[Federal Register Volume 71, Number 116 (Friday, June 16, 2006)]
[Notices]
[Pages 35123-35141]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 06-5458]



[[Page 35123]]

-----------------------------------------------------------------------

Part VI





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

Federal Register / Vol. 71, No. 116 / Friday, June 16, 2006 / 
Notices

[[Page 35124]]


-----------------------------------------------------------------------

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 final interpretive standards for systemic 
compensation discrimination under Executive Order 11246.

-----------------------------------------------------------------------

SUMMARY: The Office of Federal Contract Compliance Programs is 
publishing final interpretive standards for systemic compensation 
discrimination under Executive Order 11246, as amended. This document 
sets forth the final interpretive standards and discusses comments that 
OFCCP received in response to proposed interpretive standards published 
in the Federal Register on November 16, 2004.

EFFECTIVE DATE: June 16, 2006.

FOR FURTHER INFORMATION CONTACT: Director, Division of Policy, 
Planning, and Program Development, Office of Federal Contract 
Compliance Programs, 200 Constitution Avenue, NW., Room N3422, 
Washington, DC 20210. Telephone: (202) 693-0102 (voice) or (202) 693-
1337 (TTY).

SUPPLEMENTARY INFORMATION: In this preamble, OFCCP summarizes the 
proposed interpretive standards, discusses the comments received in 
response to its publication of the proposed standards, and provides a 
substantive discussion of the final interpretive standards. The 
substantive discussion of the final interpretive standards 
substantially restates the preamble of the proposed standards, except 
that modifications or clarifications were added in response to the 
comments.

I. Summary of the Proposed Interpretive Standards

    On November 16, 2004, OFCCP published a Notice in the Federal 
Register [hereinafter ``Notice''] in which the agency proposed 
standards interpreting Executive Order 11246 with respect to systemic 
compensation discrimination. 69 FR 67246 (Nov. 16, 2004). Systemic 
compensation discrimination was defined in the Federal Register Notice 
as discrimination under a pattern or practice, disparate treatment 
theory of discrimination. 69 FR 67246 n. 2. The Notice explained that 
OFCCP historically has relied on interpretations of Title VII as a 
basis for interpreting the nondiscrimination requirements of Executive 
Order 11246, but that OFCCP had not issued any definitive 
interpretation of Executive Order 11246 with respect to systemic 
compensation discrimination. 69 FR 67246-47. The Notice also explained 
that, in the late-1990s, OFCCP informally used a controversial ``pay 
grade theory'' of analyzing compensation practices for systemic 
discrimination. 69 FR 67247-48. Under the pay grade theory, OFCCP 
compared the compensation of employees who were in the same pay grade 
or range, based on the assertion that by creating the pay grade, the 
employer either ``has recognized that certain jobs are essentially 
similar in terms of skill, effort and responsibility'' or ``has already 
identified certain jobs as having similar value to the organization.'' 
69 FR 67247-48. The Notice provided a detailed discussion of OFCCP's 
reasons for rejecting the grade theory, primarily because the 
assumptions underlying the grade theory are inconsistent with 
administrative and judicial interpretations of Title VII and because 
use of the pay grade theory proved to be a highly ineffective 
enforcement tool. 69 FR 67248-49.
    The proposed interpretive standards had three principal components. 
The first component of the proposed interpretive standards was adoption 
of the ``similarly situated'' standard for comparisons of employees' 
compensation. 69 FR 67249-67252. Under the proposed standards, 
employees are similarly situated if they perform similar work and 
occupy positions involving similar responsibility levels, skills, and 
qualifications. Id. OFCCP interpreted Executive Order 11246 \1\ with 
respect to systemic compensation discrimination as involving disparate 
treatment of individuals who are similarly situated under this 
standard. 69 FR 67251. In adopting the similarly situated standard, 
OFCCP relied on judicial and administrative interpretations of Title 
VII. 69 FR 67248-67249. OFCCP stressed that those interpretations were 
inconsistent with OFCCP's prior ``pay grade'' method. 69 FR 67248.
---------------------------------------------------------------------------

    \1\ Executive Order 11246 has been amended several times since 
its original promulgation. For ease of reference, ``Executive Order 
11246'' as used hereinafter refers to Executive Order 11246, as 
amended.
---------------------------------------------------------------------------

    The second component of the proposed interpretive standards was 
adoption of a statistical technique for assessing the combined effects 
of the multiple, legitimate factors that influence employers' 
compensation decisions. 69 FR 67250. This statistical technique is 
called multiple regression analysis. Id. Under the multiple regression 
analysis, OFCCP would compare the compensation of similarly situated 
employees, while controlling for legitimate factors that influenced the 
employers' pay decisions, such as education, experience, performance, 
productivity, etc. Id. OFCCP explained that it would investigate 
whether any such factors were actually ``tainted'' by discrimination, 
and, if so, OFCCP would not include such factors in the multiple 
regression analysis. Id. OFCCP also explained that in a particular case 
it might use a ``pooled'' regression, in which different groups of 
similarly-situated employees were combined in a regression while 
controlling for their membership in their particular similarly-situated 
group. 69 FR 67250-67251. When using a pooled regression, OFCCP 
explained, it would test for whether ``interaction terms'' were 
required. 69 FR 67251.
    The third component of the proposed interpretive standards was its 
emphasis on the importance of anecdotal evidence of discrimination for 
a determination of whether systemic compensation discrimination exists. 
69 FR 67251. OFCCP noted that it would rarely issue a Notice of 
Violations alleging systemic compensation discrimination without 
anecdotal evidence of discrimination to support the statistical 
evidence of discrimination. Id.

II. Discussion of the Comments Received

    OFCCP received 28 comments on the Notice of proposed standards 
interpreting Executive Order 11246 with respect to systemic 
compensation discrimination. In response to the comments, OFCCP made 
several modifications to the proposed interpretive standards, discussed 
below. In addition, many of the commenters asked for clarification of 
OFCCP's intent with respect to various aspects of the interpretive 
standards, which OFCCP provides as appropriate below.
    For the following discussion, OFCCP has grouped the comments around 
the following major subjects: (A) Systemic Compensation Discrimination; 
(B) The Pay Grade Theory; (C) Similarly Situated Employees; (D) 
Multiple Regression Analysis; (E) Factors Included in the Regression 
Analysis; (F) Anecdotal Evidence; and (G) Confidentiality of 
Compensation and Personnel Information.

[[Page 35125]]

A. Systemic Compensation Discrimination

    Several commenters, such as the U.S. Chamber of Commerce and HR 
Analytical Services, Inc., argued that OFCCP should not focus its 
efforts on investigating systemic employment discrimination, but should 
instead spend more agency resources on monitoring compliance with 
OFCCP's affirmative action regulations. OFCCP does not agree with these 
commenters. OFCCP believes that elimination of systemic workplace 
discrimination is an important component of its historical mission. 
Indeed, affirmative action programs are designed to be tools to prevent 
workplace discrimination. See 41 CFR 60-2.10(a)(3) (``OFCCP has found 
that when an affirmative action program is approached from this 
perspective, as a powerful management tool, there is a positive 
correlation between the presence of affirmative action and the absence 
of discrimination.''). Further, the commenters' suggestion disregards 
OFCCP's historical enforcement of Executive Order 11246 by requiring 
payment of back pay and other make whole relief to victims of 
discrimination. See 41 CFR 60-1.26(a)(2) (``OFCCP may seek back pay and 
other make whole relief for victims of discrimination identified during 
a complaint investigation or compliance evaluation.''). OFCCP's focus 
on finding and remedying systemic workplace discrimination has provided 
tangible incentives for contractors to implement affirmative action 
programs to prevent workplace discrimination.

B. The Pay Grade Theory

    Almost all of the commenters addressed the subject of OFCCP's prior 
``pay grade'' method as discussed in the preamble of the proposed 
standards. Many commenters agreed with OFCCP that the pay grade theory 
was inconsistent with Title VII standards.\2\
---------------------------------------------------------------------------

    \2\ See, e.g., Association of Corporate Counsel, Equal 
Employment Advisory Council, Gayle B. Ashton, Gaucher Associates, 
National Industry Liaison Group, ORC Worldwide, Society for Human 
Resource Management, Sonalysts, TOC Management Services, U.S. 
Chamber of Commerce, and World at Work. As discussed below, some of 
these commenters argued that OFCCP should adopt the Equal Pay Act's 
``substantial equality'' standard.
---------------------------------------------------------------------------

    A few commenters, such as Jude Sotherlund, argued that OFCCP should 
rely on employer-created classifications such as pay grades because 
these classifications were designed by compensation professionals for 
the particular employer. OFCCP does not agree with these comments. 
Unlike compensation professionals, who design compensation systems to 
meet a variety of business interests, OFCCP's purpose when 
investigating an employer's compensation practices is to determine 
whether the employer has engaged in systemic compensation 
discrimination prohibited by Executive Order 11246. As noted below, 
EEOC and courts interpreting Title VII have cautioned against reliance 
on employer classifications in favor of evidence of actual work 
activities, responsibility level, and skills and qualifications 
involved in the job.
    A few other commenters, including the Employment Task Force of the 
Leadership Conference on Civil Rights (ETF), argued against OFCCP's 
conclusion that the pay grade theory should be rejected because it is 
inconsistent with Title VII. ETF, for example, generally offered two 
sets of arguments against OFCCP's rejection of the grade theory.
    In the first set of arguments, ETF argued that pay grade 
information can be an effective indicator of potential pay 
discrimination. ETF noted that ``the pay grade approach serves as a 
unique investigatory tool'' and ``provided a suitable starting point 
for investigators to determine which jobs to compare and analyze.'' ETF 
questioned, ``[i]f the pay grade approach is to be abandoned, it is 
unclear from these proposed standards how OFCCP intends to utilize its 
limited resources to identify the appropriate cases for further 
investigation and enforcement.'' Several other commenters also 
expressed concerns about the burden to employers and to the agency if 
OFCCP conducts the investigation and analysis required by the proposed 
standards in each compliance review.\3\ OFCCP agrees with ETF that pay 
grade information has some value as an indicator of potential 
discrimination. OFCCP also agrees with ETF and the other referenced 
commenters that the agency does not desire to conduct a full-scale 
compensation investigation in every compliance review. Thus, the 
interpretive standards are not intended to restrict OFCCP's use of pay 
grade information or any other information as an indicator of potential 
discrimination. Rather, the interpretive standards only foreclose the 
use of the pay grade theory as the basis upon which OFCCP will allege 
and establish systemic compensation discrimination in violation of 
Executive Order 11246 and OFCCP regulations. Indeed, OFCCP has 
historically used a tiered-review approach in its evaluation of 
contractors that relies on both pay grade information and individual 
employee information to determine whether to conduct a comprehensive 
investigation into the contractor's pay practices. Under the tiered-
review approach, OFCCP uses pay grade (or other aggregated 
compensation) information submitted in response to Item 11 of OFCCP's 
Scheduling Letter.\4\ Once it receives the Item 11 data, OFCCP conducts 
a simple comparison of group average compensation by pay grade or other 
aggregation unit by which the employer has provided the data. If this 
comparison indicates a significant disparity, OFCCP will ask the 
contractor for employee-specific compensation and personnel 
information.\5\ OFCCP intends to continue this tiered-review approach 
\6\ and, in fact, recently implemented additional components to further 
focus compensation investigations on workplaces where there are 
significant indicators of potential discrimination. In particular, 
OFCCP now conducts a ``cluster regression'' using the employee-specific 
information requested following the desk audit.\7\ If the cluster 
regression indicates significant disparities, OFCCP conducts a 
comprehensive evaluation of the pertinent compensation practices, at 
which point these final interpretive standards govern OFCCP's 
investigation activity and determinations. OFCCP will afford the 
contractor an opportunity to

[[Page 35126]]

provide any additional information and/or analyses that the contractor 
believes to be pertinent to OFCCP's decision about whether to conduct 
further investigation of the contractor's compensation practices. OFCCP 
will consider such information as well as the results of the cluster 
regression in making a determination of whether further investigation 
is warranted. Of course, OFCCP will also consider any evidence of 
discrimination in determining whether to proceed.
---------------------------------------------------------------------------

    \3\ See, e.g., American Society of Employers, Berkshire 
Associates, Maly Consulting LLC, National Industry Liaison Group, 
Sonalysts, and the U.S. Chamber of Commerce.
    \4\ Item 11 of the Scheduling Letter currently requests 
``annualized compensation data (wages, salaries, commissions, and 
bonuses) by either salary range, grade, or level showing total 
number of employees by race and gender and total compensation by 
race and gender.''
    \5\ OFCCP is studying potential alternatives to use of pay grade 
information so that the agency can better target its investigative 
resources.
    \6\ OFCCP may modify the investigation process leading up to the 
application of these final interpretive standards, so as to maximize 
agency resources and efficiency.
    \7\ The ``cluster regression'' creates comparison groups by 
relying on job titles and, where a particular job title does not 
contain at least 30 employees and at least 5 from each comparator 
group (females/males, minorities/non-minorities), groups job titles 
based on the average compensation within each job title. In 
particular, the cluster regression groups job titles with the 
closest average compensation values until the 30/5 size requirements 
are reached. The cluster model uses only two or three explanatory 
factors in the regression, including age as a proxy for experience, 
and education level. As noted below, the cluster regression does not 
comport with Title VII standards for grouping similarly-situated 
employees, nor does the cluster regression include factors that were 
determined from an investigation of the employer's pay practices. 
For these reasons, the cluster regression will be used only as an 
indicator of potential systemic compensation discrimination; it is 
not a sufficient basis to issue a Notice of Violation.
---------------------------------------------------------------------------

    Accordingly, OFCCP intends to continue using analysis of pay grade 
information, supplemented by the cluster regression, as indicators of 
potential compensation discrimination. However, the pay grade analysis, 
the cluster regression analysis, and other generalized approaches are 
only indicators of potential compensation discrimination. These 
techniques fall far short of the type of fact-intensive investigation 
and tailored analysis required to make and sustain an allegation of 
systemic compensation discrimination under Executive Order 11246 and 
OFCCP regulations. These final interpretive standards fit into the 
latter part of the OFCCP compliance review process: They serve as the 
substantive standards interpreting Executive Order 11246 and OFCCP 
regulations with respect to systemic compensation discrimination. In 
practical terms, this means that OFCCP must allege and prove facts 
which meet the interpretive standards in order to establish systemic 
compensation discrimination in violation of Executive Order 11246 and 
OFCCP's regulations.
    ETF also objected to the provisions of the proposed interpretive 
standards which mandated prerequisites to issuing a Notice of Violation 
(NOV). ETF argued that OFCCP should not subject itself to a standard 
during the ``investigatory stage'' that is the same standard that OFCCP 
would be subject to when it pursued enforcement litigation.\8\ OFCCP 
agrees that its investigations need not adhere to the precise 
requirements of enforcement litigation in order to issue an NOV. For 
example, OFCCP need not base its decision to issue an NOV on 
information that has been obtained in a format which would be 
admissible in court, e.g., OFCCP can rely on notes of an employee 
interview during an investigation which may not be admissible in 
litigation. However, OFCCP disagrees that the substantive standards for 
whether an employment practice constitutes a violation of Executive 
Order 11246 can depend on whether the matter is in the ``investigation 
stage'' or in litigation. If the pay grade theory assumptions 
(discussed in the preamble of the proposed interpretive standards and 
below) do not adhere to legal standards, OFCCP has no authority to rely 
on such assumptions to allege a violation even during the investigation 
stage. Because the pay grade assumptions are contrary to legal 
standards, to base a violation on the pay grade theory during the 
investigation stage is tantamount to changing the substantive 
requirements of Executive Order 11246.
---------------------------------------------------------------------------

    \8\ This is one of the arguments presented in the publication 
circulated in support of the pay grade theory. See ``Update on 
Systemic Compensation Analysis,'' at 1 (``It is not OFCCP's policy 
or practice to `litigate' the merits of investigation findings at 
the investigatory stage of a review.''). However, the ``Update on 
Systemic Compensation Analysis'' also noted that ``OFCCP has always 
applied Title VII principles to its methods of investigation.''Id.
---------------------------------------------------------------------------

    ETF offered additional arguments against OFCCP's rejection of the 
pay grade theory. These arguments were premised on a correct 
understanding that the interpretive standards ruled out the pay grade 
theory as a basis for alleging and establishing systemic compensation 
discrimination under Executive Order 11246 and OFCCP regulations. 
First, ETF argued that OFCCP should continue to use the pay grade 
theory, suggesting that it is consistent with interpretations of Title 
VII. Second, ETF argued that the Title VII cases OFCCP cited do not 
require rejection of the pay grade theory because the plaintiffs failed 
in the cited cases when they were unable ``to provide additional 
evidence where employers have put forward a legitimate 
nondiscriminatory reason.'' In this regard, ETF noted that, ``[w]hile 
pay grade information may not have been enough to win these particular 
cases, such information was clearly instrumental in establishing 
possible discrimination in the first place.'' Finally, ETF argued that 
the rejection of the pay grade theory could harm or curtail future 
enforcement efforts or developments in the law.
    OFCCP does not find ETF's comments to be persuasive reasons for 
retaining the pay grade theory as a basis for alleging and establishing 
systemic compensation discrimination under Executive Order 11246 and 
OFCCP regulations. As to ETF's argument that OFCCP should continue to 
rely on the pay grade theory to establish systemic compensation 
discrimination, OFCCP believes that the pay grade theory was 
inconsistent with Title VII standards and that there are compelling 
reasons for ensuring that the nondiscrimination provisions of Executive 
Order 11246 are interpreted consistently with Title VII. First, this 
has been OFCCP's historical practice, as well as the practice of the 
Department of Labor in rendering final agency decisions in cases 
arising under Executive Order 11246. See note 29, below; see also OFCCP 
Federal Contract Compliance Manual, at Section 3K00(c) (``It is OFCCP 
policy, in conducting analyses of potential discrimination under the 
Executive Order, to follow Title VII principles.'').\9\ Second, OFCCP 
expects that the federal courts will look to Title VII interpretations 
when interpreting the nondiscrimination requirements of Executive Order 
11246. This is a significant consideration in light of the fact that 
Department of Labor determinations under Executive Order 11246 are 
subject to review in federal court under the Administrative Procedure 
Act. Thus, federal courts are likely to defer to these final 
interpretive standards because they accord with the weight of authority 
under Title VII, in addition to deference under traditional deference 
doctrines. See Barnhart v. Walton, 535 U.S. 212, 217 (2002) (``Courts 
grant an agency's interpretation of its own regulations considerable 
legal leeway''); Auer v. Robbins, 519 U.S. 452, 461 (1997) (agency's 
interpretation of its own regulation is ``controlling unless `plainly 
erroneous or inconsistent with the regulation,' '' quoting Bowles v. 
Seminole Rock Co., 385 U.S. 410, 413-14 (1945)); Udall v. Tallman, 380 
U.S. 1, 16-17 (1965) (agency interpretations of Executive Orders they 
are charged with enforcing are afforded deference under Bowles v. 
Seminole Rock Co., 385 U.S. 410, 413-14 (1945)); Reynolds v. Rumsfeld, 
564 F.2d 663, 668 (4th Cir. 1977) (OFCCP interpretation of Executive 
Order 11246 entitled to Seminole Rock deference).
---------------------------------------------------------------------------

    \9\ Section 3R(a) of OFCCP's Federal Contract Compliance Manual 
(FCCM) provides that ``compensation discrimination'' encompasses 
``[d]isparate treatment in pay in relationship to the established 
range for a job, whether at entry or later; e.g., Blacks with 
similar backgrounds to Whites on the legitimate factors considered 
for initial salary are hired at less money, etc. * * *.'' To the 
extend that this reference, or any other reference in the FCCM, 
implies the pay grade theory or any other theory of compensation 
discrimination that permits comparison of compensation of 
individuals who are not similarly situated under these final 
interpretive standards, or otherwise conficts with these 
interpretive standards, these interpretive standards supercede the 
FCCM in that regard.
---------------------------------------------------------------------------

    Third, this policy ensures uniformity and consistency with the 
principal congressional enactment on equal employment opportunity, and 
with EEOC enforcement standards. OFCCP relied expressly and extensively 
on the EEOC Compliance Manual chapter on compensation discrimination in 
developing the interpretive standards. In addition, the EEOC provided 
written comments for the public record in

[[Page 35127]]

which EEOC stated, ``we are pleased that your approach to addressing 
compensation discrimination is consistent with EEOC's own view.''
    OFCCP also does not agree with ETF's characterization of the 
authority cited in the preamble of the proposed interpretive standards. 
First, ETF's comments conflict with the EEOC compensation guidelines, 
which expressly adopt the ``similarly situated'' standard. EEOC 
Compliance Manual on ``Compensation Discrimination,'' EEOC Directive 
No. 915.003 (Dec. 5, 2000)[hereinafter, ``CMCD''], at 10-5 to 10-8 
(``The investigator should determine the similarity of jobs by 
ascertaining whether the jobs generally involve similar tasks, require 
similar skill, effort, and responsibility, working conditions, and are 
similarly complex or difficult.'').
    Second, OFCCP does not agree that the plaintiffs in ``virtually 
all'' of the cases cited in the preamble of the proposed interpretive 
standards were able to establish a prima facie case by comparing 
themselves to individuals who did not perform similar work and whose 
positions were not similar in the responsibility level, skills, and 
qualifications involved. It has long been established that plaintiffs 
must demonstrate that similarly situated employees were treated 
differently as part of their own prima facie case. See Texas Dep't of 
Community Affairs v. Burdine, 450 U.S. 248, 258 (1981) (``McDonnell 
Douglas teaches that it is the plaintiff's task to demonstrate that 
similarly situated employees were not treated equally.''); see also 
Quarless v. Bronx Lebanon Hosp. Ctr., 228 F. Supp.2d 377, 383 (S.D.N.Y. 
2002) (``In order to establish a prima facie case of discriminatory 
disparate pay under Title VII, a plaintiff must show * * * that he was 
paid less than similarly situated non-members of his protected class; * 
* *'') aff'd, 75 Fed. Appx. 846, 848 (2d Cir. 2003); Lewis v. Smith, 
255 F. Supp.2d 1054, 1060-61 (D. Ariz. 2003) (``Plaintiff can establish 
a prima facie case under Title VII because he can show that * * * he 
was given greater or similar responsibilities but paid less than [a 
coworker] who occupied a similar, if not substantially equal, 
position.''). Indeed, in many of the cited cases, the plaintiffs were 
unable to establish a prima facie case precisely because they attempted 
to compare themselves to individuals whose work, responsibility level, 
and skills and qualifications were not similar to their own. See, e.g., 
Block v. Kwal-Howells, Inc., No. 03-1101, 2004 WL 296976, at *2-*4 
(10th Cir. Feb. 17, 2004) (``The district court concluded Ms. Block 
failed to establish a prima facie case of discrimination because she 
failed to prove she occupied a substantially similar position to Mr. 
Dennis. Aplt. Br., Att. A. at 26. Upon a thorough review of the 
evidence, we agree. Ms. Block and Mr. Dennis were not similarly 
situated.''); Williams v. Galveston Ind. Sch. Dist., No. 03-40436, 78 
Fed. Appx. 946, 949-50, 2003 WL 22426852 (5th Cir. Oct. 23, 2003) 
(``Appellants attempt to found their prima facie case on a comparison 
between their positions and the positions held by Mr. McLarty and Ms. 
Garcia. However, each employee's responsibilities are plainly 
dissimilar from the responsibilities of the other three grade 8 
employees * * *. The fact that GISD lists all four employees at grade 8 
is not significant. Pay grades represent a range of possible salaries, 
and Appellants concede that salaries can differ within a pay grade.'') 
\10\; Verwey v. Illinois Coll. of Optometry, 43 Fed. Appx. 996, 2002 WL 
1836507, at *4 (7th Cir. Aug. 9, 2002) (``Verwey also argues that the 
district court erred in granting summary judgment to the College on her 
wage discrimination claim. She asserts that she raised an inference of 
discrimination by showing that the three maintenance men in her 
department received raises after voting against unionizing, but that 
she, the lone female employee, did not. Verwey's claim fails for 
several reasons. First, she did not establish that the maintenance men 
were similarly situated to her. Although they worked in the same 
department, they had different job titles and responsibilities and 
therefore did not hold equivalent positions; Verwey was an 
administrative assistant, not a maintenance worker.''); Rodriguez v. 
SmithKline Beecham, 224 F.3d 1, 8 (1st Cir. 2000) (``As we set forth 
above, the uncontested facts before the district court indicate that 
appellant's job functions and responsibilities were not substantially 
similar or comparable to those of Document Manager Llivina or Records 
Management Leader Feo, nor to those of Edwin L[oacute]pez. Absent such 
a showing, plaintiff's Title VII claim fails as a matter of law for 
lack of a prima facie case.''); Sprague v. Thorn Americas, Inc., 129 
F.3d 1355, 1362 (10th Cir. 1997) (``It is apparent from the record that 
Sprague failed to present genuine issues of material fact which would 
support her equal pay claim under Title VII. As the district court 
observed, Sprague contrasts her functions and pay in the jewelry 
department to those of the assistant product manager of electronics and 
the assistant product manager of furniture/appliances, both of whom are 
males. `However, the Electronics, Furniture/Appliances, and Jewelry 
Departments do not contribute equally to [Thorn's] revenues.' See 
district court's Memorandum and Order at 5. While the electronics 
department comprises approximately 50% of revenues and the furniture/
appliance department accounts for approximately 45% of revenues, the 
jewelry department only produces approximately 4% of revenues. Id. * * 
* Given the evidence presented to the district court, we find that 
Sprague failed to present a prima facie case of intentional gender 
discrimination.''); EEOC v. Sears, Roebuck & Co., 839 F.2d 302, 347 
(7th Cir. 1988) (``As it turns out, the EEOC's failure to introduce any 
evidence of actual job content or job performance is fatal to its sex 
discrimination in wages claim in light of Sears' evidence regarding 
differences in

[[Page 35128]]

job content. The EEOC appears to suggest that Sears had the burden of 
showing the inequality of job content. This line of argument is similar 
to that which we recognized in Epstein, 739 F.2d at 278: `Plaintiff 
would, it seems, have us infer equal work from the defendants' failure 
to prove otherwise.' We responded that this argument ignores the 
elementary fact that the burden for proving the prima facie case is on 
the plaintiff.''); Eastland v. Tennessee Valley Auth., 704 F.2d 613, 
624-25 (11th Cir. 1983) (``In the present case Eastland's analyses 
account for many objective qualifications, but the failure to control 
for job category casts doubt on whether the regressions are comparing 
appropriate groups. Given the weakness of the theoretical foundation 
and the failure to control for job category, the district court did not 
err in determining that Eastland's regressions were insufficient to 
establish a prima facie case.''); Lawton v. Sunoco, Inc., No. 01-2784, 
2002 WL 1585582, at *7 (E.D. Pa. Jul 17, 2002) (``In order to establish 
a prima facie case of wage discrimination under Title VII * * * the 
plaintiffs `must demonstrate that they were performing work 
substantially equal to that of white employees who were compensated at 
higher rates than they were,' '' quoting Aman v. Cort Furniture Rental 
Corp., 85 F.3d 1074 (3d Cir. 1996), but also citing Watson v. Eastman 
Kodak Co., 235 F.3d 851 (3d Cir. 2000), for ``similarly situated'' 
standard).\11\
---------------------------------------------------------------------------

    \10\ ETF argues that the fact that Williams was unpublished and, 
under Fifth Circuit rules, cannot be cited as precedent, 
``undermines the case's significance.'' However, under Rule 47.5.4 
of the Local Rules of Appellate Procedure for the United States 
Court of Appeals for the Fifth Circuit, ``[a]n unpublished opinion 
may, however, be persuasive. An unpublished opinion may be cited, 
but if cited in any document being submitted to the court, a copy of 
the unpublished opinion must be attached to each document. The first 
page of each unpublished opinion bears the following legend: 
Pursuant to Loc. R. 47.5, the court has determined that this opinion 
should not be published and is not precedent except under the 
limited circumstances set forth in Loc. R. 47.5.4.'' A district 
court in the Fifth Circuit has found the reasoning in Williams to be 
persuasive. See Dean v. Kimberly-Clark Corp., No. 3:02-CV-1682-K, 
2005 WL 309509, at *2 (N.D. Tex. Feb. 8, 2005) (``Plaintiff claims 
that Kimberly-Clark discriminated against him by failing to 
compensate him at the same rate it compensated its Process 
Specialists, although he admits he was a Production Officer, not a 
Process Specialist. ``If a plaintiff's job responsibilities are 
significantly different from the responsibilities of employees [he] 
cites as a point of comparison, then the plaintiff has not made out 
a prima facie case.'' Williams 78 Fed. Appx. at 949.''). In addition 
to Williams, the district court in Woodward v. United Parcel Serv., 
Inc., 306 F. Supp. 2d 567, 574-75 (D. S.C. 2004), expressly rejected 
the pay grade theory as a basis for establishing a prima facie case 
of compensation discrimination: ``In order to establish a prima 
facie case of pay discrimination, Woodward must show that he * * * 
was paid less than similarly situated employees who were outside his 
protected class * * *. Woodward has not identified any relevant 
group of similarly situated comparators to support his claim of pay 
discrimination * * *. In 1998, Woodward transferred to the District 
Assessor position in the South Carolina District--a job in which he 
had no comparators because the other six Grade 16 managers in the IE 
department during 1998 and 1999 (while Woodward was the Assessor) 
all held positions with significantly different duties * * *. In 
summary, Woodward has failed to identify any comparators who are 
similarly situated with respect to pay. Woodward has made no effort 
to demonstrate that any of the alleged comparators that he has 
identified held positions whose duties were the same as or 
substantially similar to his own. Instead, Woodward relies solely on 
his unsupported assertion that all Grade 16 level employees are 
similarly situated with respect to pay.''
    \11\ By contrast, plaintiffs were successful in their claims 
when they offered evidence that they were similarly situated based 
on the work they performed, and the responsibility level, skills, 
and qualifications involved in their positions. See, e.g., Brinkley-
Ubo v. Hughes Training Inc., 36 F.3d 336, 343 (4th Cir. 1994) (``The 
plaintiff may establish a prima facie case by demonstrating * * * 
that the job she occupied was similar to higher paying jobs occupied 
by males.''); Miranda v. B&B Cash Grocery Store, Inc., 975 F.2d 
1518, 1526-31 (11th Cir. 1992) (``We agree with the trial court that 
Miranda carried her burden of proof and established that B & B 
discriminated against her because of her gender. The plaintiff 
establishes a prima facie case of sex discrimination under Title VII 
by demonstrating that she is female and that the job she occupied 
was similar to higher paying jobs occupied by males. The trial court 
found that Miranda's description of the type of duties she performed 
as a buyer, as well as testimony from defendant's witnesses 
established that she shared the same type of tasks as the other 
buyers.'').
---------------------------------------------------------------------------

    ETF's arguments also do not address the fundamental point for which 
OFCCP cited these cases. OFCCP relied on these cases to identify the 
factors that courts use to determine whether employees are similarly 
situated in compensation discrimination claims under Title VII. Under 
the pay grade theory, OFCCP took the position that employees included 
in the same pay grade were necessarily similarly situated, without 
regard to their actual job duties, responsibility levels, and skills 
and qualifications, and OFCCP persisted in that position, even 
threatening enforcement action, regardless of the evidence the employer 
submitted about differences in job duties, responsibility levels and 
skills and qualifications. Indeed, the defining feature of the pay 
grade theory was its assumption that employees were similarly situated 
based solely on the fact that they were included in the same pay grade 
(or that they were in the same pay grade and their pay could progress 
to the top of the pay grade without changing jobs). OFCCP has rejected 
the pay grade theory because it conflicts with courts' interpretations 
of Title VII.
    As noted earlier, ETF expressed concern regarding the stage of the 
case in which the similarly situated issue arises. However, ETF did not 
expressly endorse the pay grade assumptions that individuals are 
similarly situated because they are in the same pay grade. Thus, there 
are not substantial differences between the final interpretive 
standards and ETF's position. As noted below, in a particular case the 
pay grade could coincidentally group employees who in fact performed 
similar work, and occupied positions involving similar responsibility 
levels, skills, and qualifications. However, what would make such 
employees similarly situated is the fact that that they perform similar 
work and occupy positions involving similar responsibility levels, 
skills and qualifications, not the fact that they are in the same pay 
grade. Moreover, ETF apparently accepts that an employer could always 
justify pay differentials between employees who occupy the same pay 
grade through evidence that the employees are not similar with respect 
to the work they perform, their responsibility levels, or the skills 
and qualifications involved in their positions.\12\
---------------------------------------------------------------------------

    \12\ Of course, if OFCCP used pay grade as the initial grouping, 
subject to the employer's rebuttal that the jobs were dissimilar, 
employers typically would argue that the pay grade grouped positions 
that were dissimilar, as they did throughout the period that OFCCP 
used the pay grade theory. However, in the past, OFCCP generally did 
not investigate the employer's contention that the jobs were 
dissimilar because the pay grade theory assumed that employees were 
similarly situated if they were in the same pay grade, regardless of 
whether they were similar or dissimilar in the work they performed, 
their responsibility levels, or the skills and qualifications 
involved in their positions. However, if OFCCP used grade as the 
initial grouping subject to the employer's rebuttal that the jobs 
were dissimilar, OFCCP could not simply accept the employer's 
contention that jobs were dissimilar, but would have to investigate 
whether the facts supported the employer's contention. This would 
require OFCCP to conduct the same type of factual investigation 
specified in these final interpretive standards.
---------------------------------------------------------------------------

    OFCCP disagrees with ETF's last argument, that the agency should 
not promulgate the final interpretive standards because they could harm 
or curtail future enforcement efforts and development of the law. In 
fact, OFCCP's experience demonstrates that just the opposite is true. 
OFCCP believes that it is important for the agency to promulgate a 
definitive interpretation of Executive Order 11246 and OFCCP 
regulations with respect to systemic compensation discrimination. Most 
significantly, these final interpretive standards will promote 
compliance with Executive Order 11246 by helping agency personnel and 
covered contractors and subcontractors understand the meaning of 
Executive Order 11246 and OFCCP regulations with respect to systemic 
compensation discrimination. OFCCP personnel will be guided by written 
standards which will promote uniformity in OFCCP's enforcement of 
Executive Order 11246. Together with the Voluntary Self-Evaluation 
Guidelines, these interpretive standards will help contractors with 
developing programs for monitoring their own compensation practices. 
OFCCP also believes these interpretive standards will ensure that 
OFCCP's enforcement efforts are effective, by providing standards that 
are consistent with administrative and judicial interpretations of 
Title VII. In fact, OFCCP has been successful in pursuing systemic 
compensation discrimination cases under standards quite similar to the 
standards articulated in these final interpretive standards. In the 
last three years, OFCCP pursued enforcement litigation in two cases 
using multiple regression analyses that did not rely on the grade 
theory. These were the first two compensation cases OFCCP has filed in 
twenty-five years, and both cases resulted in significant settlements, 
including a near record $5.5 million settlement. By contrast, OFCCP did 
not pursue even one case through enforcement litigation during the 
period in which the agency relied on the grade theory. OFCCP does not 
believe that it will be effective in establishing and remedying 
systemic compensation discrimination unless contractors perceive that 
OFCCP's methods will support a credible threat of successful 
enforcement litigation.
    In sum, OFCCP agrees with ETF that grade information can be useful 
as an indicator of potential compensation discrimination, and OFCCP 
intends to

[[Page 35129]]

continue to use grade information to target agency resources on 
workplaces where further investigation is warranted. However, OFCCP 
disagrees with ETF that the grade theory is consistent with Title VII 
standards or that the grade theory is an efficient and effective method 
for OFCCP to accomplish its important mission.

C. Similarly Situated Employees

    Many commenters approved of OFCCP's proposed interpretive standards 
for defining similarly-situated employees.\13\ However, several 
commenters, such as Ellen Shong & Associates, Gaucher Associates, and 
Society for Human Resource Management (SHRM), argued that OFCCP should 
adopt the Equal Pay Act standard of ``substantial equality'' instead of 
the ``similarly situated'' standard. OFCCP does not agree with these 
commenters. As noted, OFCCP has historically relied on interpretations 
of Title VII to interpret the nondiscrimination requirements of 
Executive Order 11246. Many courts and the EEOC have interpreted Title 
VII to allow comparisons of individuals who are ``similarly situated'' 
as defined in these final interpretive standards.\14\
---------------------------------------------------------------------------

    \13\ See, e.g., Association of Corporate Counsel, Equal 
Employment Advisory Council, HR Analytical Services, National 
Industry Liaison Group, ORC Worldwide, TOC Management Services, U.S. 
Chamber of Commerce, and World at Work.
    \14\ See, e.g., Sprague v. Thorn Americas, Inc., 129 F.3d 1355 
(10th Cir. 1997); Mulhall v. Advance Sec., Inc., 19 F.3d 586 (11th 
Cir. 1994); Brinkley-Obu v. Hughes Training, Inc., 36 F.3d 336 (4th 
Cir. 1994); Miranda v. B & B Cash Grocery Store, Inc., 975 F.2d 1518 
(11th Cir. 1992); Crockwell v. Blackmon-Mooring Steamatic, Inc., 627 
F. Supp. 800 (W.D. Tenn. 1985).
---------------------------------------------------------------------------

    Several commenters, such as TOC Management Services, questioned 
whether the proposed paragraph 7 of the Standards for OFCCP Evaluation 
of Contractors' Compensation Practices conflicted with OFCCP's adoption 
of the similarly situated standard. Proposed paragraph 7 stated that 
``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.'' In response to the comments, OFCCP added a footnote to paragraph 
7 of the ``Standards for OFCCP Evaluation of Contractors' Compensation 
Practices'' in the final interpretive guidelines to make clear that the 
intent of paragraph 7 was not to permit a systemic compensation 
discrimination theory based on comparison of employees who were not 
similarly situated. Rather, the intent is simply to permit the type of 
unique compensation discrimination claim approved of in County of 
Washington v. Gunther, 452 U.S. 161, 166 (1981) (``[R]espondents seek 
to prove, by direct evidence, that their wages were depressed because 
of intentional sex discrimination, consisting of setting the wage scale 
for female guards, but not for male guards, at a level lower than its 
own survey of outside markets and the worth of the jobs warranted.''). 
Unlike the systemic compensation discrimination standards set forth in 
the final interpretive standards, which involve comparisons of the 
compensation of similarly-situated employees using multiple regression 
to control for the joint contributions of the various legitimate 
factors that influence compensation, the Gunther-type claim ``does not 
attempt by statistical technique or other method to quantify the effect 
of sex discrimination on the wage rates.'' 452 U.S. at 181 & n. 20 
(citing Franklin M. Fisher, Multiple Regression in Legal Proceedings, 
80 Colum.L.Rev. 702, 721-725 (1980)).\15\
---------------------------------------------------------------------------

    \15\ Because Gunther-type claims are unique, OFCCP has not 
included a paragraph regarding such claims in the ``Standards for 
Systemic Compensation Discrimination Under Executive Order 11246.''
---------------------------------------------------------------------------

    Several of the commenters who agreed that similarity in job duties, 
responsibility level, and skills/qualifications is a necessary 
condition for employees to be similarly situated,\16\ also argued that 
similarity in these factors is not a sufficient condition for employees 
to be similarly situated in all cases. These commenters argued that 
there may be other factors in particular cases that may make 
individuals dissimilar who would otherwise meet the proposed standard 
for similarly situated. For example, these commenters noted that 
otherwise similarly-situated employees may be paid differently for a 
variety of reasons: They work in different departments or other 
functional divisions of the organization with different budgets or 
different levels of importance to the business; they fall under 
different pay plans, such as team-based pay plans or incentive pay 
plans; they are paid on a different basis, such as hourly, salary or 
through sales commissions; some are covered by wage scales set through 
collective bargaining, while others are not; they have different 
employment statuses, such as full-time or part-time; etc. OFCCP agrees 
with these commenters that such factors may be important to whether 
employees are similarly situated in a particular case. See, e.g., CMCD, 
at 10-6 (``[T]he fact that employees work in different departments or 
other organizational units may be relevant, but is not controlling.''); 
see also Cooper v. Southern Co., 390 F.3d 695, 717 (11th Cir. 2004) 
(noting that plaintiffs' expert ``did not tailor her analysis to the 
specific positions, job locations, or departmental or organizational 
structures in question; however, the wide-ranging and highly 
diversified nature of the defendants' operations requires that employee 
comparisons take these distinctions into account in order to ensure 
that the black and white employees being compared are similarly 
situated''); Goodwin v. General Motors Corp., 275 F.3d 1005, 1012 n.8 
(10th Cir. 2002) (holding employees similarly situated for compensation 
discrimination claim under Title VII because ``[a]ll four 
representatives had the same supervisor, performed identical job duties 
and were subject to the same company standards and policies''); Webb v. 
Merck & Co., Inc., 206 F.R.D. 399, 408 (E.D. Pa. 2002) (``We agree with 
defendant that [the plaintiffs'' expert's] analysis of hourly (union) 
workers is unreliable and irrelevant because it fails to control for 
the mandated wage rate set by collective bargaining agreements for an 
employee's position * * *''). OFCCP has added provisions (Paragraph 2 
of the ``Standards for Systemic Compensation Discrimination Under 
Executive Order 11246'' and Paragraph 3 of the ``Standards for OFCCP 
Evaluation of Contractors' Compensation Practices'') to the final 
standards to make clear that the agency will consider the applicability 
of such additional factors in each case and make a determination based 
on the facts of the particular case.
---------------------------------------------------------------------------

    \16\ See, e.g., Equal Employment Advisory Council, Morgan, Lewis 
& Bockius LLP, Northeast Region Corporate Industry Liaison Group, 
ORC Worldwide, and Picha & Salisbury, Society for Human Resource 
Management.
---------------------------------------------------------------------------

    Several commenters, including ETF and National Industry Liaison 
Group (NILG), noted that the proposed interpretive standards were 
ambiguous about whether similarity of qualifications involves 
similarity in qualifications required for the position or similarity of 
qualifications possessed by the individual employees who hold the 
position. ETF noted that the EEOC

[[Page 35130]]

Compliance Manual chapter on compensation discrimination relies on the 
qualifications for the position, not the qualifications of the 
particular employees. OFCCP agrees with ETF that it is the 
qualifications involved in the position, not the qualifications of the 
individuals who occupy the position, that determine whether employees 
are similarly situated under these final interpretive standards. See 
CMCD, at 10-7. However, OFCCP generally will consider qualifications of 
the individuals as an explanatory factor in a regression model because 
superior qualifications are a legitimate reason for pay differences 
between similarly-situated employees. Id.; see also Goodwin v. General 
Motors Corp., 275 F.3d 1005, 1012 n.8 (10th Cir. 2002) (noting in 
context of disparate treatment compensation discrimination claim under 
Title VII that plaintiff had superior qualifications to similarly 
situated male employees: ``And Goodwin was one of just two who had 
master's degrees.''); Klindt v. Honeywell Int'l Inc., 303 F. Supp.2d. 
1206, 1223 (D. Kan. 2004) (employer not precluded from considering 
superior educational qualifications in determining employees' 
salaries).
    Several commenters, such as SHRM and HR Analytical Services, 
requested that OFCCP provide more guidance on how the agency intends to 
determine whether employees are similarly situated. OFCCP agrees that 
further clarification of this issue will be helpful to interested 
parties. OFCCP intends to gather information on employees' job duties, 
responsibility levels, and skills and qualifications, and other 
pertinent factors (as discussed above) through review of job 
descriptions and interviews of employees, managers, and HR and 
compensation personnel. Once OFCCP has gathered such information, it 
will determine which individuals are similarly situated by assessing 
the information under the standard for similarly situated set forth in 
these final interpretive standards. Since the final interpretive 
standards rely on federal court interpretations of Title VII, OFCCP 
will review applicable caselaw as an aid to making such determinations 
in particular cases. This review of caselaw typically will involve 
research for cases that discuss positions that are factually similar to 
the positions at issue in OFCCP's investigation.\17\ OFCCP will review 
the reasoning and determinations of the courts in such factually-
similar cases for guidance in making a determination on the facts 
before OFCCP.
---------------------------------------------------------------------------

    \17\ OFCCP has cited cases in this preamble that discuss whether 
specific positions are similarly situated. There are hundreds of 
other federal court pay discrimination cases that discuss whether 
other positions are similarly situated based on facts about the 
specific positions involved in each of those cases.
---------------------------------------------------------------------------

    Several commenters expressed concern that OFCCP would be forced to 
group dissimilar employees in order to create groupings of sufficient 
size for statistical analysis, especially in light of OFCCP's stated 
desire to cover ``most'' or ``a significant number of'' employees.\18\ 
Several of these commenters also requested that OFCCP explicitly 
acknowledge that certain employees, such as high-level executives, are 
unique and are not similarly situated to any other employees. OFCCP 
agrees with these commenters that it may be expected that certain 
employees are not similarly situated to any other employee in the 
organization, workplace, or AAP. Under no circumstances will OFCCP 
attempt to combine, group, or compare employees who are not similarly 
situated under these final interpretive standards. If employees are not 
similarly situated under these final interpretive standards, they will 
not be included in the statistical analysis, regardless of statistical 
size requirements or of OFCCP's general objective to include a 
significant majority of employees in the regression analyses.\19\
---------------------------------------------------------------------------

    \18\ See, e.g., Equal Employment Advisory Council, Gaucher 
Associates, and World at Work.
    \19\ OFCCP reserves the right, in rare cases, to perform non-
statistical analyses on the wages of those employees who are not 
similarly situated to any other employee, such as high-level 
executives.
---------------------------------------------------------------------------

    Several commenters, including Equal Employment Advisory Council 
(EEAC) and ORC Worldwide (ORC), expressed concern with OFCCP's stated 
intent to review job descriptions and conduct employee interviews to 
determine whether employees are similarly situated. These commenters 
noted that job descriptions are often outdated and inaccurate. Several 
commenters requested that OFCCP also interview managers or supervisors 
to determine which employees are similarly situated. OFCCP agrees with 
these commenters that it will be important for agency staff to 
interview supervisors, managers, and HR and compensation personnel to 
obtain information needed to determine whether employees are similarly 
situated, as well as to obtain other pertinent information about the 
employer's compensation practices.

D. Multiple Regression Analysis

    Many commenters agreed that multiple regression analysis is a 
legally and statistically valid method for evaluating systemic 
compensation discrimination.\20\ However, several commenters, such as 
Ellen Shong & Associates, Peopleclick Research Institute (PRI), and 
David W. Peterson, argued that OFCCP's proposed regression analysis is 
inaccurate because it does not evaluate pay and personnel decisions 
directly (or indirectly through a ``pay progression study''), but 
compares employees' compensation at a particular point in time. OFCCP 
does not agree with these commenters that multiple regression analysis 
of current compensation is legally or statistically deficient. Indeed, 
the Supreme Court has approved of such analysis. See Bazemore v. 
Friday, 478 U.S. 385, 400 (1986). Without expressing any view as to 
whether the types of analysis that these commenters suggest may also be 
legally and statistically acceptable,\21\ OFCCP does not believe that 
such analysis is preferable to the approach outlined in the final 
interpretive standards, for two reasons. First, the analysis suggested 
by the commenters would require OFCCP to gather far more information 
than required by the regression analysis outlined in these final 
interpretive standards. For example, under the commenters' approach, 
OFCCP would have to identify the variety of personnel decisions that 
influenced employees' compensation over a significant period of time 
and, as to each decision, evaluate whether the employer treated the 
employee similarly to other employees who were similarly situated with 
respect to that particular decision. This would impose significant 
burdens both on OFCCP and on contractors during OFCCP's investigation 
to obtain the information needed for the suggested analysis. Second, 
the commenters' suggested analysis would combine pay, promotion, and 
perhaps other personnel decisions in the same analysis, making it 
difficult to define the nature of the alleged discrimination or to 
determine an appropriate remedy.
---------------------------------------------------------------------------

    \20\ See, e.g., Berkshire Associates, Equal Employment Advisory 
Council, HR Analytical Service, Society for Human Resource 
Management, U.S. Chamber of Commerce, and World at Work.
    \21\ Unfortunately, these commenters did not cite any cases in 
which the court accepted these types of analysis to prove systemic 
compensation discrimination. OFCCP currently is studying methods for 
evaluating promotion practices for systemic discrimination and does 
not intend this discussion to foreclose exploration of such analysis 
for that purpose.
---------------------------------------------------------------------------

    Many commenters expressed concern about the complexity of multiple 
regression analysis and the burden of collecting the data required for 
such analysis.\22\ Others were concerned that

[[Page 35131]]

they would need to hire statisticians or other experts.\23\ OFCCP 
understands that multiple regression analysis is complicated and 
requires significant compensation and personnel information. However, 
because OFCCP will use the analysis as a basis for alleging and 
establishing systemic compensation discrimination, the agency believes 
that it must conduct an analysis that meets legal and statistical 
standards. Indeed, the pay grade method undoubtedly was simple, but 
OFCCP could not prove systemic compensation discrimination by using 
that method because it did not adhere to legal and statistical 
standards and it was widely criticized by contractors for those 
reasons. Thus, there is a natural tension between the accuracy of the 
analysis and the complexity and burden associated with it. As discussed 
above, OFCCP has attempted to balance these competing factors by using 
a tiered-review approach, in which a multiple regression analysis is 
conducted only after less complex and less intrusive analyses reveal 
indicators of potential discrimination. Moreover, OFCCP, not the 
contractor, has the burden of gathering data and conducting the 
multiple regression analyses. Contractors need not convert their data 
to electronic format for purposes of a compliance evaluation. If the 
data is already in electronic format, OFCCP will use it, but if not, 
OFCCP has the responsibility of taking the raw data and converting it 
into an electronic format which can be used in the regression analyses. 
Similarly, contractors are not required to hire experts to conduct the 
multiple regression analyses, OFCCP will conduct the multiple 
regression analyses.
---------------------------------------------------------------------------

    \22\ See, e.g., American Society of Employers, Gaucher 
Associates, Glenn Barlett Consulting Services, HR Analytical 
Services, National Industry Liaison Group, and Picha & Salisbury.
    \23\ See, e.g., Berkshire Associates Inc., HR Analytical 
Services, and Northeast Region Corporate Industry Liaison Group.
---------------------------------------------------------------------------

    Several commenters, such as EEAC and SHRM, requested that OFCCP 
provide more guidance about how the agency will determine whether to 
use a pooled regression model.\24\ OFCCP's determination will be based 
on the general objectives of attempting to cover as many employees as 
possible--in light of prohibitions on combining or comparing employees 
who are not similarly situated--and statistical requirements about the 
size of employee groupings necessary to conduct a meaningful regression 
analysis. As noted above, OFCCP will not compare employees who are not 
similarly situated as defined in these final interpretive standards. 
OFCCP added text to provisions (Paragraph 5 of ``Standards for Systemic 
Compensation Discrimination Under Executive Order 11246'' and Paragraph 
5 of ``Standards for OFCCP Evaluation of Contractors' Compensation 
Practices'') of the final standards which make clear that pooled 
regressions must contain category factors that are defined to group 
only similarly-situated employees as defined in these standards. The 
pooled regression model affords OFCCP flexibility to conduct an 
analysis controlling for groupings of similarly-situated employees. 
However, OFCCP does not intend to use the pooled regression model on a 
widespread basis as a preferred approach.
---------------------------------------------------------------------------

    \24\ As noted in the preamble of the proposed interpretive 
standards and restated below, 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 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).
---------------------------------------------------------------------------

    Several commenters, including Northeast Region Corporate Industry 
Liaison Group (NRCILG) and Association of Corporate Counsel (ACC), 
argued that OFCCP should provide the contractor with the regression 
model, not just the results of the regression model, in support of any 
NOV containing an allegation of systemic compensation discrimination. 
OFCCP agrees that providing such information to contractors will permit 
the agency to conciliate alleged violations effectively and 
expeditiously. OFCCP will provide the contractor with enough 
information about OFCCP's regression model for the contractor to 
understand the basis for OFCCP's determinations and for the contractor 
to replicate OFCCP's regression model. OFCCP has revised the 
interpretive standards (at Paragraph 2 of ``Standards for OFCCP 
Evaluation of Contractors' Compensation Practices'') to provide that 
OFCCP will attach such information to NOVs which contain an allegation 
of systemic compensation discrimination. With such information, 
contractors have an opportunity to discuss settlement with OFCCP or to 
attempt to rebut OFCCP's determination.
    Several commenters raised technical statistical issues regarding 
OFCCP's discussion of multiple regression analysis. PRI and David W. 
Peterson argued that OFCCP should include all interaction terms when 
using a pooled regression model, not just interaction terms that are 
statistically significant. These comments raise a statistical 
controversy regarding factor reduction techniques in regression 
analysis. While some statisticians disagree on the use of automated 
stepwise regression techniques to eliminate insignificant factors, most 
agree that some form of variable reduction is appropriate. As PRI 
noted, factors which are individually insignificant may in combination 
have a significant impact on the regression results. However, OFCCP 
considers there to be greater risks with full-factor modeling 
procedures. In particular, especially in the analyses of smaller 
workforces, the statistical precision in the measured disparities 
decreases as more factors are added to the analysis. As such, if 
several inconsequential factors are added to the analysis, they will 
lessen the ability to measure any gender or racial disparities. 
Furthermore, as the number of factors increases so does the possibility 
of a statistical problem called ``multicollinearity,'' which can 
produce inaccurate results. See Daniel L. Rubenfeld, Reference Guide on 
Multiple Regression, in Federal Judicial Center, Reference Manual on 
Scientific Evidence, at 197 (2d ed. 2000) (``When two or more variables 
are highly, but not perfectly, correlated--that is, when there is 
multicollinearity--the regression can be estimated, but some concerns 
remain. The greater the multicollinearity between two variables, the 
less precise are the estimates of individual regression parameters 
(even though there is no problem in estimating the joint influence of 
the two variables and all other regression parameters).'').
    Several commenters questioned OFCCP's adoption of a two standard 
deviation threshold for assessing statistical significance. Some 
commenters, including ACC, noted that the caselaw is more nuanced and 
does not support a bright-line rule. OFCCP recognizes that the courts 
have not announced an exact threshold for statistical significance. 
However, OFCCP has determined that it is helpful to adopt a bright-line 
rule of two standard deviations as an enforcement standard based on the 
need for uniformity and predictability in this area.
    Several commenters, including NILG, noted that statistical 
significance is dependent on sample size and questioned whether OFCCP 
would take that fact into consideration. OFCCP notes that standard 
tests for statistical significance already take sample size into 
account. Since smaller samples have a higher degree of variation, they 
require a larger observed disparity to achieve statistical 
significance. OFCCP recognizes when sample sizes become

[[Page 35132]]

very large, small and potentially non-meaningful disparities may be 
found to be statistically significant at the two or higher standard 
deviation threshold. See Daniel L. Rubenfeld, Reference Guide on 
Multiple Regression, in Federal Judicial Center, Reference Manual on 
Scientific Evidence, at 181 (2d ed. 2000) (``Other things being equal, 
the statistical significance of a regression coefficient increases as 
the sample size increases. Thus, a $1 per hour wage differential 
between men and women that was determined to be insignificantly 
different from zero with a sample of 20 men and women could be highly 
significant if the sample were increased to 200. Often, results that 
are practically significant are also statistically significant. 
However, it is possible with a large data set to find statistically 
significant coefficients that are practically insignificant. Similarly, 
it is also possible (especially when the sample size is small) to 
obtain results that are practically significant but statistically 
insignificant.''); see also David H. Kaye & David A. Freedman, 
Reference Guide on Statistics, in Federal Judicial Center, Reference 
Manual on Scientific Evidence, at 127 (2d ed. 2000) (``Significance 
depends not only on the magnitude of the effect but on the sample size. 
Thus significant differences are evidence of something besides random 
error is at work, but they are not evidence that this `something' is 
legally or practically important. Statisticians distinguish between 
`statistical' and `practical' significance to make that point. When 
practical significance is lacking--when the size of a disparity or 
correlation is negligible--there is no reason to worry about 
statistical significance.'').
    Several commenters, including HR Analytical Services and Northeast 
Region Corporate Industry Liaison Group, requested that OFCCP provide, 
post online, or otherwise make available to contractors, the 
statistical software that OFCCP will use in evaluating whether 
contractors engaged in systemic compensation discrimination. OFCCP uses 
SAS software, which was purchased through the normal procurement 
process. Other software may be available to perform the evaluation. 
This listing does not constitute any endorsement of SAS software, but 
rather is provided pursuant to several commenters' requests.
    Several commenters, including NILG and SHRM, requested that OFCCP 
provide a grace period or a pilot stage before full implementation of 
the final interpretive standards. As OFCCP has explained, the agency 
does not require or expect the contractor to gather data, build 
databases, or perform multiple regression analyses. OFCCP will do all 
of those activities. In fact, OFCCP has been using aspects of the 
analyses discussed in these final interpretive standards in a 
substantial number of compliance reviews over the last several years. 
Because OFCCP is not requiring contractors to engage in any activity to 
implement these final interpretive standards, OFCCP disagrees that a 
grace or pilot period are appropriate.

E. Factors Included in the Regression Analysis

    Several commenters, including the U.S. Chamber of Commerce, were 
concerned that the listing of factors in the proposed guidelines could 
result in agency investigators presuming that the listed factors must 
be used in all cases. These commenters asked OFCCP to clarify that the 
factors to be used in the regression analysis must be determined by the 
facts of the particular case. By contrast, several commenters, such as 
HR Analytical Services, requested that OFCCP provide more guidance on 
the factors that the agency would use in the regression analysis. OFCCP 
agrees that the factors must be determined based on the facts of the 
particular case. OFCCP listed several of the typical factors to provide 
some general idea of the types of factors that may be used, not to 
identify an exhaustive list that is presumed to apply in every case. 
Because the factors must be based on the facts of the particular case, 
OFCCP is unable to provide additional guidance on which factors may be 
used in a case. OFCCP agrees that there are many other factors that may 
be important in a particular case, such as significant leaves of 
absence, employment with a predecessor company, whether the educational 
degree is related to the employee's position, etc.
    Many commenters noted that contractors frequently do not collect 
data in their HRIS systems on all of the factors that may influence 
compensation decisions, and that some of the factors used in making 
compensation decisions cannot be quantified.\25\ As noted above, OFCCP 
does not expect a contractor to maintain all of the data necessary to 
conduct a multiple regression analysis in its HRIS system. Nor does 
OFCCP require that contractors collect such data and build a database 
to turn over to OFCCP during a compliance review. Instead, OFCCP will 
gather the pertinent information through interviews and though review 
of personnel files and other pertinent documents. Once OFCCP gathers 
the necessary information, OFCCP staff will build a database. OFCCP 
does not presume that every factor that may influence compensation is 
necessarily quantifiable. OFCCP may attempt to account for such factors 
in the regression model through categorical variables or proxies, if 
possible. OFCCP also may assess whether unquantifiable or inherently 
qualitative factors explain multiple regression results through non-
statistical methods.
---------------------------------------------------------------------------

    \25\ See, e.g., DCI Consulting, Equal Employment Advisory 
Council, Gaucher Associates, Gayle B. Ashton, Glenn Barlett 
Consulting Services, Peopleclick Research Institute, and Society for 
Human Resource Management.
---------------------------------------------------------------------------

    ETF argued that OFCCP should include only factors that the employer 
actually relied on in making pay decisions. OFCCP agrees that the 
factors that are included in the multiple regression analysis must be 
factors that actually had an influence on the employer's compensation 
practices. However, OFCCP does not agree that the factor must have been 
overtly considered by a particular decisionmaker when making a 
particular compensation decision. A legitimate factor may influence 
compensation without having been a factor that the employer's 
decisionmakers overtly relied on in making a particular compensation 
decision. For example, a department manager responsible for setting 
merit pay increases in a particular year may only have limited 
discretion to determine merit increases because of constraints 
established by budget decisions made by other decisionmakers and by the 
employer's compensation guidelines. Thus, the merit increase decisions 
actually involved a host of other decisions by other decisionmakers at 
an earlier point in time. As noted above, some commenters criticized 
the proposed standards because the referenced regression model 
evaluates current compensation, not each and every individual pay 
decision that contributed to current compensation (or compensation at a 
particular point in time). OFCCP rejected those commenters' suggestion 
of using an analysis that focuses more directly on compensation 
decisions. Because the regression approach OFCCP adopts in the final 
standards uses compensation at a particular point in time, the factors 
that influence compensation may not necessarily be factors that the 
employer's decisionmakers relied on overtly in making particular pay 
decisions. However, OFCCP can obtain an indication through the multiple 
regression analyses whether a particular factor had an influence on 
specific

[[Page 35133]]

employees' current compensation (or compensation at the particular 
point in time).

F. Anecdotal Evidence

    Several commenters, including ETF, ACC, NILG, EEAC, and ORC, 
commented on OFCCP's interpretive standard relating to anecdotal 
evidence. ETF commented that OFCCP's proposed standard places 
additional burdens on OFCCP not required by Title VII or Executive 
Order 11246 because the proposed standards suggest that anecdotal 
evidence is required to establish a violation of systemic compensation 
discrimination. OFCCP disagrees with ETF's characterization of the 
interpretive standard relating to anecdotal evidence. The interpretive 
standard on anecdotal evidence is not intended to place burdens on 
OFCCP in establishing a violation beyond what is required by 
interpretations of Title VII. Rather, the interpretive standard sets 
forth OFCCP's interpretation that anecdotal evidence is important in 
establishing systemic compensation discrimination and its position that 
rarely will a Notice of Violation be issued by OFCCP alleging systemic 
compensation discrimination absent anecdotal evidence.
    OFCCP's strong preference for anecdotal evidence and the important 
role that such evidence plays in determining whether systemic 
compensation discrimination exists is supported by case law. For 
example, in EEOC v. Morgan Stanley & Co., Inc., No. 01 Civ. 8421, 2002 
WL 1431685, at *1 (S.D.N.Y. July 1, 2002)[footnote omitted], the court 
discussed the importance of anecdotal evidence to the EEOC's case:

The Court agrees that the EEOC is entitled ``to develop its case, 
including the circumstances surrounding discrimination against 
individual women,'' see Plaintiff's Opp. at 3, with the safeguards 
put in place by Judge Ellis. While the EEOC's case ``depends on a 
statistical analysis of promotion and compensation data of an entire 
class of women, the [EEOC] is also entitled to put on proof of 
anecdotal evidence of discrimination.'' Plaintiff's Opp. at 3; see 
Rossini, 798 F.2d at 604 (recognizing the importance of anecdotal 
evidence in employment discrimination cases) (citing Intl'l 
Brotherhood of Teamsters v. United States, 431 U.S. 324, 339, 97 
S.Ct. 1843, 52 L.Ed.2d 396 (1977)); see also Coser v. Moore, 739 
F.2d 746, 751-752 (2d Cir.1984) (``where a pattern and practice of 
discrimination is alleged, [statistical evidence alone] must be 
weighed in light of the failure to locate and identify a meaningful 
number of concrete examples of discrimination * * *.'').

Similarly, in Obrey v. Johnson, 400 F.3d 691, 698 (9th Cir. 2005), the 
court noted the important role of anecdotal evidence:
It is commonplace that a plaintiff attempting to establish a pattern 
or practice of discriminatory employment will present some anecdotal 
testimony regarding past discriminatory acts. See, e.g., Rossini v. 
Ogilvy & Mather, Inc., 798 F.2d 590, 604 (2d Cir. 1986) (``In 
evaluating all of the evidence in a discrimination case, a district 
court may properly consider the quality of any anecdotal evidence or 
the absence of such evidence.''); Coates v. Johnson & Johnson, 756 
F.2d 524, 532 (7th Cir. 1985) (``The plaintiffs'' prima facie case 
will thus usually consist of statistical evidence demonstrating 
substantial disparities in the application of employment actions as 
to minorities and the unprotected group, buttressed by evidence of * 
* * specific instances of discrimination.''); Valentino v. United 
States Postal Serv., 674 F.2d 56, 69 (D.C. Cir. 1982) (``[W]hen the 
statistical evidence does not adequately account for the diverse and 
specialized qualifications necessary for (the positions in 
question), strong evidence of individual instances of discrimination 
becomes vital to the plaintiff's case.'') (internal quotation marks 
omitted); Garcia v. Rush-Presbyterian-St. Lukes Med. Ctr., 660 F.2d 
1217, 1225 (7th Cir. 1981) (``We find very damaging to plaintiff's 
position the fact that not only was their statistical evidence 
insufficient, but that they failed completely to come forward with 
any direct or anecdotal evidence of discriminatory employment 
practices by defendants. Plaintiffs did not present in evidence even 
one specific instance of discrimination.'').

OFCCP cited additional cases that support the important role of 
anecdotal evidence in the preamble of the proposed interpretive 
standards. See, e.g., 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 v. 
United Parcel Service of America, Inc., 380 F.3d 459, 471 (8th Cir. 
2004) (``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.'').\26\ OFCCP's position is also consistent with EEOC's guidance 
on compensation discrimination. See CMCD, at 10-13 n.30 (``A cause 
finding of systemic discrimination should rarely be based on statistics 
alone.''). OFCCP's Federal Contract Compliance Manual for many years 
has included a section on anecdotal evidence and a description of its 
use in systemic discrimination cases. See OFCCP's Federal Contract 
Compliance Manual, at Section 7D05(e) (``While courts have held that 
statistics alone may be sufficient to prove discrimination where 
disparities are gross; i.e., at least two standard deviations, 
supporting evidence strengthens statistical cases and should always be 
sought. One type of supporting evidence is anecdotal evidence. 
Anecdotal evidence consists of statements from minorities or women who 
can show that they met all of the contractor's requirements but still 
did not receive the benefit at issue, and any first hand accounts of 
discriminatory acts on the part of the contractor that

[[Page 35134]]

support the statistical inference. Thus, anecdotal evidence is not 
limited to independent examples of comparative disparate treatment.'').
---------------------------------------------------------------------------

    \26\ OFCCP's strong preference for anecdotal evidence does not 
imply that the agency believes that anecdotal evidence is sufficient 
to refute statistical or other evidence of a pattern or practice of 
discrimination. OFCCP's use of anecdotal evidence fits into the 
pattern-or-practice framework established by the Supreme Court in 
Intl'l Bhd. of Teamsters v. United States, 431 U.S. 324, 360 & n. 46 
(1977) (citations omitted):
    ``The plaintiff in a pattern-or-practice action is the 
Government, and its initial burden is to demonstrate that unlawful 
discrimination has been a regular procedure or policy followed by an 
employer or group of employers. At the initial, ``liability'' stage 
of a pattern-or-practice suit the Government is not required to 
offer evidence that each person for whom it will ultimately seek 
relief was a victim of the employer's discriminatory policy. Its 
burden is to establish a prima facie case that such a policy 
existed. The burden then shifts to the employer to defeat the prima 
facie showing of a pattern or practice by demonstrating that the 
Government's proof is either inaccurate or insignificant * * *. The 
employer's defense must, of course, meet the prima facie case of the 
Government. We do not mean to suggest that there are any particular 
limits on the type of evidence an employer may use. The point is 
that at the liability stage of a pattern-or-practice trial the focus 
often will not be on individual hiring decisions, but on a pattern 
of discriminatory decisionmaking. While a pattern might be 
demonstrated by examining the discrete decisions of which it is 
composed, the Government's suits have more commonly involved proof 
of the expected result of a regularly followed discriminatory 
policy. In such cases the employer's burden is to provide a 
nondiscriminatory explanation for the apparently discriminatory 
result.''
---------------------------------------------------------------------------

    OFCCP agrees with ETF that anecdotal evidence need not be, and in 
most cases likely will not be, in the form of ```smoking gun' evidence 
of discrimination,'' or what is known in the caselaw as ``direct 
evidence'' of discrimination. See, e.g., Desert Palace Co. v. Costa, 
539 U.S. 90, 97 (2003) (noting that Ninth Circuit defined direct 
evidence as ```substantial evidence of conduct or statements by the 
employer directly reflecting discriminatory animus,''' quoting Costa v. 
Desert Palace, Inc., 268 F.3d 882, 884 (9th Cir. 2001)). OFCCP's 
reference to ``anecdotal evidence'' in these final interpretive 
standards is to evidence that leads to an inference that the employer 
subjected a particular employee or particular employees to disparate 
treatment in compensation. See, e.g., Bazemore, 478 U.S. at 473; 
Morgan, 380 F.3d at 471; Dukes, 22 F.R.D. at 165-66; CMCD, at 10-13 
n.30 (``Where possible, evidence of individual instances of 
discrimination should be used to bring the `cold numbers convincingly 
to life,' Teamsters, 431 U.S. at 339, 340 * * *''); Obrey v. Johnson, 
400 F.3d 691, 698 (9th Cir. 2005); EEOC v. Morgan Stanley & Co., Inc., 
No. 01 Civ. 8421, 2002 WL 1431685, at *1 (S.D.N.Y. July 1, 2002). OFCCP 
agrees with ETF that witness testimony from management officials and 
employees concerning the employer's pay practices would help establish 
the appropriate factors for the regression analysis and OFCCP will seek 
such evidence in evaluating whether there is systemic pay compensation 
discrimination. See, e.g., Eastland v. Tennessee Valley Auth., 704 F.2d 
613, 623 (11th Cir. 1983) (``By evaluating the basis upon which the 
party selected the variables included in its regression the court may 
assess the model's validity. `Three kinds of evidence may be offered in 
support of a regression model; direct testimony as to what factors 
operated in the decision-making process under challenge, what kinds of 
factors generally operate in decision-making processes of the kind 
under challenge, and expert testimony concerning what factors can be 
expected to influence the process under challenge according to 
principles of economic theory.' D. Baldus & J. Cole, Statistical Proof 
of Discrimination Sec. 8.22 at 70 (1980 & 1982 Supp.) (hereinafter 
Baldus & Cole). The strength of the factual foundation supporting a 
regression model may be a factor in assessing whether the group status 
coefficient indicates discrimination or the influence of legitimate 
qualifications which happen to correlate with group status. Baldus & 
Cole, supra, Sec. 8.021 at 66 (1982 Supp.).''). However, in addition to 
this type of evidence, OFCCP will seek the anecdotal evidence described 
above.
    Several commenters, including ACC, NILG, and NRCILG, were concerned 
that OFCCP's investigation for anecdotal evidence of discrimination 
would unduly disrupt the employer's operations when agency staff 
interviewed employees. These commenters argued that OFCCP should afford 
the contractor an opportunity to rebut OFCCP's regression analysis or 
settle the case before the agency conducts such employee interviews. 
OFCCP is sensitive to the commenters concerns that employee interviews 
may disrupt the employer's operations and OFCCP will accommodate the 
employer's legitimate business needs in scheduling the interviews. At 
the same time, however, OFCCP disagrees with the commenters that the 
agency should allege a violation or offer the contractor an opportunity 
to rebut a regression analysis or settle with OFCCP prior to the 
completion of the agency's investigation under the final interpretive 
standards. In this regard, the proposed standards reflect OFCCP's 
strong preference for developing anecdotal evidence in establishing 
systemic compensation discrimination.
    Several commenters, such as EEAC and ORC, argued that OFCCP should 
never allege systemic compensation discrimination without anecdotal 
evidence of discrimination, nor should the agency ever allege systemic 
compensation discrimination based only on anecdotal evidence. OFCCP 
disagrees with these commenters. There may be cases in which the 
statistical analysis is so compelling that an allegation of systemic 
discrimination is warranted even in the absence of anecdotal evidence 
of compensation discrimination.\27\ Similarly, the amount, weight, and 
reliability of anecdotal evidence found in a case may support an 
inference of systemic discrimination, even in the absence of 
statistical evidence.\28\ Of course, the anecdotal evidence of systemic 
compensation discrimination in such a case would have to support an 
inference that the employer compensated similarly situated employees 
differently based on gender or race and that the employer's 
compensation ``discrimination was the company's standard operating 
procedure--the regular rather than the unusual practice.'' Bazemore, 
478 U.S. at 398 (quoting Teamsters, 431 U.S. at 336).
---------------------------------------------------------------------------

    \27\ As discussed in the cases cited above, one would expect 
some anecdotal evidence of compensation discrimination if the 
employer has engaged in systemic compensation discrimination. 
However, there may be unusual factors, applicable in a particular 
case, which explain why OFCCP was unable to uncover anecdotal 
evidence during its investigation despite the statistical evidence 
of systemic compensation discrimination.
    \28\ This issue does not arise in a Gunther-type claim, which 
does not involve statistical evidence. See discussion in text above.
---------------------------------------------------------------------------

G. Confidentiality of Compensation and Personnel Information

    Many commenters expressed concern about the confidentiality of 
compensation and personnel information contractors will be required to 
submit or make available to OFCCP under the proposed interpretive 
standards. These commenters requested that OFCCP provide express 
assurances that the agency would not disclose such information to 
third-parties or other enforcement agencies. In response to these 
comments, OFCCP has added a provision (Paragraph 8 of the ``Standards 
for OFCCP Evaluation of Contractors' Compensation Practices'') to the 
final interpretive standards under which ``OFCCP will treat 
compensation and other personnel information provided by the contractor 
to OFCCP during a systemic compensation investigation as confidential 
to the maximum extent the information is exempt from public disclosure 
under the Freedom of Information Act, 5 U.S.C. 552 * * *.'' OFCCP 
borrowed this text from its regulations at 41 CFR 60-2.18(d).

[[Page 35135]]

III. Substantive Discussion Regarding the Final Standards

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.\29\
---------------------------------------------------------------------------

    \29\ 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 
Executive Order 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 
interpretations of that statute constitute a body of experience and 
informed judgment to which courts and litigants can turn for 
guidance. See, e.g., Clackamas Gastroenterology Assocs., P.C. v. 
Wells, 538 U.S. 440, 449 n.9 (2003) (citing with approval and 
quoting from an EEOC Compliance Manual chapter applicable to Title 
VII).
---------------------------------------------------------------------------

    OFCCP conducts compliance reviews to determine whether covered 
contractors have been engaging in workplace discrimination prohibited 
by Executive Order 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.\30\ 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).
---------------------------------------------------------------------------

    \30\ The term ``systemic compensation discrimination'' used 
hereinafter references compensation discrimination under a disparate 
treatment, pattern or practice theory of discrimination. These 
interpretive standards address only systemic compensation 
discrimination. However, nothing in these final interpretive 
standards precludes OFCCP from investigating and alleging 
compensation discrimination under an individual disparate treatment 
theory or under a disparate impact theory of compensation 
discrimination in accordance with applicable law.
---------------------------------------------------------------------------

    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 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

[[Page 35136]]

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.\31\ 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.\32\
---------------------------------------------------------------------------

    \31\ 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 Executive Order 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).
    \32\ The final interpretive standards contained in this Notice 
are intended to provide definitive interpretations of both the SDG 
and Executive Order 11246 with respect to systemic compensation 
discrimination, regardless of the specific basis (e.g., sex, race, 
national origin, etc.) of the discrimination.
---------------------------------------------------------------------------

    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 Executive Order 11246. OFCCP has not, however, published 
formal guidance providing any interpretation of Executive Order 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.\33\
---------------------------------------------------------------------------

    \33\ Although used in practice by several OFCCP regions for 
several years, the grade theory was never formally adopted by OFCCP.
---------------------------------------------------------------------------

    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:

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.\34\
---------------------------------------------------------------------------

    \34\ 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.

    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 Executive Order 11246. 
Update, at 15.
    In another version of the grade theory method used by some OFCCP 
regions in the late 1990s,\35\ 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.
---------------------------------------------------------------------------

    \35\ This method was not described in materials made available 
to the general public. The method was used primarily in OFCCP's 
Southeast Region.
---------------------------------------------------------------------------

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., CMCD, at 10-5 to 10-8; 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., 217

[[Page 35137]]

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, 343-53 (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).
    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.\36\
---------------------------------------------------------------------------

    \36\ OFCCP's principal basis for rejecting the grade theory is 
that it allows for comparison of employees who are not similarly 
situated under applicable legal standards, as discussed in the text. 
However, an alternative reason for OFCCP's rejection of the grade 
theory applies specifically to attempts to justify the use of pay 
grades to compare dissimilar employees or jobs on the grounds that 
the employees perform or the jobs entail (dissimilar) work that has 
equal or similar ``value'' or ``worth'' to the employer. See Update, 
at 6 (justifying use of pay grade on grounds that by creating pay 
grades the employer has ``identif[ied] certain jobs as having 
similar value to the organization.''). Regardless of whether the 
worth or value of the dissimilar work or jobs is alleged to have 
been established by the employer (i.e., by placing the employee or 
the employee's job into a particular pay grade along with other, 
dissimilar employees or jobs) or by someone other than the employer, 
the attempt to compare employees who are performing dissimilar work 
or who occupy dissimilar jobs based on the ``value'' or ``worth'' of 
the work or jobs, 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 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 Executive 
Order 11246 and the SDG as not permitting the pay grade theory approach 
to systemic compensation discrimination. Instead, the Department 
interprets Executive Order 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 Standards on 
Systemic Compensation Discrimination To Guide Agency Officials and 
Covered Contractors and Subcontractors

    The Department of Labor has decided to formally promulgate detailed 
standards interpreting Executive Order 11246 and the SDG with respect 
to systemic compensation discrimination. The final interpretive 
standards will provide guidance 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 Executive Order 11246. The Department 
believes that contractors and subcontractors are more likely to comply 
with Executive Order 11246 if they understand the substantive standards 
which determine whether there is systemic compensation discrimination 
prohibited by Executive Order 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.
    These final standards are intended to govern OFCCP's analysis of 
contractors'

[[Page 35138]]

compensation practices, and in particular, OFCCP's determination of 
whether a contractor has engaged in systemic compensation 
discrimination. In addition, these final standards are intended to 
constitute a definitive interpretation of the SDG and Executive Order 
11246 with respect to systemic compensation discrimination.

F. Discussion of the Final Interpretive Standards

    OFCCP adopts final standards interpreting Executive Order 11246 and 
the SDG with respect to systemic compensation discrimination. The 
systemic compensation discrimination analysis as set forth in these 
final 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 relies 
on a statistical technique known as multiple regression.
    Under OFCCP's final standards, 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 IIID, supra.\37\
---------------------------------------------------------------------------

    \37\ 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, the Department will address this issue on a case by case 
basis.
---------------------------------------------------------------------------

    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 contain 
similarly situated employees. For example, it cannot be assumed that 
employees are similarly situated merely because they share the same pay 
grade or range, or because their pay can progress to the top of a pay 
grade or range without changing jobs.\38\ Thus, OFCCP will investigate 
whether such preexisting groupings do in fact contain 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. There 
may be other factors that have a bearing on whether employees are 
similarly situated, in addition to work performed, responsibility 
level, and skills/qualifications involved in the positions. For 
example, additional factors may include department or other functional 
unit of the employer, employment status (e.g., full-time versus part-
time), compensation status (e.g., union versus non-union, hourly versus 
salaried versus commissions), etc. OFCCP will consider the 
applicability of these additional factors in each case and make a 
determination based on the facts of the particular case.
---------------------------------------------------------------------------

    \38\ In this respect, OFCCP will not rely on the grade theory 
assumptions discussed supra., at Sections IIIC and IIID.
---------------------------------------------------------------------------

    In addition to similarity in work performed, skills and 
qualifications, and responsibility levels, systemic compensation 
discrimination under Executive Order 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, and 
additional factors as discussed above). 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

[[Page 35139]]

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, 375 (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 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'' \39\ 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.
---------------------------------------------------------------------------

    \39\ 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 Executive Order 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 final 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.'').

IV. 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.

[[Page 35140]]

    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 Affirmative Action Program 
(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 may only be used if employees 
within the group perform similar work, and occupy positions involving 
similar skills, qualifications, and responsibility levels, which may be 
determined only by understanding employees' actual work activities. In 
addition to work performed, responsibility level, and skills/
qualifications involved in the positions, other factors may have a 
significant bearing on whether employees are similarly situated. Such 
additional factors may include, for example, department or other 
functional unit of the employer, employment status (e.g., full-time 
versus part-time), compensation status (e.g., union versus non-union, 
hourly versus salaried versus commissions), etc.
    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. However, legitimate 
factors that influence compensation may be qualitative or otherwise 
unquantifiable, in which case non-statistical methods must be used to 
explain the multiple regression analyses.
    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. Any pooled regression model 
must contain category factors defined in such a way as to group only 
similarly situated employees (as defined in Paragraph 2, above).

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 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 reveals 
influenced employees' compensation. 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 regression analyses 
and results 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. In addition to work 
performed, responsibility level, and skills/qualifications involved in 
the positions, other factors may have a significant bearing on whether 
employees are similarly situated. Such additional factors may include, 
for example, department or other functional unit of the employer, 
employment status (e.g., full-time versus part-time), compensation 
status (e.g., union versus non-union, hourly versus salaried versus 
commissions), etc. OFCCP will consider the applicability of these 
additional factors in each case and make a determination based on the 
facts of the particular case.
    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

[[Page 35141]]

(e.g., the ``Chow test''), to determine which interaction terms should 
be included in the pooled regression model. In any pooled regression 
model, OFCCP will include category factors defined in such a way as to 
group only similarly situated employees (as defined in Paragraph 3, 
above).
    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.\40\
---------------------------------------------------------------------------

    \40\ See County of Washington v. Gunther, 452 U.S. 161, 166, 
180-81 (1981) (``We emphasize at the outset the narrowness of the 
question before us in this case. 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. Rather, 
respondents seek to prove, by direct evidence, that their wages were 
depressed because of intentional sex discrimination, consisting of 
setting the wage scale for female guards, but not for male guards, 
at a level lower than its own survey of outside markets and the 
worth of the jobs warranted.'').
---------------------------------------------------------------------------

    8. OFCCP will treat compensation and other personnel information 
provided by the contractor to OFCCP during a systemic compensation 
investigation as confidential to the maximum extent the information is 
exempt from public disclosure under the Freedom of Information Act, 5 
U.S.C. 552. It is the practice of OFCCP not to release data where the 
contractor is still in business, and the contractor indicates, and 
through the Department of Labor review process it is determined, that 
the data are confidential and sensitive and that the release of data 
would subject the contractor to commercial harm.

    Signed at Washington, DC, this 12th day of June, 2006.
Victoria A. Lipnic,
Assistant Secretary for the Employment Standards,
Charles E. James, Sr.,
Deputy Assistant Secretary for Federal Contract Compliance.
[FR Doc. 06-5458 Filed 6-15-06; 8:45 am]
BILLING CODE 4510-CM-P