[Federal Register Volume 78, Number 40 (Thursday, February 28, 2013)]
[Rules and Regulations]
[Pages 13508-13520]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-04675]



[[Page 13508]]

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DEPARTMENT OF LABOR

Office of Federal Contract Compliance Programs

41 CFR Parts 60-1 and 60-2

RIN 1250-ZA00


Interpreting Nondiscrimination Requirements of Executive Order 
11246 With Respect to Systemic Compensation Discrimination and 
Voluntary Guidelines for Self-Evaluation of Compensation Practices for 
Compliance With Nondiscrimination Requirements of Executive Order 11246 
With Respect to Systemic Compensation Discrimination

AGENCY: Office of Federal Contract Compliance Programs, Labor.

ACTION: Notice of final rescission.

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SUMMARY: The Office of Federal Contract Compliance Programs (OFCCP) is 
publishing a final notice rescinding two guidance documents: The 
Interpreting Nondiscrimination Requirements of Executive Order 11246 
with respect to Systemic Compensation Discrimination and Voluntary 
Guidelines for Self-Evaluation of Compensation Practices for Compliance 
with Executive Order 11246 with respect to Systemic Compensation 
Discrimination. Rescinding these prior guidance documents will improve 
OFCCP's ability to enforce the Executive Order's ban on pay 
discrimination. It will eliminate a rarely used, ineffective and 
burdensome compliance procedure. This rescission allows OFCCP to better 
direct its resources for the benefit of victims of discrimination, the 
government, contractors, and taxpayers.

DATES: Effective February 28, 2013.

FOR FURTHER INFORMATION CONTACT: Debra A. Carr, 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) 693-0103 (voice) or (202) 693-
1337 (TTY).

SUPPLEMENTARY INFORMATION:

I. Introduction

A. Background

    The Department of Labor's OFCCP enforces Executive Order 11246, as 
amended, which requires Federal Government contractors and 
subcontractors to provide equal employment opportunity through 
affirmative action and nondiscrimination based on race, color, national 
origin, religion, and sex. Compensation discrimination is one form of 
discrimination prohibited by the Executive Order. In particular, 
federal contractors \1\ may not discriminate in ``rates of pay or other 
forms of compensation.'' 41 CFR 60-1.4(a)(1). OFCCP enforces this 
requirement through review and investigation of contractor pay 
practices, data and other relevant information for potential systemic 
and individual evidence of discrimination. In addition, contractors 
must review and monitor their compensation systems to ``determine 
whether there are gender-, race-, or ethnicity-based disparities.'' \2\ 
Contractors must maintain records, including but not limited to ``rates 
of pay or other terms of compensation.'' \3\
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    \1\ The term ``federal contractor'' or ``contractor'' used in 
this notice refers to federal contractors, subcontractors, and 
federally-assisted construction contractors and subcontractors.
    \2\ 41 CFR 60-2.17(b)(3); see also 41 CFR 60-2.17(d) (required 
internal auditing and reporting system must include compensation).
    \3\ 41 CFR 60-1.12.
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    OFCCP enforces the Executive Order's nondiscrimination provisions, 
including the ban on compensation discrimination, consistent with Title 
VII. Title VII forbids discrimination in employment, which includes 
paying employees differently on the basis of race, sex or other 
protected class membership. Congress intended for courts to read this 
ban broadly. Franks v. Bowman Transportation Co., 424 U.S. 747, 763 
(1976) (``Congress intended to prohibit all practices in whatever form 
which create inequality in employment opportunity due to discrimination 
* * *'') (citations omitted). There have long been three distinct 
theories of discrimination under Title VII: Individual disparate 
treatment, ``pattern or practice'' (systemic disparate treatment), and 
disparate impact. While courts have developed some specific mechanisms 
for presenting evidence and satisfying the burden of proof under each 
theory, they consistently hold that there is no single way to prove 
discrimination.\4\ Plaintiffs may rely on any evidence of 
discrimination, whether direct, circumstantial, statistical, anecdotal, 
or any combination of such evidence.
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    \4\ See, e.g., McDonnell Douglas Corp. v. Green, 411 U.S. 792, 
802 n.13 (1973) (``The facts necessarily will vary in Title VII 
cases, and the specification of the prima facie proof required from 
respondent is not necessarily applicable in every respect to 
differing factual situations''); Furnco Constr. Corp. v. Waters, 438 
U.S. 567, 575 (1978) (title VII approaches to proving discrimination 
``not intended to be an inflexible rule'').
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    This flexibility is critical because discrimination may be 
difficult to identify. Pay discrimination can be easy to spot, like a 
clear pattern of paying women less than men in the same job, where they 
are just as qualified. But it can also be complex, like a practice of 
discriminating against African-American sales workers in handing out 
territory assignments--so that no matter how well they perform, they 
can never have the same earnings opportunities as their white 
counterparts. Title VII addresses all forms of compensation 
differences, including those that come from channeling a favored group 
into the better paying entry level jobs with better long-term 
opportunities, or where glass ceilings or other unfair promotion 
practices wrongly block advancement of talented workers on the basis of 
illegal criteria like race or gender. And even where base wages or 
salaries are fair, discrimination in access to overtime, or higher 
paying shifts, or bonuses, can add up to unequal take home pay in 
violation of federal civil rights law.
    Further, because there is so much variation in pay practices across 
industries, employers and types of jobs, investigating compensation 
discrimination requires considering evidence and data in context, which 
is the approach that federal courts have embraced when interpreting 
Title VII. It is not possible to specify in advance a single test, 
model or framework that accurately and fairly identifies discriminatory 
pay differences in every case. Attempting to impose a uniform test for 
pay discrimination without accounting for case-specific facts creates 
opportunities for error. It means that some contractors who pay fairly 
will be wrongly identified as discriminating in pay, and that some 
workers who were underpaid due to discrimination will be left without a 
remedy. Investigating and addressing compensation discrimination 
requires a rigorous fact-based assessment of a broad array of pay 
practices.
    Nevertheless, OFCCP has since 2006 narrowed its focus, following 
two guidance documents: Interpreting Nondiscrimination Requirements of 
Executive Order 11246 with respect to Systemic Compensation 
Discrimination (Standards) and the Voluntary Guidelines for Self-
Evaluation of Compensation Practices for Compliance with Executive 
Order 11246 with respect to Systemic Compensation Discrimination 
(Voluntary Guidelines).\5\ The Standards establish analytical 
procedures to be followed generally by OFCCP when issuing a Notice of

[[Page 13509]]

Violation (NOV) alleging systemic compensation discrimination. The 
Voluntary Guidelines provide a methodology for contractors' self-
evaluation of their pay practices, required by 41 CFR 60-2.17(b)(3); 
following that methodology can provide a ``safe harbor'' during 
compliance reviews.
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    \5\ The Standards and Voluntary Guidelines were published on 
June 16, 2006. See 71 FR 35124 (June 16, 2006) (Standards) and 71 FR 
35114 (June 16, 2006) (Voluntary Guidelines).
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    The Standards and Voluntary Guidelines addressed only a single type 
of pay practice using limited evidence and a highly specified analytic 
framework. The Standards did not actually apply to or explain 
investigation procedures, and left many critical details undefined or 
subject to potential exceptions. The companion document, the Voluntary 
Guidelines, attempted to tell contractors exactly how to fulfill their 
regulatory self-monitoring obligations. Yet the Voluntary Guidelines 
were similarly inadequate, and contractors rarely utilized them to 
demonstrate compliance.
    In 2010, President Obama created the National Equal Pay Task Force, 
bringing together the Department of Labor (DOL), the Equal Employment 
Opportunity Commission (EEOC), the Department of Justice, and the 
Office of Personnel Management to collectively address pay 
discrimination under their enforcement mandates. The Director of OFCCP, 
a member of the Task Force, committed OFCCP to review and revise its 
enforcement guidance and practices to more effectively address 
compensation discrimination under Executive Order 11246. OFCCP 
reevaluated all aspects of its existing approach to addressing 
compensation discrimination by federal contractors, including (1) 
Guidance documents, (2) procedures for conducting compliance 
evaluations, (3) training and best practices for investigating and 
addressing compensation discrimination, and (4) approaches of other 
federal agencies including the EEOC and the Department of Justice.
    As part of this larger review and revision process, OFCCP assessed 
the role of the Standards and Voluntary Guidelines, concluding they 
were inconsistent with the Task Force's goal of improving enforcement. 
On January 3, 2011, OFCCP published a Notice of Proposed Rescission 
(NPR), proposing to rescind the Standards and the Voluntary Guidelines 
in their entirety, and soliciting public comment. 76 FR 62. Because 
neither 2006 guidance document has proved workable or effective in 
practice, OFCCP is rescinding both guidance documents effective 
immediately.
    In their place, OFCCP is today committing to provide greater 
clarity for contractors and improve equal employment protection for 
workers. First, OFCCP will be applying Title VII principles as the 
basis for determining whether a contractor has violated the Executive 
Order's ban on pay discrimination, just as the agency does in assessing 
contractor compliance with respect to all other employment practices. 
Second, as explained in Section III below, OFCCP is disclosing its 
interpretation of specific legal and technical issues to assist 
contractors in evaluating their own practices and promoting greater 
voluntary compliance. Third, OFCCP will be providing much greater 
transparency on questions of investigation practices and procedures--
issues the Standards did not address--both in this document as well as 
via ongoing compliance assistance. Collectively, this information 
should provide ample notice to contractors of their legal obligations 
as well as assist them in achieving voluntary compliance.

B. Summary of the Reasons for Rescission

    The 2006 Standards set forth a single, specified analytical 
procedure to be used for determining a violation in all systemic 
compensation discrimination cases, except in unusual circumstances. 
Under the 2006 Standards, OFCCP was to apply the same analytic 
framework regardless of the industry, types of jobs, issues presented, 
characteristics of workers, or available data. In particular, OFCCP may 
only establish a systemic compensation violation of the Executive Order 
by testing narrowly defined groupings of employees based on standards 
typically used in individual disparate treatment cases. 71 FR at 35127-
28, 35140. Under the Standards, OFCCP must use multiple regression 
analysis to test for pay disparities and must have anecdotal evidence 
to establish a systemic compensation violation, ``except in unusual 
cases.'' 71 FR at 35141. As explained above, employment discrimination 
comes in many forms, which is why Title VII permits a flexible case-
specific approach to proof.
    The Standards restrict OFCCP's ability to enforce the Executive 
Order's non-discrimination mandate. The Standards address a single kind 
of compensation disparity--pay differences among discrete pools of 
workers limited by job category--to the potential exclusion of other 
equal opportunity concerns. Pay differences arising from discrimination 
in job assignments, unequal access to promotional opportunities, 
channeling and glass ceiling issues can be obscured by the strict 
grouping requirements of the Standards. The Standards do not favor 
aggregation and place additional burdens on OFCCP where a pooled 
regression is used, despite the longstanding legal rule that the proper 
level of aggregation requires a case by case determination. The 
regression analysis required under the Standards is not always 
appropriate or feasible--other approaches may be preferable for certain 
cases involving very high level or specialized positions or smaller 
workforces, and cases involving missing or flawed data, among others. 
The Standards create a special rule for anecdotal evidence in 
compensation cases that has never been applied in other OFCCP contexts, 
and which is particularly burdensome for workers who frequently lack 
meaningful access to information about pay. Fair and effective 
enforcement requires tailoring the compensation investigation and 
analytical procedures to the facts of the case based on Title VII 
principles.
    Similarly, the Voluntary Guidelines establish a single one-size-
fits-all statistical model that contractors can elect to use in 
conducting the self-analysis of their pay practices required by 41 CFR 
60-2.17(b)(3). As an incentive to encourage contractors to use the 
analytical procedures contained in the Voluntary Guidelines, OFCCP 
would deem a contractor, whose self-evaluation meets the procedures 
outlined in the Voluntary Guidelines, to be in compliance with section 
60-2.17(b)(3). OFCCP would then coordinate review of the contractor's 
compensation practices during a compliance evaluation in the manner 
specified in the Voluntary Guidelines. 71 FR at 35122. In other words, 
contractors may provide their own analysis of pay data, based on their 
own determinations of how to apply the Voluntary Guidelines, and as 
long as it ``reasonably meets'' the procedures detailed in the 
Voluntary Guidelines, OFCCP is bound to accept it. Even if another, 
equally ``reasonable'' analytic approach would reveal systemic 
compensation discrimination against a protected class of workers, OFCCP 
would seemingly have to consider the contractor in compliance.
    In addition, the Voluntary Guidelines provide little practical 
benefit. As the comments discussed below demonstrate, few contractors 
rely on this model for purposes of a compliance evaluation. This 
assessment is consistent with OFCCP's own experience since 2006, that 
``contractors have rarely utilized the analytical

[[Page 13510]]

procedures outlined in the Voluntary Guidelines when analyzing their 
compensation practices under section 60-2.17(b)(3).'' 76 FR at 63. 
Further, the Voluntary Guidelines, like the Standards, take an overly 
narrow approach to analyzing potential systemic pay discrimination--
which may lead contractors to shortchange the ongoing monitoring 
required by OFCCP regulations and best practices. The Voluntary 
Guidelines do not appear to have improved the level or quality of 
voluntary compliance.
    Non-discrimination in pay is a critical issue for workers and their 
families, and a cornerstone of OFCCP's equal employment protections. As 
detailed in the NPR, identifying and remedying compensation 
discrimination has long been an important goal of OFCCP compliance 
efforts. 76 FR at 62. The Executive Order and the implementing 
regulations specifically require contractors to ensure pay equity. They 
place federal contractors under affirmative duties to maintain data, 
conduct internal reviews and monitor pay practices for potential 
discrimination, and comply with the Executive Order's ban on 
discrimination in the paying of wages, salaries, and other forms of 
compensation. Sec. 202 of E.O. 11246, as amended, 41 CFR 60-1.12; 60-
1.4; 60-2.17(b)-(d). Nevertheless, Bureau of Labor Statistics data and 
numerous research studies indicate that disparities in compensation on 
the basis of sex and race continue to exist,\6\ even after accounting 
for factors such as the type of job, worker qualifications such as 
experience and education, and other potential explanations.\7\ Further, 
because many employees do not know how their pay compares to others, 
OFCCP compliance reviews and contractor voluntary compliance efforts 
are critical tools for uncovering systemic pay disparities invisible to 
individual workers. In light of these concerns, OFCCP should no longer 
limit its analysis or consideration of evidence that points to 
potential compensation discrimination in violation of the Executive 
Order. Nor should OFCCP encourage contractors to limit their self-
evaluation practices to a single form of inquiry.
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    \6\ According to the latest Bureau of Labor Statistics data, 
women's weekly median earnings are about 81% of men's. In 2010, 
women on average earned .81 for every dollar earned by a man. Bureau 
of Labor Statistics, Women at Work (2011). Through the first three 
quarters of 2012, that figure increased slightly. See also BLS, 
Current Population Survey, Labor Force Statistics from Current 
Population Survey, available at http://www.bls.gov/cps/earnings.htm#demographics; updated 2012 CPS earnings figures by 
demographics by quarter available at http://www.bls.gov/news.release/wkyeng.t01.htm. And looking at annual earnings reveals 
even larger gaps--approximately 23 cents less on the dollar for 
women compared with men. U.S. Bureau of the Census, Income, Poverty 
and Health Insurance Coverage in the United States, Current 
Population Reports 2011 (Sept. 2012), available at http://www.census.gov/prod/2012pubs/p60-243.pdf. Analyzing the weekly 
figures can be more precise in certain ways, like accounting for 
work hours that vary over the course of the year, and less accurate 
in others, like certain forms of compensation that don't get paid as 
weekly wages. No matter which number you start with, the differences 
in pay for women and men really add up. According to one analysis by 
the Department of Labor's Chief Economist, a typical 25-year-old 
woman working full time in 2011 would have already earned $5,000 
less than a typical 25-year-old man. If that earnings gap is not 
corrected, by age 65, she will have lost hundreds of thousands of 
dollars over her working lifetime. White House Council on Women and 
Girls, The Key to an Economy Built to Last (April 2012), available 
at http://www.whitehouse.gov/sites/default/files/email-files/womens_report_final_for_print.pdf. For women of color, the gap 
is even greater, approximately .70 on the dollar for African-
American women and approximately .60 for Latinas compared with white 
men based on BLS data, and .64 for African American women and .56 
for Latinas based on Census data.
    \7\ A March 2011 White House report entitled ``Women in America: 
Indicators of Social and Economic Well-Being,'' found that while 
earnings for women and men typically increase with higher levels of 
education, the male-female pay gap persists at all levels of 
education for full time workers (35 or more hours per week), 
according to 2009 BLS wage data. Potentially non-discriminatory 
factors can explain some of the gender wage differences. See, e.g., 
June Ellenoff O'Neill, The Gender Gap in Wages, Circa 2000, American 
Economic Review, May 2003, at 309. Even so, after controlling for 
differences in skills and job characteristics, women still earn less 
than men. Explaining Trends in the Gender Wage Gap, A Report by the 
Council of Economic Advisers (June 1998). See also, e.g. Ariane 
Hegewisch, Claudia Williams, Vanessa Harbin, The Gender Wage Gap by 
Occupation (2012) (women's median earnings less than men in 
virtually all occupations); Anthony T. LoSasso, et al, The $16,819 
Pay Gap For Newly Trained Physicians: The Unexplained Trend Of Men 
Earning More Than Women, 30 Health Affairs 193 (2011). Ultimately, 
the research literature still finds an unexplained gap exists even 
after accounting for potential explanations, and finds that the 
narrowing of the pay gap for women has slowed since the 1980s. Joyce 
P. Jacobsen, ``The Economics of Gender 44 (2007); Francine D. Blau & 
Lawrence M. Kahn, The U.S. gender pay gap in the 1990s: slowing 
convergence, 60 Industrial and Labor Relations Review, 45 (2006). In 
addition to the gender pay gap, scholars have found race and 
ethnicity-based pay gaps that put workers of color at a 
disadvantage. Joseph G. Altonji and Rebecca M. Blank, Race and 
Gender in the Labor Market, in, Orley Ashenfelter and David Card, 
eds., Handbook of Labor Economics 3143 (1999).
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    The Standards and Voluntary Guidelines may also lead OFCCP to 
enforcement approaches that are inconsistent with how other federal 
agencies address pay discrimination. OFCCP is presently working to 
harmonize its approach with that of other federal enforcement agencies, 
including the Department of Justice and the EEOC. Neither restricts its 
analytic and evidentiary framework to a single approach. Along with 
OFCCP, these agencies have committed to vigorous enforcement of federal 
non-discrimination mandates. Through this rescission, OFCCP seeks to 
provide workers the full protection of Title VII anti-discrimination 
provisions and ensure consistent enforcement in its review of 
contractor compensation practices.
    Finally, by setting special analytical procedures restricting what 
constitutes proof of discrimination for a particular employment 
practice, the Standards and Voluntary Guidelines depart from OFCCP's 
approach to evaluating contractor compliance in other areas. There are 
no comparable Standards or Voluntary Guidelines for systemic 
discrimination in hiring, promotion, termination or other employment 
practices. In those other areas, Title VII principles have proved more 
than adequate to put contractors on notice of their obligation, to 
promote voluntary compliance measures, and to define the parameters of 
a violation. OFCCP has traditionally focused on identifying 
discrimination through the development of a variety of investigative 
and analytical tools. Compensation should be no exception.
    After considering the comments received, OFCCP concludes that 
rescinding these prior guidance documents will improve OFCCP's ability 
to enforce the Executive Order ban on pay discrimination. It will 
eliminate a rarely used, ineffective and burdensome compliance 
procedure. This rescission allows OFCCP to direct its resources more 
efficiently--for the benefit of victims of discrimination, the 
government, contractors, and taxpayers. These Standards and Voluntary 
Guidelines have not been useful tools in combating compensation 
discrimination. OFCCP can better achieve the objectives of the 
Executive Order--including non-discrimination in pay for the federal 
contractor workforce--through other methods of investigation and 
analysis.
    Nevertheless, OFCCP takes seriously its obligation to support 
contractors seeking to comply voluntarily, and wishes to promote 
transparency and fairness regarding OFCCP practices. The agency will be 
providing as much clarity as possible regarding its application and 
interpretation of important legal, factual and technical issues in 
assessing systemic compensation discrimination, both in this document 
(see Section III, below) and going forward. OFCCP traditionally has 
established procedures for investigating compensation discrimination, 
as well as other forms of

[[Page 13511]]

discrimination, through instructions for its compliance officers 
contained in the OFCCP Federal Contract Compliance Manual (FCCM), 
directives, and other staff guidance materials, and will continue to do 
so. OFCCP will provide ongoing technical assistance through tools such 
as written frequently asked questions (FAQs), conference calls, 
webinars and online chats and will seek opportunities to take questions 
and get feedback from all stakeholders. OFCCP is not currently 
contemplating additional formal rulemaking associated with this 
document.

II. Discussion of the Comments

    OFCCP received 22 comments on the NPR from the following: employer 
associations; employee and other women's and workers' rights 
associations; named employers, including consultants and law firms 
focused on employment and personnel practices; a comment from a group 
of 40 statisticians, economists, sociologists, and psychologists 
(Social Science Researchers); and one individual comment. OFCCP has 
considered all of the comments received. Of the 22 comments, ten 
support the proposed rescission of both the Standards and Voluntary 
Guidelines, five oppose the proposed rescission of the Standards, and 
three oppose the proposed rescission of the Voluntary Guidelines--with 
one comment that recommends partial rescission of the Voluntary 
Guidelines. The remaining comments do not clearly state a position, but 
instead comment on particular issues.
    With regard to the Standards, comments addressed the following 
issues: (1) The framework under the Standards for determining the 
proper comparison groups for analysis; (2) the mandate of the Standards 
to use multiple regression analysis; (3) the mandate of the Standards 
that OFCCP have anecdotal evidence; (4) the OFCCP proposal to rely on 
multiple investigative and analytical methods to address compensation 
discrimination issues; and (5) cost to contractors should the Standards 
be rescinded. See Section II.A.
    With regard to the Voluntary Guidelines, comments addressed the 
following issues: (1) Whether the Voluntary Guidelines are effective; 
(2) substantive limitations of the Voluntary Guidelines; and (3) cost 
to contractors should the Voluntary Guidelines be rescinded. See 
Section II.B.

A. Comments Regarding the Standards

    The Standards prescribe procedures that limit OFCCP's ability to 
determine when a contractor has violated the Executive Order. They 
restrict permissible evidence and require one form of proof of 
potential systemic compensation discrimination, except in unusual 
circumstances. These restrictions govern how to group employees for 
analysis, the use of multiple regression analysis to decide whether 
wage differences are discriminatory, and the requirement for anecdotal 
evidence of compensation discrimination except in unusual cases. These 
procedures are to be followed regardless of the facts of a particular 
case.
1. How To Compare Workers for Purposes of Compensation Analysis
    Under the Standards, OFCCP can generally only establish a systemic 
compensation violation where there are statistically significant pay 
disparities comparing highly specified groups of workers. In 
particular, OFCCP is to begin by establishing groups of ``similarly 
situated'' workers on the basis of the positions they hold, and then to 
test for pay differences only among those workers within each separate 
group. See 71 FR 35140. The Standards make it more difficult for OFCCP 
to test for larger patterns across groups of jobs. These restrictions 
include the formal limits on the use of an aggregate (or pooled) 
statistical analysis, as well as the job-based comparison requirements, 
which can make it more difficult to investigate the effect that 
discrimination in job assignment, level or position has on pay.
    Nearly half of the commenters addressed how the Standards require 
OFCCP to compare workers for purposes of analysis. Two commenters 
specifically identified concerns with the definition of ``similarly 
situated employees'' or the requirement to group workers a specific 
way--calling it ``overly stringent,'' ``problematic and easily 
misinterpreted,'' and inconsistent with ``professional best 
practices.'' Two commenters explicitly supported the appropriateness of 
comparing similarly situated employees as described and defined by the 
Standards on legal grounds.
    The commenters supporting rescission raised several specific 
problems with this aspect of the Standards. A women's rights group 
pointed out a technical problem with performing separate analysis on 
each group of similarly situated workers. Especially if these groups 
are small, the analysis may be ``underpowered''--and therefore unable 
to accurately detect discrimination when it exists. Another women's 
rights group expressed concern that the basis for grouping under the 
Standards could incorporate discrimination. The Standards define 
similarly situated employees based on position qualifications, even 
though qualifications can be illegal barriers where they operate to 
exclude a protected class from the job. The Social Science Researchers 
noted that a determination of how to group employees for analysis must 
be made based on the particular facts and circumstances, Title VII 
principles, and professional best practices. Multiple commenters 
pointed out that compensation discrimination takes many forms, and that 
the OFCCP's analysis should be flexible enough to address all pay 
issues that may exist in a contractor's workforce.
    Commenters supporting the Standards on this point largely relied on 
the view of applicable law underpinning the Standards themselves. For 
example, one management law firm referred to the Title VII cases cited 
in the original Federal Register notice establishing the Standards and 
noted that the NPR provided no legal authority to the contrary. An 
employers' association stated that the Standards follow the EEOC's 
Compliance Manual and that therefore they represent ``adherence to 
Title VII principles.'' As explained below, the Standards do not 
comport with a more comprehensive understanding of applicable legal 
principles relevant to potential pay discrimination. Nor do they 
accurately reflect the contents of the EEOC Compliance Manual, which 
rejects the view that there is a single way to prove discrimination.
    OFCCP has concluded that this aspect of the Standards is overly 
narrow and creates both technical and substantive barriers to effective 
enforcement. The legal analysis OFCCP used to support its adoption of 
the Standards in 2006 did not explicitly discuss the most common 
approaches for proving systemic discrimination. See 71 FR 35126-28. The 
Standards applied a model typically applied in individual disparate 
treatment cases, limiting the types of evidence and models of proof in 
systemic cases. Further, the Standards require a specific technical 
approach that substantially increases the risk that OFCCP would fail to 
detect improper pay disparities, and limits investigations to a single 
form of pay discrimination. Thus, as explained in the paragraphs that 
follow, the Standards hamper OFCCP's ability to ensure contractor 
compliance with the Executive Order.
    The Standards inadequately rely on an inquiry relevant to 
individual disparate treatment cases to evaluate

[[Page 13512]]

systemic discrimination. Individual disparate treatment cases typically 
proceed under the McDonnell Douglas burden shifting framework. Reeves 
v. Sanderson Plumbing Products, Inc., 530 U.S. 133 (2000); McDonnell 
Douglas Corp. v. Green, 411 U.S. 792 (1973). Many individual disparate 
treatment cases rely heavily on ``comparators''--specifically 
identified workers who are similarly situated to the plaintiff but 
outside the protected class. An otherwise unexplained difference in how 
the employer treated the plaintiff and her comparator permits an 
inference that the real reason was intentional discrimination.\8\
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    \8\ For example, in Williams v. Galveston Ind. Sch. Dist., No 
03-40436, 78 Fed. Appx. 946 (5th Cir. 2003), the court found that 
differences in duties and supervisory roles explained the difference 
in pay between the individual plaintiffs and the comparators.
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    Virtually all of the cases OFCCP used to support the Standards 
focus on how to prove individual instances of pay discrimination. See 
71 FR 35127-28. These cases involve disputes over whether a particular 
comparator is appropriate or not because of differences in their 
positions. But there are other ways to prove discrimination in 
individual cases.\9\ More importantly, systemic cases are not based on 
person to person comparisons but on patterns within a workforce that 
can transcend specific workers, jobs, locations, or functions.
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    \9\ Other circumstantial or direct evidence of discrimination 
can support an individual claim even in the absence of a formal 
comparator. See Satz v. ITT Financial Corp., 619 F.2d 738, 745-46 
(8th Cir. 1980). As the EEOC Compliance Manual explains, ``A claim 
of compensation discrimination can be brought under [title VII] * * 
* even if no person outside the protected class holds a 
`substantially equal,' higher paying job.'' http://www.eeoc.gov/policy/docs/compensation.html.
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    Proof in systemic disparate treatment cases can go beyond the 
single scenario of the Standards. Rather than asking whether an 
employer intentionally discriminated against a specific person, 
systemic cases ask whether there is a pattern or practice of unequal 
treatment of a protected class. Plaintiffs must show that 
discrimination in the workplace manifests as the company's ``standard 
operating procedure.'' International Brotherhood of Teamsters v. United 
States, 431 U.S. 324, 336 (1977); see also Franks v. Bowman 
Transportation Co., 424 U.S. 747, 772 (1976). Plaintiffs may support 
their case by presenting evidence of a pattern of discrimination 
against a protected class of workers, regardless of whether they all 
have exactly the same jobs, responsibilities, supervisors or work 
locations.\10\ This approach does not pre-specify how to test for a 
pattern of pay or other disparities. Whether systemic discrimination 
exists at all, exists within one particular position, location or 
function, or spans multiple jobs, facilities or segments of the 
workforce, is a factual inquiry that turns on case-specific evidence 
and data.
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    \10\ See, e.g., McReynolds v. Sodexho Marriott Svs. Inc., 349 F. 
Supp.2d 1, 9, 21 (D.D.C. 2004) (companywide statistical model 
covering jobs in multiple grades and locations sufficient for prima 
facie case of a pattern or practice); Beckman v. CBS, 192 F.R.D. 
608, 618 (D. Minn. 2000) (summary judgment not appropriate where 
plaintiff alleged a pattern of segregating women in less well-paying 
jobs and comparisons covered multiple types of jobs); Stender v. 
Lucky Stores, 803 F.Supp. 259, 336 (N.D. Cal. 1992) (proof of 
systemic discrimination supported by pattern of lower earnings for 
women across multiple jobs); Greenspan v. United Auto Club of Mich., 
495 F.Supp. 1021, 1029-33 (E.D. Mich. 1980) (same). Applying an 
analogous principle in ruling on class certification, courts have 
agreed that proof of systemic discrimination can be supported by 
evidence of patterns that span jobs or locations. See, e.g., Hnot v. 
Willis Grp. Holdings, 228 F.R.D. 476, 483-84 (S.D.N.Y. 2005) 
(disputes over statistical models to be resolved by factfinder at 
liability); Satchell v. Fed. Express, 2005 WL 2397522, at *7 (under 
Teamsters, proof of pattern and practice can be based on statistical 
evidence covering workers in multiple jobs and locations); Warren v. 
Xerox Corp., 2004 WL 1562884, at *9 (E.D.N.Y. 2004) (race-based 
disparities in multiple pay grades relevant to merits of 
discrimination claim). Courts have also approved consent decrees 
settling pattern or practice or disparate impact claims of pay 
discrimination covering multiple positions, levels and locations, 
see e.g., Ingram v. The Coca-Cola Co., 200 F.R.D. 685 (N.D. Ga. 
2001); Shores v. Publix Supermarkets, 1997 WL 714787 (M.D. Fla.).
---------------------------------------------------------------------------

    In a pattern or practice case of compensation discrimination (or 
any other type of discrimination) relying on statistical evidence, 
courts permit a wide range of approaches--evaluating each model based 
on the facts of the case. Proof frequently turns on the results of a 
statistical analysis of the compensation paid to a protected class, 
with controls used to ensure comparison of similarly situated employees 
and accounting for potentially non-discriminatory explanations for 
statistical disparities. However, there are no hard and fast rules 
regarding how to group workers, what controls to use, or how to analyze 
the pay practices at issue. For example, in Segar v. Smith, the court 
found discrimination based on a regression analysis comparing all 
African-American special agents to white special agents, even though 
they held jobs that spanned multiple positions and pay grades. In that 
case, the evidence demonstrated an overall pattern of racial 
discrimination in compensation after controlling for qualifications and 
other factors impacting pay. 738 F.2d 1249 (D.C. Cir. 1984). OFCCP 
relied on a similar approach in the Harris Bank case involving systemic 
pay discrimination against workers holding a variety of different 
positions.\11\
---------------------------------------------------------------------------

    \11\ OFCCP v. Harris Bank, 1978-OFC-2, ALJ's Recommended 
Decision on Remand (Dep't. of Labor Dec. 22, 1986). See also OFCCP 
v. St. Regis Corp., 78-OFC-1, ALJ's Recommended Decision (Dep't. of 
Labor Dec. 28, 1984).
---------------------------------------------------------------------------

    Courts consistently hold that there is no single correct model or 
set of factors that must be included in a regression analysis. Bazemore 
v. Friday, 478 U.S. 385, 400 (1986); McClain v. Lufkin Ind., 519 F.3d 
264, 280 (5th Cir. 2008). Proper groupings for purposes of regression 
analysis are based on a combination of statistical theory and relevant 
facts, and should be a case-specific determination.\12\ To the extent 
the Standards mandated specific and very narrowly defined groupings in 
every case, they are not consistent with Title VII principles and not 
appropriate as parameters to restrict OFCCP enforcement.
---------------------------------------------------------------------------

    \12\ For example, in Harris Bank the ALJ noted that analysis of 
two large groups of jobs that spanned multiple titles and levels--
professional and clerical--was appropriate based on the theory of 
discrimination.
---------------------------------------------------------------------------

    By setting limits on how OFCCP tests for pay differences, and by 
grounding those limits in job similarity, the Standards make it much 
harder to detect certain forms of pay discrimination. Where an employer 
discriminates by channeling workers of a particular race or sex into 
lower paying jobs, by a glass ceiling preventing advancement, or other 
promotion or job assignment practices, it may be highly inappropriate 
to use job similarity as the basis for analysis.\13\ There are also 
problems with some of the specific factors for determining job 
similarity, for example where the contractor has a policy linking 
additional pay to certain qualifications, and reliance on those 
qualifications may cause adverse impact.\14\ In those situations, the 
Standards require OFCCP to accept potentially discriminatory decisions 
or criteria as a neutral justification for pay differences, contrary to 
longstanding Title VII principles. Defining employees as similar based 
on their positions is

[[Page 13513]]

often appropriate, and OFCCP will continue to use that approach.\15\ 
But it is not the right framework for every single case.\16\ By 
requiring only a single approach to determining who is ``similarly 
situated,'' the Standards made it much more difficult to address the 
full range of possible unfair pay practices.
---------------------------------------------------------------------------

    \13\ See, e.g., Beckman v. CBS, 192 F.R.D. 608 (D. Minn. 2000); 
Stender v. Lucky Stores, 803 F.Supp. 259 (N.D. Cal. 1992); OFCCP v. 
St. Regis Corp., supra.
    \14\ When the qualifications are not job related or consistent 
with business necessity, their use would be illegal under title VII, 
such as offering a higher paying job to workers able to pass a 
lifting test when the job does not require lifting and women more 
often fail the test. Cf., Valentino v. U.S Postal Service, 674 F.2d 
56, 67-68 (D.C. Cir. 1982) (relying on qualifications to define 
groups is potentially more appropriate for high level or specialized 
positions than for general administrative, technical or clerical 
jobs that share skill levels).
    \15\ OFCCP v. Astra Zeneca, 2010-OFC-0005, ALJ Consent Decree 
and Order (Dep't. of Labor June 6, 2011).
    \16\ Harris Bank, at 25 (``Dr. Killingsworth's decision to group 
the professional and clerical hires together in one study was 
clearly correct for this particular issue. The key determination is 
whether the distinction itself was based upon discriminatory 
criteria. It is bard [sic] to visualize how the question could have 
been properly examined without a simultaneous comparison of the 
employees directly affected. Regressing each subgroup individually 
would have assumed Harris' initial employment decisions were 
correct, and included this assumption in the probits.'').
---------------------------------------------------------------------------

    Removing the arbitrary restrictions of the Standards will also 
align OFCCP practice with the EEOC. The EEOC's Compliance Manual 
rejects the idea that there is one way to prove compensation 
discrimination, and distinguishes between individual and systemic 
approaches. The EEOC's Compliance Manual is careful to point out that 
its approach to disparate treatment analysis is ``not intended as an 
exclusive method'' (subsection 10-III.A). And, with respect to using 
statistics, the Compliance Manual states that ``[t]he decision about 
whether and how to use statistics to aid in investigation should be 
made on a case by case basis'' (subsection 10-III.A.3).\17\
---------------------------------------------------------------------------

    \17\ EEOC, Directives Transmittal, Compliance Manual, Section 
10: Comp. Discrimination (Dec. 5, 2000), available at http://www.eeoc.gov/policy/docs/compensation.html.
---------------------------------------------------------------------------

    In addition to the substantive questions about how to group 
employees, the Standards attempt to dictate the level of aggregation--
traditionally a case-specific inquiry. For example, in Velez v. 
Novartis, the plaintiffs' expert report tested for gender-based pay 
differences by analyzing all sales employees in all jobs together, 
including in some versions of the analysis a comparison for job level 
to differentiate between entry-level and more senior employees. 244 
F.R.D. 243, 261-62 (S.D.N.Y. 2004). The defense expert analyzed each 
job level using a separate regression, and the court ruled that it was 
up to the fact finder to decide which approach was more persuasive.
    Under the Standards, OFCCP generally is to perform a separate 
regression analysis for each of the defined groups of employees holding 
similar jobs. While the Standards leave open the option of an aggregate 
analysis, that approach is not preferred and subject to specific 
technical limitations. See 71 FR 35131; 35140-41. Courts have 
consistently held that the decision to aggregate data is a case-by-case 
inquiry,\18\ and that overly fragmenting a regression analysis makes it 
harder to detect discrimination when it exists.\19\ Further, certain 
specific technical requirements for using a pooled regression model 
under the Standards create additional unnecessary across-the-board 
hurdles that instead should be case-by-case determinations.\20\
---------------------------------------------------------------------------

    \18\ See, e.g., Stagi v. Amtrak, 391 F. App'x. 133, 11 (3d Cir. 
2010); McReynolds, 349 F.Supp. 2d at 14.
    \19\ Courts have recognized the value of aggregate data in a 
variety of circumstances. Lilly v. Harris Teeter Supermarket, 720 
F.2d 326, 336 n.17 (4th Cir. 1983) (aggregate data across years 
preferred over single year); Eldredge v. Carpenters 46 N. California 
Cnty Joint Apprenticeship and Training Comm., 833 F.2d 1334, 1339 
(9th Cir. 1987) (aggregate data over years provides a ``more 
complete and reliable picture''); Cook v. Boorstin, 763 F.2d 1462, 
1468-69 (D.C. Cir. 1985) (evidence of discrimination across multiple 
jobs is relevant to discrimination in a particular job group); 
Capaci v. Katz & Besthoff, 711 F.2d 647, 654 (5th Cir. 1983) 
(improper to fragment data in ways that make statistical tests 
``less probative'').
    \20\ For example, the Standards require a control for job 
similarity in every pooled analysis. This will frequently be 
appropriate, but as explained above, in cases involving a concern 
about discrimination in assignment to job or level, it may not be 
appropriate. The Standards also require testing for interaction 
terms in every case where OFCCP is considering pooled analysis, 
specifically mentioning the Chow test as an example. While this is a 
standard statistical test, applying it in this particular context is 
highly disputed by experts, is not always technically feasible, and 
it has not been required by courts. See, e.g., Taylor v. District of 
Columbia Water & Sewer Auth., 241 F.R.D. 33, 43 (D.D.C. Mar. 13, 
2007); Rossini v. Ogilvy & Mather, 615 F.Supp. 1520, 1522-23 
(S.D.N.Y. 1985), vacated and remanded on other grounds, 798 F.2d 590 
(2d Cir. 1986); Vuyanich v. Republic Nat'l Bank, 505 F. Supp. 224, 
299, 314 (N.D. Tex. 1980), vacated on other grounds, 723 F.2d 1195 
(5th Cir. 1984).
---------------------------------------------------------------------------

    Proof of discrimination under the Executive Order and Title VII 
requires evidence sufficient to support a conclusion that 
discrimination motivated the decision or that an identified employment 
practice has an adverse impact on a protected class. That evidence can 
take many forms. What the appropriate comparison groups are depends on 
the pay practices at issue, the available data, types of workers, and 
other case-specific factors. It may be important to test for 
unjustified differences within a set of workers who are similar on the 
basis of job, but it may be important to consider other approaches. 
OFCCP will take a more proactive and rigorous approach to analyzing pay 
differences that does not place unnecessary barriers in the way of 
effective enforcement or hinder its ability to protect workers from 
discrimination.
2. Multiple Regression Analysis
    Most commenters discussed the use of regression analysis as 
directed by the Standards. Eight of the seventeen agree with OFCCP that 
the agency should not formally restrict its analytic method to multiple 
regression analysis.
    The commenters supporting rescission generally stated that multiple 
regression is often the appropriate tool, but they also agreed that 
OFCCP should retain the flexibility to consider all possible evidence 
of discrimination. The Social Science Researchers concluded that 
``OFCCP * * * should utilize this mode of analysis [regression 
analysis] in investigating possible compensation where it is feasible 
and appropriate to do so.'' A women's rights group noted that while 
multiple regression is a ``powerful, versatile method of estimation * * 
* it is not the ideal means for examining every analytical problem, 
particularly when working with small samples.'' Commenters explained 
that using regression analysis may not be appropriate especially where 
data or sample size limitations could bias the results or where the 
underlying technical assumptions necessary to support regression 
analysis cannot be met. A women's rights group and a civil rights group 
both noted that OFCCP does not require a regression analysis during the 
investigatory phase of other types of discrimination cases.
    Commenters opposing rescission largely agreed that Title VII does 
not require regression analysis in all cases; \21\ however, they 
challenged the view that the Standards unduly limit OFCCP's choice of 
methods and

[[Page 13514]]

expressed concern regarding potential alternatives. For example, an 
organization of businesses agreed that ``a multiple regression analysis 
may not be the appropriate statistical model to analyze all 
compensation issues, particularly for small sample sizes.'' However, 
this commenter expressed concern that OFCCP would rescind the Standards 
without identifying the methods to be used in place of regression 
analysis. An employers' association makes a similar assessment, stating 
that ``multiple regression analyses may not be the preferred 
statistical methodology in all cases * * *'' but fearing ``OFCCP may 
elect to use less sophisticated statistical analyses in its future 
compliance evaluations * * *.''
---------------------------------------------------------------------------

    \21\ A management law firm noted ``* * * statistical regression 
analysis may not be required by Title VII (and in fact, no specific 
methodology is), it is clear from case law that regression analysis 
is an appropriate method for evaluating pay.'' (Emphasis in original 
text). A comment signed by various human resources organizations and 
a management law firm, similarly noted that ``multiple regression 
has a long and well-established history in Title VII compensation 
cases.'' Another management law firm went even further, asserting 
that regression analysis is required under Title VII case law. A 
consulting group's comment addressed the issue from a different 
perspective--focusing on the analytic procedures used to prioritize 
cases for investigation. The consulting group asserted that ``a more 
robust, widespread, and consistent compensation evaluation system 
should be installed.'' This commenter recommended that annual 
submission of electronic compensation data by federal contractors 
will contribute to an ``improved'' system and using a more robust 
``tipping point test'' is needed. The comment concludes that with 
these changes, ``multiple regression should be used as the sole tool 
for identifying systemic pay disparities.'' OFCCP has sought input 
on whether to ask contractors to submit annual data as the comment 
suggests and how to analyze that data. 76 FR 33372 (June 8, 2011.)
---------------------------------------------------------------------------

    Using a single analytic method to identify compensation 
discrimination is inconsistent with Title VII's mandate and evidentiary 
principles. Watson v. Ft. Worth Bank and Trust, 487 U.S. 977, 995 
(1988) (Supreme Court's ``formulations'' for proof of discrimination 
``have never been framed in terms of any rigid mathematical formula''). 
Although regression analysis is a common method of proof in systemic 
cases, courts have considered statistical techniques other than 
multiple regression as potential evidence of discrimination.\22\ 
Similarly, published research on discrimination frequently relies on 
multiple regression, but social scientists use a variety of 
quantitative and qualitative methods to document differences in hiring, 
pay or other outcomes on the basis of race and gender.\23\ There is no 
single method of proving discrimination, and it is critical to consider 
all relevant evidence in order to draw an appropriate conclusion. Most 
systemic discrimination cases rely on statistical evidence, but as 
explained in the prior discussion, there is frequent debate over the 
choice of models, methods and variables; and courts have permitted a 
variety of analytic approaches.
---------------------------------------------------------------------------

    \22\ For example, courts have considered descriptive statistics 
about the representation of protected groups in certain jobs, or 
statistical analyses other than multiple regression, in combination 
with other evidence, in determining proof of systemic 
discrimination. See, e.g., Beckman, 192 F.R.D. at 611; Greenspan, 
495 F.Supp. at 1029-1033. In addition, in St. Regis the ALJ 
concluded there was a pervasive pattern of wage disparities 
disfavoring women using statistical techniques other than regression 
analysis. The wages of numerous small groups of comparable male and 
female employees were compared. In statistically significantly more 
groups, the wages of males were higher than the wages of females. 
The ALJ concluded these differences were attributable to 
discriminatory job assignments.
    \23\ When researchers need to delve deeper into potential 
explanations for differences in outcomes for particular groups, or 
overcome biases and limitations of linear regression models for 
particular cases, they have considered alternative techniques. See, 
e.g., Jaume Garcia, Pedro Hern[aacute]ndez and Angel L[oacute]pez-
Nicol[aacute]s, How wide is the gap? An investigation of gender wage 
differences using quantile regression, 26 Empirical Economics 149 
(2001)(adjusting estimates of the wage gap to account for increases 
in the wage scale). Social scientists have also increasingly applied 
experimental techniques such as paired comparison testing to 
identify race or sex discrimination in employment and other 
contexts. See, e.g., Marianne Bertrand and Sendhill Mullainathan, 
Are Emily and Brendan More Employable Than Lakisha and Jamal? 
American Economic Review (2004).
---------------------------------------------------------------------------

    Social science principles require choosing a method and a model 
based on the research question and available data; \24\ Title VII 
principles similarly require statistical evidence to be responsive to 
the issues presented, the underlying facts and the relevant, available 
data. Multiple regression analysis is frequently the appropriate 
method; however other statistical or nonstatistical analyses may be 
better suited, depending on the facts of the case and the available 
data.
---------------------------------------------------------------------------

    \24\ See Daniel Rubinfeld, Reference Guide on Multiple 
Regression, in Reference Manual on Scientific Evidence 179, 186-91 
(Federal Judicial Center 2000).
---------------------------------------------------------------------------

    OFCCP has found that the use of multiple regression analysis may be 
appropriate in some cases and not others. Even in the narrowed context 
of examining systemic compensation discrimination, its application has 
limitations. In smaller workplaces, in reviews involving high level or 
very specialized positions, or in cases where important data are 
unavailable or unreliable, it may be difficult to identify patterns of 
discrimination by a single analytic method or type of evidence. OFCCP 
has not abandoned the use of multiple regression analysis and will 
continue to use this type of analysis to examine compensation issues 
where it is feasible and appropriate to do so. Section II.A.4 and 
Section III discuss more specifically how OFCCP intends to approach the 
choice of analysis going forward.
3. Anecdotal Evidence
    More than half of the commenters addressed the requirement that 
OFCCP obtain anecdotal evidence to support the issuance of a Notice of 
Violation (NOV). A majority of these commenters agreed that OFCCP 
should not specifically require anecdotal evidence to support the 
issuance of an NOV. The remainder opposed changing the current 
treatment of anecdotal evidence under the Standards.
    Commenters in favor of eliminating this requirement relied on legal 
and practical considerations. They noted that courts have permitted 
discrimination cases to go forward without anecdotal evidence. They 
also stated that anecdotal evidence is much harder to obtain in cases 
of compensation discrimination because victims are either unaware of 
the compensation other employees receive or they are expressly 
prohibited from gaining such information. One women's rights group 
cited an Institute for Women's Policy Research survey of private and 
public sector employees in which 50% of respondents and 61% of private 
sector employees reported that discussing pay was prohibited or 
discouraged in the workplace.
    Commenters in favor of keeping the requirement based their position 
on either a legal argument or on the view that such a rule places no 
real burden on the agency. These commenters state that OFCCP is not 
under a formal restriction, citing to language in the Standards that 
indicates ``[t]here 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.'' 71 FR at 35134. They go on to state that it is common 
in Title VII cases to provide anecdotal evidence to bring ``the cold 
numbers convincingly to life,'' as the Supreme Court described in the 
Teamsters case. 431 U.S. at 339.
    OFCCP concludes that the mandate regarding anecdotal evidence 
operates as a real barrier to enforcement and should be rescinded. 
Identifying individuals harmed by pay discrimination is particularly 
difficult. Ledbetter v. Goodyear Tire & Rubber Co., 550 U.S. 618, 645 
(2007) (Ginsburg, J., dissenting). Many workers do not know they are 
underpaid. If OFCCP finds evidence of pay discrimination by federal 
contractors through its review of data, the agency should not let that 
discrimination stand simply because the contractor had successfully 
hidden it from its employees. Federal contractors have special 
obligations to avoid discrimination, monitor their pay practices and 
submit to reviews to make certain they are in compliance--regardless of 
whether any individual applicant or employee actually has knowledge of 
discrimination.
    Further, Title VII does not dictate the use of anecdotal evidence 
in all systemic cases. As the Supreme Court has explained, statistics 
may at times be ``the only avenue of proof'' available ``to uncover 
clandestine and covert discrimination.'' Teamsters, 431 U.S. at 339 
n.20 (internal citation omitted). In

[[Page 13515]]

some cases, statistics alone can establish discrimination.\25\
---------------------------------------------------------------------------

    \25\ Teamsters, 431 U.S. at 339 (``We have repeatedly approved 
the use of statistical proof, where it reached proportions 
comparable to those in this case, to establish a prima facie case of 
racial discrimination in jury selection cases, see, e.g., Turner v. 
Fouche, 396 U.S. 346; Hernandez v. Texas, 347 U.S. 475; Norris v. 
Alabama, 294 U.S. 587. Statistics are equally competent in proving 
employment discrimination.'') (S.Ct. and L. Ed. citations omitted). 
Accord, Palmer v. Schultz, 815 F.2d 84, 90-91 (DC Cir. 1987); 
Rossini, 798 F.2d at 604; OFCCP v. Greenwood Mills Inc., 89-OFC-39, 
Decision and Order of Remand at 3 (Dep't. of Labor Nov. 20, 1995); 
OFCCP v. Jacksonville Shipyards, 89-OFC-1, Decision and Order of 
Remand at 6, (Dep't. of Labor May 9, 1995).
---------------------------------------------------------------------------

    Although the Standards do allow OFCCP to proceed without anecdotal 
evidence in certain circumstances, OFCCP finds this exception to the 
requirement to be too narrow. No anecdotal evidence should be required 
for any type of case, much less for a compensation case where it may be 
extremely difficult or impossible to obtain. Regardless, OFCCP will 
continue to actively seek anecdotal evidence during its investigations. 
The agency will evaluate all available evidence--statistical and 
anecdotal--before making a determination regarding contractor 
compliance.
4. Multiple Investigative and Analytical Methods
    The NPR states that OFCCP will continue to adhere to the principles 
of Title VII in investigating compensation discrimination and will 
reinstitute flexibility in its use of investigative approaches and 
tools. Generally, the commenters, whether supporting or opposing 
rescission of the Standards, acknowledged that multiple investigative 
and analytical methods for addressing potential compensation 
discrimination may be used by OFCCP.
    A number of commenters expressed support for OFCCP's position in 
this regard. Specifically, a women's rights group stated that, ``[i]t 
is critical for OFCCP to have a full complement of investigative tools 
and strategies at its disposal to be used at the various stages of the 
investigation and litigation process.'' A civil rights organization 
stated, ``OFCCP must be permitted to exercise discretion to investigate 
compensation cases in the same manner that it exercises discretion in 
other types of cases.'' The Social Science Researchers noted that OFCCP 
should be able to choose an analytic method based on factors such as 
sample size, data availability, or other circumstances.
    Some commenters, opposing rescission of the Standards, raised two 
concerns with the statement that OFCCP will reinstitute flexibility in 
its use of investigative and analytical tools as it relates to 
compensation discrimination. These commenters expressed concern that 
this would result in inconsistent enforcement and a lack of guidance 
for contractors. A comment signed by various human resources 
organizations and a law firm stated that ``a contractor has a right to 
know the standards by which it is being judged.'' Further it urges that 
``a rescission of the Standards without new standards in place would be 
damaging to both the spirit and enforcement of equal employment 
opportunity.'' Additionally, this commenter challenged OFCCP's 
statement that it adheres to Title VII principles and asserts that 
``OFCCP's interpretation of Title VII principles in the proposed 
rescission is not consistent with the legal standards established in 
case law * * *.'' An employers' association noted agreement with 
OFCCP's statement that compensation investigations and analytical 
procedures should be tailored to the facts of the case based upon Title 
VII principles. However, this commenter also expressed concern that 
flexibility in OFCCP's use of investigative approaches and tools would 
result in ``inconsistency and confusion.'' A comment submitted by a law 
firm offered that, if ``* * * OFCCP believes other methodologies may be 
appropriate for identifying systemic compensation discrimination under 
other circumstances, the Standards should be modified appropriately, 
but not discarded all together.''
    These comments involving potential inconsistency and undue 
flexibility raised one specific past OFCCP practice that involves the 
so-called ``pay grade theory.'' This method made a comparison of 
average pay differences using a particular employer's pay grade, salary 
band or similar system to draw conclusions about pay discrimination. 
The method made assumptions that workers in the same pay grade were by 
definition similarly situated. 71 FR 35136-37. The Notice adopting the 
Standards explicitly grounded the need for the Standards on the view 
that this approach was legally untenable. 71 FR 35125-26. Because 
concerns about the pay grade model animated the original Standards, 
multiple commenters expressed alarm that this rescission means a return 
to the prior model.
    That is not OFCCP's intent in rescinding the Standards. On the 
contrary, both approaches suffer from the same flaw. The Standards 
simply replaced one across-the-board framework with another. Neither 
permits careful case-specific consideration of the pay practices and 
workers at issue and the available data and evidence. OFCCP does not 
view employer pay grades as per se evidence of similarity; rather they 
are one possible relevant factor among many others. However, OFCCP also 
has determined that it was a vast overcorrection to address the 
potential pitfalls of the ``pay grade'' theory by requiring multiple 
regression analysis in all cases, or looking to only the narrowest 
possible comparisons of workers.
    OFCCP does not believe that increased flexibility necessarily leads 
to greater inconsistency, and is committed to ensuring that it does 
not. Flexibility is needed to allow OFCCP to adapt its approach to the 
uniqueness of a given case within the framework of Title VII case law. 
Flexibility also ensures that OFCCP's methodology reflects new legal 
developments, new analytic practices, and new workplace practices, as 
well as the relevant nuances of the contractor's workforce and 
practices. The use of more than one approach to investigate and analyze 
compensation issues is necessary because of the complexities of these 
types of investigations. The particular tool, or combination of tools, 
depends upon the facts of a specific case, and includes consulting with 
labor economists and other experts, as appropriate.
    Further, OFCCP is committed to ensuring consistency in conducting 
its compliance activities. OFCCP adheres to Title VII principles in 
developing and applying its compliance policies and procedures. The 
OFCCP FCCM, directives, and staff training provide necessary guidance 
to prepare compliance officers to address compensation issues. These 
tools, used in conformance with the applicable regulations, provide the 
structure within which compliance officers operate. OFCCP has begun 
updating materials and implementing a comprehensive training program to 
ensure that its staff investigate pay discrimination effectively, 
rigorously, and fairly, consistent with prevailing law and the policy 
goals animating the Executive Order. In addition, OFCCP will be 
conducting regular quality audits of its compensation investigations.
    Because of the requests from the contractor community for more 
transparency on OFCCP's procedures for reviewing compensation 
practices, the agency commits to take specific steps to support future 
compliance assistance in this area. First, Section III below sets out 
some specific details regarding how OFCCP intends to apply Title VII 
principles in the context of its investigations. Second, OFCCP will

[[Page 13516]]

continue to provide compliance assistance to the contractor community 
through written materials such as case examples, frequently asked 
questions, and similar materials. Finally, OFCCP will provide online 
and in-person opportunities for interactive discussion, such as 
webinars, online chats, and compliance assistance workshops.
5. Cost to Contractors
    A few commenters raised concerns regarding the cost to contractors 
if the Standards are rescinded, stating that without the Standards in 
place, contractors will incur unwarranted costs in their attempts to be 
in compliance. A management law firm noted, ``[c]ompensation analysis 
is not only nuanced and complex, but it also is costly. If contractors 
are required to navigate the nuance and complexity and absorb these 
costs, they are at least entitled to transparency in the standards they 
should use, as well as those OFCCP will use, when doing so.'' The 
commenter recommended that ``retaining and modifying the Voluntary 
[sic] Standards and Guidelines to reflect improvements would be one way 
to do this.'' Simply modifying the existing guidance is not a viable 
option. OFCCP has not traditionally developed special procedural rules 
for a single employment practice, instead using directives and other 
internal guidance to the field. That approach allows the agency 
sufficient flexibility to respond to changes in case law or the 
workplace.
    For contractors already taking their compliance obligations 
seriously, the rescission should have little impact on cost. Existing 
regulations mandate that contractors engage in regular and proactive 
review of their compensation practices and pay data. Regardless of 
whether the Standards addressed the full range of potentially 
discriminatory pay practices, contractors have an independent legal 
obligation not to discriminate and have affirmatively committed to 
practice equal employment opportunity as a condition of the privilege 
of federal contracting. OFCCP is aligning its enforcement procedures 
with the scope of illegal pay discrimination under Title VII, and 
ensuring that workers and their families do not bear the cost of unfair 
discrimination. Further, OFCCP has committed to providing the requested 
transparency to alleviate potential concerns regarding unnecessary 
costs as a result of the rescission.

B. Comments Regarding Voluntary Guidelines

1. Contractor Use of the Voluntary Guidelines
    In OFCCP's experience, contractors rarely use the Voluntary 
Guidelines to demonstrate their compliance with the Executive Order. 
Multiple commenters agreed with OFCCP's assessment, noting that fact 
warranted rescission of the Voluntary Guidelines. According to an 
organization of businesses, the Voluntary Guidelines have ``limited 
utility and significant burden'' and should therefore be rescinded. A 
consulting group, while identifying potential benefits of the Standards 
and Voluntary Guidelines, noted that based on their experience 
conducting ``pro-active compensation reviews for federal contractors,'' 
pay discrimination continues to be a problem. They observed that ``the 
majority of the contractor community did not (unfortunately) go along 
with the spirit and letter'' of the 2006 guidance.
    However, other commenters asserted that contractors have in fact 
used the Voluntary Guidelines--although not for the intended purpose of 
OFCCP compliance reviews. These comments stated that contractors use 
the Voluntary Guidelines for internal self-evaluation purposes without 
taking advantage of the ``compliance coordination incentive option.'' 
In the experience of these commenters, contractors perform their 
compensation analysis under attorney-client privilege and wish to 
protect it from disclosure. A comment signed by various human resources 
organizations and a law firm cited two surveys it conducted (with 113 
contractors and 33 compensation ``experts'' responding), which found 
that 61.3% of the contractors surveyed used the Voluntary Guidelines. 
This commenter notes that ``OFCCP may be confusing a contractor's use 
of the [Voluntary] Guidelines with contractor's use of the Compliance 
Coordination Incentive Option (i.e., voluntarily submitting the results 
of an equity analysis before any triggers have been identified) which 
our survey indicates is used by fewer than 6% of contractors.'' Some 
commenters expressed concern that without the Voluntary Guidelines, any 
incentive to self-evaluate would be diminished. A law firm noted that 
if rescinded ``* * * many contractors will be disincentivized from 
conducting robust self-analysis that permit them to correct problematic 
disparities [in compensation].''
    While it may be true that some contractors privately use the 
Voluntary Guidelines to predict how OFCCP will evaluate their 
compliance under the Standards, contractors rarely use them in their 
interactions with OFCCP. As previously mentioned, OFCCP intends to 
engage in active compliance assistance regarding compensation analysis. 
This assistance, as well as the discussion at Section III, below, will 
provide contractors with notice about how the agency intends to 
approach investigations of compensation issues and support voluntary 
compliance activity.
    Importantly, even in the absence of the Voluntary Guidelines or 
some similar explicit instructions for performing pay audits, 
contractors remain independently obligated to conduct self-evaluations 
of their compensation practices as required by 41 CFR 60-2.17(b)(3). 
They are independently obligated to refrain from pay discrimination in 
violation of the Executive Order and Title VII, so self-monitoring 
would be prudent even if not required. In addition to the OFCCP, they 
are subject to potential enforcement actions by the EEOC or Department 
of Justice or litigation from private plaintiffs. There is no basis to 
conclude that the Voluntary Guidelines' purely voluntary, rarely 
utilized and potentially burdensome procedure is the only available 
mechanism for self-evaluation.
2. Substantive Limitations of the Voluntary Guidelines
    In addition to the failure of contractors to use the Voluntary 
Guidelines, OFCCP in the NPR discussed substantive problems with how 
the Voluntary Guidelines evaluated potential pay discrimination. A 
majority of commenters addressed the substantive approach of the 
Voluntary Guidelines. Over half of those commenters agreed with OFCCP's 
assessment that the analytical model detailed in the Voluntary 
Guidelines has not been an effective enforcement strategy, while the 
remainder defended the approach under the Voluntary Guidelines.
    Some commenters noted similar legal and practical deficiencies 
between the substantive framework of the Voluntary Guidelines and that 
of the Standards, such as overly narrow groupings and analytic 
requirements. Several commenters noted the problems with deferring to a 
contractor analysis of pay, especially where that was not the approach 
for investigating other types of employment practices.
    Other commenters opposed OFCCP's position. A consulting group 
states that the Voluntary Guidelines are ``technically rigorous and 
sound in

[[Page 13517]]

almost every regard.'' An employers' association stated that it had no 
objection to rescission of the ``coordination'' feature of the 
Voluntary Guidelines but ``the remaining portions of the guidelines and 
the interpretive standards have served as useful blueprints for both 
OFCCP and federal contractors interested in monitoring compensation 
patterns for potential systemic discrimination.'' Two commenters stated 
that the Voluntary Guidelines conform to Title VII principles. A 
comment signed by various human resources organizations and a 
management law firm, citing to the two surveys which included 113 
contractors and 33 compensation experts as participants in the surveys, 
stated that ``[a]lthough contractors and experts might disagree with 
some of the individual standards of the current Guidelines * * * 84% of 
contractors [surveyed] believe the Guidelines increase fairness of an 
audit by standardizing the process.''
    Just like the Standards, the Voluntary Guidelines favor a highly 
limited analysis that may fail to uncover discrimination in pay. The 
problems with the proposed analytic groupings are the same for the 
Standards and the Guidelines--as explained in Section II.A., they are 
overly narrow, inconsistent with Title VII principles and fail to 
address the variety of potential types of pay discrimination. These 
limits are magnified by the fact that the Voluntary Guidelines 
establish specific numerical thresholds to define statistical coverage, 
group size, and application of regression analysis. The Voluntary 
Guidelines define those limits across the board, in advance, and 
without any other information about the pay practices at issue, the 
types of workers, the number of explanatory factors, or the quantity or 
reliability of the available data. That one-size-fits-all approach 
lacks analytic rigor and legal foundation. It is unlikely to be 
effective at distinguishing between contractors who are in compliance 
with the Executive Order and those who are not. And it is therefore 
unlikely to be a useful or appropriate self-evaluation tool.
    The Voluntary Guidelines were always optional, but as an officially 
recommended OFCCP method, these substantive limitations become 
particularly problematic. Contractors assumed, even if they did not use 
the Voluntary Guidelines for compliance coordination, that following 
their dictates would guard against any charges of discrimination in 
pay. By discouraging any broader examination of pay disparities, the 
Voluntary Guidelines created a false promise of compliance serving 
neither the interests of contractors nor of workers.
    There is an additional problem specific to the Voluntary 
Guidelines--the compliance coordination procedure itself. Although 
rarely used, it is still in conflict with the OFCCP's goal of fully 
addressing pay discrimination in the contractor workforce. Because 
compliance coordination requires deference to any analysis that 
``reasonably meets'' the Voluntary Guidelines, and because the 
Voluntary Guidelines take an overly narrow view of what constitutes 
discrimination, OFCCP may be prevented from addressing legitimate 
violations of the Executive Order. There is no reason to have such a 
compliance coordination mechanism, and especially not one for a 
specific employment practice. OFCCP does not formally defer to 
contractor determinations of applicant or promotion pools, steps of 
hiring procedures, job groups in Affirmative Action plans, or the many 
other factual issues relevant to evaluating compliance in other areas. 
Nor should OFCCP defer to contractor decisions about how to test for 
pay differences.
    In the absence of the Voluntary Guidelines, contractors may 
continue to choose a self-evaluation method appropriate to assess 
potential pay disparities among their workforce. OFCCP will not be 
mandating any specific methodology. However, the principles outlined in 
Section III, below, should be useful to contractors devising a self-
audit program. Under section 60-2.17(b)(3), contractors must be 
assessing specifically ``whether there are gender-, race-, or 
ethnicity-based disparities'' in compensation, and under section 60-
2.17(d) any self-audit program must be ``periodic'' and must include 
specific internal reporting to management of results. OFCCP will assess 
compliance with these aspects of the regulations by determining whether 
the scheduled reporting mechanism meets these standards.
3. Cost to Contractors
    Several commenters spoke to the issue of cost to the contractors 
should the Voluntary Guidelines be retained or rescinded. They 
expressed concern regarding increased costs to the contractors in terms 
of the ``absence'' of any guidance. A federal contractor organization, 
referring to both the Standards and Voluntary Guidelines, noted that 
``[i]n the absence of such guidance, many employers, particularly 
smaller and mid-size employers without the `deep pockets' to hire 
costly third-party experts, will be discouraged from conducting any 
type of proactive self-analysis.'' Taking a different approach to the 
issue of costs to the contractor, an organization of businesses, 
supporting rescission of the Voluntary Guidelines, stated that ``* * * 
the [Voluntary] Guidelines ignore the burden associated with developing 
sophisticated regression models that would satisfy the standards 
articulated by OFCCP. The cost and complexity of conducting such 
analyses is too much for many [of our] members to undertake on an 
annual basis.''
    Speculations about potential future costs is not a basis to retain 
a rarely used, ineffective and potentially burdensome compliance 
regime. This is particularly true where the current approach may 
already be costly for some contractors, and where it clearly fails to 
advance the agency's core policy objective.
    OFCCP is taking steps to mitigate any potential cost or burden 
associated with rescinding the 2006 guidance. In addition to the 
discussion in Section III below, OFCCP will be providing written 
materials, such as FAQs, and compliance assistance sessions going 
forward--clearly describing its investigative procedures and 
interpretation of key issues. This should make it easier for 
contractors to assess their own practices. It will also avoid the 
possibility that the absence of guidance imposes a cost on contractors.

C. General Comments Regarding the Need for Formal Rulemaking

    Numerous commenters discussed the OFCCP proposal to communicate its 
procedures for investigating and analyzing compensation discrimination 
through the traditional means of using its compliance manual, 
directives and other staff guidance. A few commenters supported OFCCP's 
use of the same methodology for establishing policy and procedures as 
it uses in addressing other discrimination issues, noting that the use 
of its compliance manual, directives, and other similar guidance have 
been effective.
    Several commenters raised concerns regarding OFCCP's decision not 
to use formal rulemaking. This was coupled with comments that by not 
using formal rulemaking, OFCCP is not being transparent in its actions. 
An employer association noted that if OFCCP rescinds the Standards and 
Guidelines, ``new guidelines should be established through a formal 
public rulemaking process that mirrors the EEOC's enforcement of Title 
VII.'' A management law firm asserted that the proposed approach ``* * 
* moves from a transparent, consistent approach to

[[Page 13518]]

compensation analysis by OFCCP to a more covert, possibly ever-changing 
approach.''
    Another management law firm challenged the view that OFCCP has not 
traditionally addressed investigation standards through formal 
rulemaking, citing the Uniform Guidelines on Employee Selection 
Procedures, the Sex Discrimination Guidelines, and the Internet 
Applicant Rule. The Executive Order implementing regulations establish 
legal requirements; they do not prescribe or limit the models of proof 
that the agency may use to demonstrate noncompliance. OFCCP has 
traditionally established investigation procedures through 
subregulatory materials such as compliance manuals, directives, and 
training and will continue to do so.
    Because OFCCP adopted the Standards and Voluntary Guidelines by 
means of the notice and comment process, OFCCP has decided to take 
subsequent action regarding the specific published guidance in the same 
manner. However, OFCCP's general practice has been to develop specific 
investigative procedures for all of its programs through training 
programs, internal guidance documents, the FCCM, and similar materials. 
OFCCP has developed and conformed its investigative procedures based on 
its interpretation of Title VII principles as the law has developed 
over time. OFCCP will continually refine these procedures to ensure 
that they are as effective and efficient as possible. In addition, 
OFCCP plans to provide written materials and compliance assistance as 
explained above. Going forward, OFCCP will provide as much transparency 
and public disclosure as possible about its procedures for 
investigating compensation discrimination. Technical assistance will 
include tools such as written Frequently Asked Questions, webinars, 
conference calls, online chats, and presentations, which also provide 
opportunities for stakeholder dialogue and feedback. The comments 
received in response to the NPR do not present a compelling argument 
for OFCCP to unnecessarily restrict its ability to be responsive and 
timely in this regard.

D. Statutory and Regulatory Reviews

    Executive Order 12866 and Executive Order 13563 (Regulatory 
Planning and Review)--This rule has been designated an ``other 
significant'' regulatory action, although not economically significant, 
under Executive Order 12866. The public was provided a meaningful 
opportunity to provide input on this document through a 60-day comment 
period on a Notice of Proposed Rescission issued on January 3, 2011.
    Paperwork Reduction Act--The Paperwork Reduction Act (PRA), 44 
U.S.C. 35, does not apply to this document because it does not involve 
any collection of information subject to the approval of the Office of 
Management and Budget. The information reviewed under the Title VII 
framework described in this document is collected and reviewed as a 
result of a desk audit of a contractor's or subcontractor's employment 
practices. The information collected during the desk audit is covered 
under OMB Control Number 1250-0003. The compensation analysis described 
in the Notice occurs after OFCCP compliance officers identify one or 
more indicators of compensation discrimination during the desk audit 
that warrant a more in-depth investigation or a compliance evaluation. 
Pursuant to 5 CFR 1320.4(a)(2), the PRA does not apply to information 
collections during an ``administrative action, investigation, or audit 
involving an agency against specific individuals or entities.''
    Regulatory Flexibility Act--OFCCP determined that, pursuant to the 
Regulatory Flexibility Act (RFA), 5 U.S.C. 601, et seq., this 
rescission does not require a regulatory flexibility analysis. Agencies 
must conduct a regulatory flexibility analysis for any regulatory 
action that requires a notice of proposed rulemaking. 5 U.S.C. 603(a). 
The Notice provides subregulatory guidance to contractors and 
subcontractors regarding OFCCP's application of Title VII principles to 
compensation discrimination evaluations. Therefore, a regulatory 
flexibility analysis is not required.

E. Conclusion

    After careful consideration of these comments, OFCCP concludes that 
the Standards and Voluntary Guidelines impede the agency's ability to 
detect and investigate compensation discrimination, which disserves 
workers, contractors, and the agency. They require an overly narrow 
definition of what may constitute systemic compensation discrimination, 
encourage a less rigorous approach to self-evaluation, and preclude 
full enforcement of the Executive Order ban on pay discrimination. 
There should be no unnecessary barriers to enforcing the promise of 
equal opportunity for workers, and certainly not with respect to 
ensuring non-discrimination in pay.
    OFCCP has concluded that the Standards and Voluntary Guidelines 
have failed to meet the objectives they were designed to address. They 
significantly undermine the ability of the agency and contractors to 
vigorously investigate and identify compensation discrimination 
consistent with Title VII principles. OFCCP has developed and will 
continue to develop more effective methods for investigating and 
addressing compensation discrimination. OFCCP rescinds the Standards 
and Voluntary Guidelines in their entirety.
    Going forward, OFCCP will follow Title VII principles in 
investigating and analyzing compensation discrimination. The agency 
proposes to make its treatment of compensation cases consistent with 
other types of OFCCP discrimination investigations. With the rescission 
of the Standards and Voluntary Guidelines, OFCCP will focus on the 
case-by-case assessment of compensation discrimination investigation 
procedures, and provide clear and consistent guidance to its staff, 
contractors, and the public regarding its approach.

III. Applying Title VII Principles To Evaluate Whether Contractor Pay 
Practices Comply With Executive Order 11246

    As explained above, OFCCP is rescinding the 2006 guidance documents 
to ensure its enforcement practices address all forms of pay 
discrimination that may violate Title VII. In order to assist 
contractors seeking to comply, and to provide transparency, OFCCP is 
setting forth its interpretation of certain significant legal and 
technical issues. This will provide notice of the standards OFCCP 
intends to rely upon when conducting compliance evaluations, and the 
standards OFCCP will be instructing its compliance officers to follow.

A. Investigation Procedures

    Under Executive Order 11246 and its implementing regulations, 
contractors may not discriminate in ``rates of pay or other forms of 
compensation;'' \26\ and must review and monitor their compensation 
systems to ``determine whether there are gender-, race-, or ethnicity-
based disparities.'' \27\ Contractors must maintain records, including 
but not limited to ``rates of pay or other terms of compensation.'' 
\28\ During compliance evaluations, OFCCP requests compensation data 
and analyzes contractors' compensation systems and practices to 
determine if

[[Page 13519]]

discrimination exists and, if so, how it should be remedied.
---------------------------------------------------------------------------

    \26\ 41 CFR 60-1.4
    \27\ 41 CFR 60-2.17(b)(3), (d)
    \28\ 41 CFR 60-1.12
---------------------------------------------------------------------------

    OFCCP's approach to investigating and enforcing non-discrimination 
in compensation follows Title VII principles. The approach involves 
factual investigation, and data and legal analyses, which allow OFCCP 
to identify and remedy all forms of compensation discrimination. OFCCP 
will tailor the compensation investigation and analytical procedures to 
the facts of the case as appropriate under Title VII. This case-by-case 
approach to compensation discrimination includes the use of a range of 
investigative and analytical tools. Statistical analyses and non-
statistical analyses, such as the use of comparators or cohort 
analysis, will be applied as feasible and appropriate given available 
data and evidence, and the factual issues being studied. OFCCP will 
seek anecdotal evidence, but will investigate and remedy instances of 
compensation discrimination regardless of whether individual workers 
have reported being underpaid.
    This approach is designed to eliminate unnecessary barriers to 
OFCCP's ability to protect workers from discrimination. It ensures 
OFCCP fully takes into account any possible explanations or responses 
from contractors, and that OFCCP conducts an analysis tailored to a 
contractor's specific compensation systems and practices.

B. Reviewing Contractor Pay Practices

    In particular, OFCCP will consider five principles when reviewing 
contractor pay practices: 1. Determine the most appropriate and 
effective approach from a range of investigative and analytical tools; 
2. Consider all employment practices that may lead to compensation 
discrimination; 3. Develop appropriate pay analysis groups; 4. 
Investigate large systemic, smaller unit and individual discrimination; 
and 5. Review and test factors before including them in analysis. Each 
of these is explained in more detail below.
1. Determine the Most Effective and Appropriate Approach From a Range 
of Investigative and Analytical Tools
    Investigation of potential compensation discrimination presents 
complex and nuanced issues. The choice of the best approach for a case 
depends upon the underlying facts, the available data, and the 
contractor's compensation system and practices. As such, OFCCP takes a 
case-by-case approach to analyzing compensation issues. In every case 
there are three key questions to be addressed: a. Is there a measurable 
difference in compensation on the basis of sex, race, or ethnicity? 
\29\ b. Is the difference in compensation between employees comparable 
under the contractor's wage or salary system? c. Is there a legitimate 
(i.e. nondiscriminatory) explanation for the difference? OFCCP will 
conduct an appropriate factual investigation, data and legal analyses 
to address each of these questions. An investigation may include 
analysis of workforce data and contractor compensation policies and 
practices; interviewing personnel and employees; examining payroll and 
Human Resource Information Systems (HRIS) data and records; conducting 
statistical analyses, such as regression analysis; and non-statistical 
analyses, such as comparative and/or cohort analysis, and consulting 
with statistical analysts, labor economists and other experts; as well 
as examining other relevant information.
---------------------------------------------------------------------------

    \29\ In situations where there is sufficient data and analytic 
power to use regression analysis, a measurable difference generally 
means a statistically significant difference, two standard 
deviations, consistent with title VII. In the situation of 
disparities in small group and/or individual compensation, a 
measurable difference and sufficient evidence will be determined in 
conformance with title VII principles.
---------------------------------------------------------------------------

    At the early phase of a scheduled compliance evaluation, OFCCP may 
use a range of preliminary analysis techniques to determine whether 
further review is warranted to make a final determination of 
compliance, and to assist offices in prioritizing investigative 
resources. As a compliance evaluation moves from the desk audit to an 
onsite investigation and a final determination regarding compliance, 
OFCCP will review and refine the approach in light of further 
information provided by the contractor or developed through 
investigation. All ultimate determinations of compliance will be based 
on a rigorous, appropriate and legally sound analysis of the facts and 
data.
2. Consider All Employment Practices That May Lead to Compensation 
Discrimination
    OFCCP will examine all employment practices that have the potential 
to lead to compensation disparities that are relevant given the case-
specific facts and data. Compensation includes any payments made to, or 
on behalf of, an employee as remuneration for employment, including but 
not limited to salary, wages, overtime pay, bonuses, commissions, 
vacation and holiday pay, allowances, insurance and other benefits, 
stock options, profit sharing, and contributions to retirement. The 
compensation a group of employees or an employee receives may be 
negatively affected by denial of equal access to certain earnings 
opportunities. OFCCP will examine employee access to opportunities 
affecting compensation, such as: Higher paying positions or job 
classifications, work assignments, training, preferred or higher paid 
shift work, and other such opportunities. OFCCP will also examine 
policies and practices that unfairly limit a group's opportunity to 
earn higher pay, such as: ``Glass ceiling'' issues; and access to 
overtime hours, pay increases, incentive compensation, and higher 
commission or desired sales territories. OFCCP will tailor the approach 
and tools to be used to examine possible unequal access and denial of 
opportunity issues based on the compensation practices relevant to a 
particular case. Differences may be observed with regard to base 
salary; job assignment or placement; opportunities to receive training, 
promotions, and other opportunities for advancement; earnings 
opportunities; and differences in access to salary increases or add-
ons, such as bonuses.
3. Develop Appropriate Pay Analysis Groups
    If the data allow, OFCCP will begin by testing for statistical 
significance on large groups of employees. The analysis may be based on 
groups that are larger than individual job titles and job groups. By 
combining employees into appropriate pay analysis groups, using 
statistical controls as necessary for title or level, OFCCP will be 
able to more easily identify potential systemic discrimination needing 
further investigation and potential remedy. Additionally, if the data 
allow, OFCCP will analyze pay disparities based on protected class 
status that cannot be explained by neutral job-related factors, e.g., 
identifying potential placement or classification issues for further 
investigation.
    A pay analysis group is a group of employees subject to a single 
statistical framework, model or test. For compensation analysis, a 
group may be limited to a single job or title, may be performed 
separately on multiple distinct units or categories of workers, or may 
be a pooled regression analysis that combines employees from multiple 
job titles, units, categories and/or job groups that are comparable for 
purposes of the contractor's pay practices. Where a combination of job 
titles or jobs at multiple levels is used, it may be appropriate to 
control for title and level within the group, in order to ensure 
comparison of similarly situated

[[Page 13520]]

workers (see below). The size and definition of a group, including 
questions such as whether to include title or level as a control in the 
analysis, depends on available data and evidence and the compensation 
practices at issue. Reasonable differences may exist among workers in a 
pay analysis group as long as these differences are properly accounted 
for in the statistical analysis to be conducted. OFCCP will conduct 
regression analysis on the pay analysis groups to determine whether 
statistically significant disparities in compensation exist. 
Statistical testing for practices that impact compensation such as job 
assignment may require a different model than tests for within job 
compensation differences.
    OFCCP will develop pay analysis groups by considering the 
following, at a minimum: The particular industry, the types of jobs and 
compensation at issue, the contractor's actual compensation practices 
and available data. Compensation practices may differ by role (e.g., 
executives, managers, supervisors and individual contributors), by 
level (with higher-level employees tending to receive additional or 
alternate forms of compensation), by function (such as sales employees 
who are paid on commission), by unit (department, division, location, 
etc.) and/or by job classification (exempt or non-exempt, part time or 
full time, bargaining unit, etc.). This information may be found 
through a review of the contractor's policy or training documents, 
description of its compensation system or practices, compensation data, 
records and coding, job descriptions, and other facts relevant to 
determining groups, such as the ability of workers to rotate or 
transfer among different positions within a business unit, a common 
hiring or selection process, a common performance review practice or 
other common identifiable employment practice relevant to compensation.
    As the results of the initial analysis and facts warrant, OFCCP 
will refine the analysis, and may conduct subsequent statistical and/or 
non-statistical tests of smaller units or individuals.
4. Investigate Large Systemic, Smaller Unit and Individual 
Discrimination
    OFCCP will investigate possible large systemic, smaller group or 
unit, and individual compensation discrimination. Pay analysis groups 
are to be developed to examine possible systemic issues. Systemic 
discrimination may be a pattern or practice of discrimination or an 
identified employment practice with adverse impact that affects 
multiple employees or groups of employees or applicants. When OFCCP 
completes analysis of larger pay analysis groups, or in cases where the 
data are inappropriate or insufficient for regression analysis, the 
agency will examine the data to further address possible compensation 
discrimination involving specific job titles, particular units or 
locations, or other smaller groupings. These additional analyses will 
be used to confirm, refine or supplement the larger analysis.
    After analyzing the data for potential systemic discrimination in 
larger and smaller groups, OFCCP may conduct comparative analyses of 
very small groups or individuals to determine if discrimination has 
occurred, and if there is evidence sufficient to support an inference 
that pay differences are due to discrimination. The mere fact that 
there are pay differences between comparators, without any other 
evidence of pretext or other indicia of possible discrimination, 
generally is not sufficient to find a violation of E.O. 11246.
    For purposes of evaluating compensation differences, the 
determination of similarly situated employees is case specific. 
Relevant factors in determining similarity may include tasks performed, 
skills, effort, level of responsibility, working conditions, job 
difficulty, minimum qualifications, and other objective factors. In 
some cases, employees are similarly situated where they are comparable 
on some of these factors, even if they are not similar on others. For 
example, when evaluating a job assignment issue, workers are similarly 
situated when their qualifications are comparable, but they are 
assigned to jobs at different levels. Employees are similarly situated 
when they are comparable on factors relevant to the compensation issues 
presented. Who is similarly situated for purposes of an individual 
analysis or review of a single specific employment decision may be 
determined based on different criteria than when conducting a systemic 
discrimination analysis.
5. Review and Test Factors Before Including Them in Analysis
    OFCCP will evaluate, on a case-by-case basis, information from the 
contractor regarding the factors the contractor considered in making 
compensation decisions. A factor is an element that the contractor 
offers to explain differences in employee compensation under its 
compensation system and practices. Factors may include internal and 
external elements potentially affecting compensation. A factor may be a 
qualification or skill that the worker brings to the position such as 
education, experience, etc. It may also be a job-related element such 
as position, level or function; tenure in position; performance 
ratings, etc.
    As in any investigation, OFCCP will review and test the factors 
offered before accepting them as appropriate for inclusion in the 
analytical model and/or comparative analysis to be conducted. OFCCP 
will evaluate whether these factors actually explain compensation, 
whether they are implemented fairly and consistently applied, whether 
data regarding that factor is accurate, and whether they should be 
incorporated into the analysis to be conducted. Where a factor that 
explains pay differences is based on an identified employment practice, 
such as a specific qualification, performance review instrument, job 
assignment policy, or a similar policy or practice, OFCCP will evaluate 
it for potential disparate impact or disparate treatment before 
determining whether to include it in the analysis.

C. Application to Pending Compliance Evaluations

    The procedures and principles described in this document apply to 
all OFCCP reviews scheduled on or after February 28, 2013.
    The 2006 Compensation Standards and Voluntary Guidelines will 
govern determinations regarding the issuance of an NOV for systemic 
compensation discrimination in any OFCCP review scheduled, open or 
otherwise pending on the effective date of this Notice of Rescission. 
Contractors may elect to waive application of the 2006 Guidelines, and/
or to have pending reviews conducted under these procedures, by 
notifying OFCCP in writing.

    Authority:  E.O. 11246, 30 FR 12319, 3 CFR, 1964-65 Comp., p. 
339, as amended by E.O. 11375, 32 FR 14303, 3 CFR, 1966-70 Comp., p. 
684. E.O. 12086, 43 FR 46501, 3 CFR, 1978 Comp., p. 230.

    Dated: February 22, 2013.
Patricia A. Shiu,
Director, Office of Federal Contract Compliance Programs.
[FR Doc. 2013-04675 Filed 2-26-13; 11:15 am]
BILLING CODE 4510-45-P