. At trial, the plaintiffs failed to adduce 
any significant statistical evidence of discrimination as to rank. As 
the district court stated in its opinion, the plaintiffs' studies of 
rank, rank at hire, and waiting time for promotion `were mere 
compilations of data' which neither accounted for important factors 
relevant to assignment of rank and promotion, `nor demonstrated that 
observed differences were statistically significant.' Ottaviani, 679 
F.Supp. at 306. The defendants, on the other hand, offered persuasive 
objective evidence to demonstrate that there was no discrimination in 
either placement into initial rank or promotion at New Paltz between 
1973 and 1984, and the district court chose to credit the defendants' 
evidence. Upon review of the record, we cannot state that the court's 
rulings in this regard were clearly erroneous.''); CMCD, at 10-18 
(discussing use of performance rating in multiple regression analysis 
for assessing systemic compensation discrimination).
    The factors that influence pay decisions may not bear the same 
relationship to compensation for all categories of jobs in the 
employer's workforce. For example, performance may have a more 
significant influence on compensation for a high-level executive, than 
for technicians or service workers. This issue must be addressed 
through either of two methods. One method is to perform separate 
regressions for each category of jobs in which the relationship between 
the factors and compensation is similar (while including category 
factors in each regression that control for groupings of employees who 
are similarly situated based on work performed, responsibility level, 
and skills and qualifications). If separate regressions by categories 
of jobs would not permit OFCCP to assess the way the contractor's 
compensation practices impact on a significant number of employees, 
OFCCP may perform a ``pooled'' regression, which combines

[[Page 67251]]

these categories of jobs into a single regression (while including an 
OFCCP-developed category factor in the ``pooled'' regression that 
controls for groupings of employees who are similarly situated based on 
work performed, responsibility level, and skills and qualifications). 
However, if a pooled regression is used, the regression must include 
appropriate ``interaction terms'' \11\ in the pooled regression to 
account for differences in the effects of certain factors by job 
category. OFCCP will run statistical tests generally accepted in the 
statistics profession (e.g., the ``Chow test''), to determine which 
interaction terms should be included in the pooled regression analysis.
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    \11\ An ``interaction term'' is a factor used in the regression 
model whose value is the result of a combination of subfactors, 
which allows the factor to vary based on the combined effect of the 
subfactors. For example, a performance by job level interaction term 
would allow performance to have a different impact on compensation 
depending on the job level.
---------------------------------------------------------------------------

    Systemic compensation discrimination under E.O. 11246 must be based 
on disparities that are ``statistically significant,'' i.e., those that 
could not be expected to have occurred by chance. ``While not intending 
to suggest that `precise calculations of statistical significance are 
necessary in employing statistical proof,' the Supreme Court has stated 
that ``a fluctuation of more than two or three standard deviations 
would undercut the hypothesis that decisions were being made randomly 
with respect to [a protected trait].'' Hazelwood Sch. Dist. v. United 
States, 433 U.S. 299, 311 n.17 (1977).'' CMCD, at 10-14 n.32. To ensure 
uniformity and predictability, OFCCP will conclude that a compensation 
disparity is statistically significant under these standards if it is 
significant at a level of two or more standard deviations, based on 
measures of statistical significance that are generally accepted in the 
statistics profession.
    OFCCP will seldom make a finding of systemic discrimination based 
on statistical analysis alone, but will obtain anecdotal evidence to 
support the statistical evidence. See, e.g., Teamsters, 431 U.S. at 
338-39 (``The Government bolstered its statistical evidence with the 
testimony of individuals who recounted over 40 specific instances of 
discrimination. * * * The individuals who testified about their 
personal experiences with the company brought the cold numbers 
convincingly to life.''); Bazemore, 478 U.S. at 473 (noting that 
statistics were supported by ``evidence consisting of individual 
comparisons between salaries of blacks and whites similarly 
situated''); Morgan, 380 F.3d at 471 (``One of the most important flaws 
in Plaintiffs'' case is that they adduced no individual testimony 
regarding intentional discrimination. As mentioned above, Plaintiffs' 
purported anecdotal evidence was insufficient for the working-
conditions claim, and we see none with regard to pay. Although such 
evidence is not required, the failure to adduce it `` `reinforces the 
doubt arising from the questions about validity of the statistical 
evidence.' '' EEOC v. Sears, Roebuck & Co., 839 F.2d 302, 311 (7th Cir. 
1988) (quoting Griffin v. Board of Regents, 795 F.2d 1281, 1292 (7th 
Cir. 1986))''); Dukes v. Wal-Mart Stores, Inc., 22 F.R.D. 137, 165-66 
(N.D. Cal. 2004) (``[P]laintiffs have submitted * * * 114 declarations 
from class members around the country * * *. [who will] testify to 
being paid less than similarly situated men, * * *, and being subjected 
to various individual sexist acts.''); Bakewell v. Stephen F. Austin 
Univ., 975 F. Supp. 858, 905-06 (E.D. Tex. 1996) (``The paucity of 
anecdotal evidence of discrimination severely diminishes plaintiffs' 
contention that a pattern or practice of salary discrimination against 
female faculty members prevails at SFA.''); see also CMCD, at 10-13 
n.30 (``A cause finding of systemic discrimination should rarely be 
based on statistics alone.'').
    In order to equip OFCCP to conduct statistical analysis necessary 
for evaluating whether there is systemic compensation discrimination, 
the agency has created a Division of Statistical Analysis and hired 
expert-level statisticians to staff this new unit.

III. Proposed Standards

Standards for Systemic Compensation Discrimination Under Executive 
Order 11246

    1. As used herein, ``systemic compensation discrimination'' is 
discrimination under a pattern or practice theory of disparate 
treatment.
    2. Employees are similarly situated under these standards if they 
are similar with respect to the work they perform, their responsibility 
level, and the skills and qualifications involved in their positions. 
In determining whether employees are similarly situated under these 
standards, actual facts regarding employees' work activities, 
responsibility, and skills and qualifications are determinative. 
Preexisting groupings, such as pay grades or AAP job groups, are not 
controlling; rather, such groupings may be relevant only to the extent 
that they do in fact group employees with similar work, skills and 
qualifications and responsibility levels. To determine whether such 
preexisting groups are relevant one must evaluate and compare 
information obtained from job descriptions and from employee 
interviews. The determination that employees are similarly situated may 
not be based on the fact that the contractor or subcontractor has 
grouped employees into a particular grouping, such as a pay grade or 
pay range, or that employees' pay can progress to the top of the pay 
grade or range based on performance or without changing jobs. Rather, 
such preexisting groupings must in fact group employees who perform 
similar work, and who occupy positions involving similar skills, 
qualifications, and responsibility levels, which may be determined only 
by understanding employees' actual work activities.
    3. Systemic compensation discrimination exists where there are 
statistically significant compensation disparities between similarly 
situated employees (as defined in Paragraph 2, above), after taking 
into account legitimate factors which influence compensation. Such 
legitimate factors may include education, experience, performance, 
productivity, location, etc. The determination of whether there are 
statistically significant compensation disparities between similarly 
situated employees after taking into account such legitimate factors 
must be based on a multiple regression analysis.
    4. A compensation disparity is statistically significant under 
these standards if it is significant at a level of two or more standard 
deviations, based on measures of statistical significance that are 
generally accepted in the statistics profession.
    5. If a pooled regression model is used, this must be accompanied 
by statistical tests generally accepted in the statistics profession 
(e.g., the ``Chow test''), to determine which interaction terms should 
be included in the pooled regression model.

Standards for OFCCP Evaluation of Contractors' Compensation Practices

    1. OFCCP will investigate contractors' and subcontractors' 
compensation practices to determine whether the contractor or 
subcontractor has engaged in systemic compensation discrimination under 
these standards. OFCCP will issue a Notice of Violations alleging 
systemic discrimination with respect to compensation practices based 
only on these standards.
    2. OFCCP will make a finding of systemic compensation 
discrimination in those cases where there is anecdotal

[[Page 67252]]

evidence of discrimination (as discussed in Paragraph 6, below, which 
notes that, except in unusual cases, OFCCP will not issue a Notice of 
Violation (NOV) alleging systemic compensation discrimination without 
providing anecdotal evidence to support OFCCP's statistical analysis) 
and where there exists a statistically significant (as defined in 
Paragraph 4, below) compensation disparity based on a multiple 
regression analysis that compares similarly situated employees (as 
defined in Paragraph 3, below) and controls for factors that OFCCP's 
investigation reveal were used in making pay decisions. OFCCP may 
reject inclusion of such a factor upon proof that the factor was 
actually tainted by the employer's discrimination. OFCCP will attach 
the results of the regression analysis to, and summarize the anecdotal 
evidence in, the Notice of Violations issued to the contractor or 
subcontractor.
    3. Employees are similarly situated under these standards if they 
are similar with respect to the work they perform, their responsibility 
level, and the skills and qualifications involved in their positions. 
In determining whether employees are similarly situated under these 
standards, OFCCP will collect and rely on actual facts regarding 
employees' work activities, responsibility, and skills and 
qualifications. In addition, OFCCP will investigate whether preexisting 
groupings, such as pay grades or AAP job groups, do in fact group 
employees with similar work, skills and qualifications and 
responsibility levels, by evaluating and comparing information obtained 
from job descriptions and from employee interviews. OFCCP will not base 
its determination that employees are similarly situated on the fact 
that the contractor or subcontractor has grouped employees into a 
particular grouping, such as a pay grade or pay range, or that 
employees' pay can progress to the top of the pay grade or range based 
on performance or without changing jobs. Rather, OFCCP will investigate 
whether such preexisting groupings do in fact group employees who 
perform similar work, and who occupy positions involving similar 
skills, qualifications, and responsibility levels, by looking at job 
descriptions and conducting employee interviews.
    4. A compensation disparity is statistically significant under 
these standards if it is significant at a level of two or more standard 
deviations, based on measures of statistical significance that are 
generally accepted in the statistics profession.
    5. OFCCP will determine whether a pooled regression model is 
appropriate based on two factors: (a) The objective to include at least 
80% of the employees (in the workforce subject to OFCCP's compliance 
review) in some regression analysis; and (b) whether there are enough 
incumbent employees in a particular regression to produce statistically 
meaningful results. If a pooled regression is required, OFCCP will 
conduct statistical tests generally accepted in the statistics 
profession (e.g., the ``Chow test''), to determine which interaction 
terms should be included in the pooled regression model.
    6. In determining whether a violation has occurred, OFCCP will 
consider whether there is anecdotal evidence of compensation 
discrimination, in addition to statistically significant compensation 
disparities. Except in unusual cases, OFCCP will not issue a Notice of 
Violation (NOV) alleging systemic compensation discrimination without 
providing anecdotal evidence to support OFCCP's statistical analysis. 
In unusual cases, OFCCP may assert a systemic discrimination violation 
based only on anecdotal evidence, if such evidence presents a pattern 
or practice of compensation discrimination.
    7. OFCCP will also assert a compensation discrimination violation 
if the contractor establishes compensation rates for jobs (not for 
particular employees) that are occupied predominantly by women or 
minorities that are significantly lower than rates established for jobs 
occupied predominantly by men or non-minorities, where the evidence 
establishes that the contractor made the job wage-rate decisions based 
on the sex, race or ethnicity of the incumbent employees that 
predominate in each job. Such evidence of discriminatory intent may 
consist of the fact that the contractor adopted a market survey to 
determine the wage rate for the jobs, but established the wage rate for 
the predominantly female or minority job lower than what that market 
survey specified for that job, while establishing for the predominantly 
male or non-minority job the full market rate specified under the same 
market survey.

    Signed at Washington, DC this 10th day of November, 2004.
Victoria A. Lipnic,
Assistant Secretary for the Employment Standards Administration.
Charles E. James, Sr.,
Deputy Assistant Secretary for Federal Contract Compliance.
[FR Doc. 04-25401 Filed 11-15-04; 8:45 am]
BILLING CODE 4510-CM-P