[Federal Register Volume 71, Number 116 (Friday, June 16, 2006)]
[Notices]
[Pages 35124-35141]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 06-5458]
[[Page 35123]]
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Part VI
Department of Labor
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Employment Standards Administration
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Office of Federal Contract Compliance Programs; Interpreting
Nondiscrimination Requirements of Executive Order 11246 With Respect to
Systemic Compensation Discrimination; Notice
Federal Register / Vol. 71, No. 116 / Friday, June 16, 2006 /
Notices
[[Page 35124]]
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DEPARTMENT OF LABOR
Employment Standards Administration
Office of Federal Contract Compliance Programs; Interpreting
Nondiscrimination Requirements of Executive Order 11246 With Respect to
Systemic Compensation Discrimination; Notice
AGENCY: Office of Federal Contract Compliance Programs, Employment
Standards Administration, Department of Labor.
ACTION: Notice of final interpretive standards for systemic
compensation discrimination under Executive Order 11246.
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SUMMARY: The Office of Federal Contract Compliance Programs is
publishing final interpretive standards for systemic compensation
discrimination under Executive Order 11246, as amended. This document
sets forth the final interpretive standards and discusses comments that
OFCCP received in response to proposed interpretive standards published
in the Federal Register on November 16, 2004.
EFFECTIVE DATE: June 16, 2006.
FOR FURTHER INFORMATION CONTACT: Director, Division of Policy,
Planning, and Program Development, Office of Federal Contract
Compliance Programs, 200 Constitution Avenue, NW., Room N3422,
Washington, DC 20210. Telephone: (202) 693-0102 (voice) or (202) 693-
1337 (TTY).
SUPPLEMENTARY INFORMATION: In this preamble, OFCCP summarizes the
proposed interpretive standards, discusses the comments received in
response to its publication of the proposed standards, and provides a
substantive discussion of the final interpretive standards. The
substantive discussion of the final interpretive standards
substantially restates the preamble of the proposed standards, except
that modifications or clarifications were added in response to the
comments.
I. Summary of the Proposed Interpretive Standards
On November 16, 2004, OFCCP published a Notice in the Federal
Register [hereinafter ``Notice''] in which the agency proposed
standards interpreting Executive Order 11246 with respect to systemic
compensation discrimination. 69 FR 67246 (Nov. 16, 2004). Systemic
compensation discrimination was defined in the Federal Register Notice
as discrimination under a pattern or practice, disparate treatment
theory of discrimination. 69 FR 67246 n. 2. The Notice explained that
OFCCP historically has relied on interpretations of Title VII as a
basis for interpreting the nondiscrimination requirements of Executive
Order 11246, but that OFCCP had not issued any definitive
interpretation of Executive Order 11246 with respect to systemic
compensation discrimination. 69 FR 67246-47. The Notice also explained
that, in the late-1990s, OFCCP informally used a controversial ``pay
grade theory'' of analyzing compensation practices for systemic
discrimination. 69 FR 67247-48. Under the pay grade theory, OFCCP
compared the compensation of employees who were in the same pay grade
or range, based on the assertion that by creating the pay grade, the
employer either ``has recognized that certain jobs are essentially
similar in terms of skill, effort and responsibility'' or ``has already
identified certain jobs as having similar value to the organization.''
69 FR 67247-48. The Notice provided a detailed discussion of OFCCP's
reasons for rejecting the grade theory, primarily because the
assumptions underlying the grade theory are inconsistent with
administrative and judicial interpretations of Title VII and because
use of the pay grade theory proved to be a highly ineffective
enforcement tool. 69 FR 67248-49.
The proposed interpretive standards had three principal components.
The first component of the proposed interpretive standards was adoption
of the ``similarly situated'' standard for comparisons of employees'
compensation. 69 FR 67249-67252. Under the proposed standards,
employees are similarly situated if they perform similar work and
occupy positions involving similar responsibility levels, skills, and
qualifications. Id. OFCCP interpreted Executive Order 11246 \1\ with
respect to systemic compensation discrimination as involving disparate
treatment of individuals who are similarly situated under this
standard. 69 FR 67251. In adopting the similarly situated standard,
OFCCP relied on judicial and administrative interpretations of Title
VII. 69 FR 67248-67249. OFCCP stressed that those interpretations were
inconsistent with OFCCP's prior ``pay grade'' method. 69 FR 67248.
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\1\ Executive Order 11246 has been amended several times since
its original promulgation. For ease of reference, ``Executive Order
11246'' as used hereinafter refers to Executive Order 11246, as
amended.
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The second component of the proposed interpretive standards was
adoption of a statistical technique for assessing the combined effects
of the multiple, legitimate factors that influence employers'
compensation decisions. 69 FR 67250. This statistical technique is
called multiple regression analysis. Id. Under the multiple regression
analysis, OFCCP would compare the compensation of similarly situated
employees, while controlling for legitimate factors that influenced the
employers' pay decisions, such as education, experience, performance,
productivity, etc. Id. OFCCP explained that it would investigate
whether any such factors were actually ``tainted'' by discrimination,
and, if so, OFCCP would not include such factors in the multiple
regression analysis. Id. OFCCP also explained that in a particular case
it might use a ``pooled'' regression, in which different groups of
similarly-situated employees were combined in a regression while
controlling for their membership in their particular similarly-situated
group. 69 FR 67250-67251. When using a pooled regression, OFCCP
explained, it would test for whether ``interaction terms'' were
required. 69 FR 67251.
The third component of the proposed interpretive standards was its
emphasis on the importance of anecdotal evidence of discrimination for
a determination of whether systemic compensation discrimination exists.
69 FR 67251. OFCCP noted that it would rarely issue a Notice of
Violations alleging systemic compensation discrimination without
anecdotal evidence of discrimination to support the statistical
evidence of discrimination. Id.
II. Discussion of the Comments Received
OFCCP received 28 comments on the Notice of proposed standards
interpreting Executive Order 11246 with respect to systemic
compensation discrimination. In response to the comments, OFCCP made
several modifications to the proposed interpretive standards, discussed
below. In addition, many of the commenters asked for clarification of
OFCCP's intent with respect to various aspects of the interpretive
standards, which OFCCP provides as appropriate below.
For the following discussion, OFCCP has grouped the comments around
the following major subjects: (A) Systemic Compensation Discrimination;
(B) The Pay Grade Theory; (C) Similarly Situated Employees; (D)
Multiple Regression Analysis; (E) Factors Included in the Regression
Analysis; (F) Anecdotal Evidence; and (G) Confidentiality of
Compensation and Personnel Information.
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A. Systemic Compensation Discrimination
Several commenters, such as the U.S. Chamber of Commerce and HR
Analytical Services, Inc., argued that OFCCP should not focus its
efforts on investigating systemic employment discrimination, but should
instead spend more agency resources on monitoring compliance with
OFCCP's affirmative action regulations. OFCCP does not agree with these
commenters. OFCCP believes that elimination of systemic workplace
discrimination is an important component of its historical mission.
Indeed, affirmative action programs are designed to be tools to prevent
workplace discrimination. See 41 CFR 60-2.10(a)(3) (``OFCCP has found
that when an affirmative action program is approached from this
perspective, as a powerful management tool, there is a positive
correlation between the presence of affirmative action and the absence
of discrimination.''). Further, the commenters' suggestion disregards
OFCCP's historical enforcement of Executive Order 11246 by requiring
payment of back pay and other make whole relief to victims of
discrimination. See 41 CFR 60-1.26(a)(2) (``OFCCP may seek back pay and
other make whole relief for victims of discrimination identified during
a complaint investigation or compliance evaluation.''). OFCCP's focus
on finding and remedying systemic workplace discrimination has provided
tangible incentives for contractors to implement affirmative action
programs to prevent workplace discrimination.
B. The Pay Grade Theory
Almost all of the commenters addressed the subject of OFCCP's prior
``pay grade'' method as discussed in the preamble of the proposed
standards. Many commenters agreed with OFCCP that the pay grade theory
was inconsistent with Title VII standards.\2\
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\2\ See, e.g., Association of Corporate Counsel, Equal
Employment Advisory Council, Gayle B. Ashton, Gaucher Associates,
National Industry Liaison Group, ORC Worldwide, Society for Human
Resource Management, Sonalysts, TOC Management Services, U.S.
Chamber of Commerce, and World at Work. As discussed below, some of
these commenters argued that OFCCP should adopt the Equal Pay Act's
``substantial equality'' standard.
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A few commenters, such as Jude Sotherlund, argued that OFCCP should
rely on employer-created classifications such as pay grades because
these classifications were designed by compensation professionals for
the particular employer. OFCCP does not agree with these comments.
Unlike compensation professionals, who design compensation systems to
meet a variety of business interests, OFCCP's purpose when
investigating an employer's compensation practices is to determine
whether the employer has engaged in systemic compensation
discrimination prohibited by Executive Order 11246. As noted below,
EEOC and courts interpreting Title VII have cautioned against reliance
on employer classifications in favor of evidence of actual work
activities, responsibility level, and skills and qualifications
involved in the job.
A few other commenters, including the Employment Task Force of the
Leadership Conference on Civil Rights (ETF), argued against OFCCP's
conclusion that the pay grade theory should be rejected because it is
inconsistent with Title VII. ETF, for example, generally offered two
sets of arguments against OFCCP's rejection of the grade theory.
In the first set of arguments, ETF argued that pay grade
information can be an effective indicator of potential pay
discrimination. ETF noted that ``the pay grade approach serves as a
unique investigatory tool'' and ``provided a suitable starting point
for investigators to determine which jobs to compare and analyze.'' ETF
questioned, ``[i]f the pay grade approach is to be abandoned, it is
unclear from these proposed standards how OFCCP intends to utilize its
limited resources to identify the appropriate cases for further
investigation and enforcement.'' Several other commenters also
expressed concerns about the burden to employers and to the agency if
OFCCP conducts the investigation and analysis required by the proposed
standards in each compliance review.\3\ OFCCP agrees with ETF that pay
grade information has some value as an indicator of potential
discrimination. OFCCP also agrees with ETF and the other referenced
commenters that the agency does not desire to conduct a full-scale
compensation investigation in every compliance review. Thus, the
interpretive standards are not intended to restrict OFCCP's use of pay
grade information or any other information as an indicator of potential
discrimination. Rather, the interpretive standards only foreclose the
use of the pay grade theory as the basis upon which OFCCP will allege
and establish systemic compensation discrimination in violation of
Executive Order 11246 and OFCCP regulations. Indeed, OFCCP has
historically used a tiered-review approach in its evaluation of
contractors that relies on both pay grade information and individual
employee information to determine whether to conduct a comprehensive
investigation into the contractor's pay practices. Under the tiered-
review approach, OFCCP uses pay grade (or other aggregated
compensation) information submitted in response to Item 11 of OFCCP's
Scheduling Letter.\4\ Once it receives the Item 11 data, OFCCP conducts
a simple comparison of group average compensation by pay grade or other
aggregation unit by which the employer has provided the data. If this
comparison indicates a significant disparity, OFCCP will ask the
contractor for employee-specific compensation and personnel
information.\5\ OFCCP intends to continue this tiered-review approach
\6\ and, in fact, recently implemented additional components to further
focus compensation investigations on workplaces where there are
significant indicators of potential discrimination. In particular,
OFCCP now conducts a ``cluster regression'' using the employee-specific
information requested following the desk audit.\7\ If the cluster
regression indicates significant disparities, OFCCP conducts a
comprehensive evaluation of the pertinent compensation practices, at
which point these final interpretive standards govern OFCCP's
investigation activity and determinations. OFCCP will afford the
contractor an opportunity to
[[Page 35126]]
provide any additional information and/or analyses that the contractor
believes to be pertinent to OFCCP's decision about whether to conduct
further investigation of the contractor's compensation practices. OFCCP
will consider such information as well as the results of the cluster
regression in making a determination of whether further investigation
is warranted. Of course, OFCCP will also consider any evidence of
discrimination in determining whether to proceed.
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\3\ See, e.g., American Society of Employers, Berkshire
Associates, Maly Consulting LLC, National Industry Liaison Group,
Sonalysts, and the U.S. Chamber of Commerce.
\4\ Item 11 of the Scheduling Letter currently requests
``annualized compensation data (wages, salaries, commissions, and
bonuses) by either salary range, grade, or level showing total
number of employees by race and gender and total compensation by
race and gender.''
\5\ OFCCP is studying potential alternatives to use of pay grade
information so that the agency can better target its investigative
resources.
\6\ OFCCP may modify the investigation process leading up to the
application of these final interpretive standards, so as to maximize
agency resources and efficiency.
\7\ The ``cluster regression'' creates comparison groups by
relying on job titles and, where a particular job title does not
contain at least 30 employees and at least 5 from each comparator
group (females/males, minorities/non-minorities), groups job titles
based on the average compensation within each job title. In
particular, the cluster regression groups job titles with the
closest average compensation values until the 30/5 size requirements
are reached. The cluster model uses only two or three explanatory
factors in the regression, including age as a proxy for experience,
and education level. As noted below, the cluster regression does not
comport with Title VII standards for grouping similarly-situated
employees, nor does the cluster regression include factors that were
determined from an investigation of the employer's pay practices.
For these reasons, the cluster regression will be used only as an
indicator of potential systemic compensation discrimination; it is
not a sufficient basis to issue a Notice of Violation.
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Accordingly, OFCCP intends to continue using analysis of pay grade
information, supplemented by the cluster regression, as indicators of
potential compensation discrimination. However, the pay grade analysis,
the cluster regression analysis, and other generalized approaches are
only indicators of potential compensation discrimination. These
techniques fall far short of the type of fact-intensive investigation
and tailored analysis required to make and sustain an allegation of
systemic compensation discrimination under Executive Order 11246 and
OFCCP regulations. These final interpretive standards fit into the
latter part of the OFCCP compliance review process: They serve as the
substantive standards interpreting Executive Order 11246 and OFCCP
regulations with respect to systemic compensation discrimination. In
practical terms, this means that OFCCP must allege and prove facts
which meet the interpretive standards in order to establish systemic
compensation discrimination in violation of Executive Order 11246 and
OFCCP's regulations.
ETF also objected to the provisions of the proposed interpretive
standards which mandated prerequisites to issuing a Notice of Violation
(NOV). ETF argued that OFCCP should not subject itself to a standard
during the ``investigatory stage'' that is the same standard that OFCCP
would be subject to when it pursued enforcement litigation.\8\ OFCCP
agrees that its investigations need not adhere to the precise
requirements of enforcement litigation in order to issue an NOV. For
example, OFCCP need not base its decision to issue an NOV on
information that has been obtained in a format which would be
admissible in court, e.g., OFCCP can rely on notes of an employee
interview during an investigation which may not be admissible in
litigation. However, OFCCP disagrees that the substantive standards for
whether an employment practice constitutes a violation of Executive
Order 11246 can depend on whether the matter is in the ``investigation
stage'' or in litigation. If the pay grade theory assumptions
(discussed in the preamble of the proposed interpretive standards and
below) do not adhere to legal standards, OFCCP has no authority to rely
on such assumptions to allege a violation even during the investigation
stage. Because the pay grade assumptions are contrary to legal
standards, to base a violation on the pay grade theory during the
investigation stage is tantamount to changing the substantive
requirements of Executive Order 11246.
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\8\ This is one of the arguments presented in the publication
circulated in support of the pay grade theory. See ``Update on
Systemic Compensation Analysis,'' at 1 (``It is not OFCCP's policy
or practice to `litigate' the merits of investigation findings at
the investigatory stage of a review.''). However, the ``Update on
Systemic Compensation Analysis'' also noted that ``OFCCP has always
applied Title VII principles to its methods of investigation.''Id.
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ETF offered additional arguments against OFCCP's rejection of the
pay grade theory. These arguments were premised on a correct
understanding that the interpretive standards ruled out the pay grade
theory as a basis for alleging and establishing systemic compensation
discrimination under Executive Order 11246 and OFCCP regulations.
First, ETF argued that OFCCP should continue to use the pay grade
theory, suggesting that it is consistent with interpretations of Title
VII. Second, ETF argued that the Title VII cases OFCCP cited do not
require rejection of the pay grade theory because the plaintiffs failed
in the cited cases when they were unable ``to provide additional
evidence where employers have put forward a legitimate
nondiscriminatory reason.'' In this regard, ETF noted that, ``[w]hile
pay grade information may not have been enough to win these particular
cases, such information was clearly instrumental in establishing
possible discrimination in the first place.'' Finally, ETF argued that
the rejection of the pay grade theory could harm or curtail future
enforcement efforts or developments in the law.
OFCCP does not find ETF's comments to be persuasive reasons for
retaining the pay grade theory as a basis for alleging and establishing
systemic compensation discrimination under Executive Order 11246 and
OFCCP regulations. As to ETF's argument that OFCCP should continue to
rely on the pay grade theory to establish systemic compensation
discrimination, OFCCP believes that the pay grade theory was
inconsistent with Title VII standards and that there are compelling
reasons for ensuring that the nondiscrimination provisions of Executive
Order 11246 are interpreted consistently with Title VII. First, this
has been OFCCP's historical practice, as well as the practice of the
Department of Labor in rendering final agency decisions in cases
arising under Executive Order 11246. See note 29, below; see also OFCCP
Federal Contract Compliance Manual, at Section 3K00(c) (``It is OFCCP
policy, in conducting analyses of potential discrimination under the
Executive Order, to follow Title VII principles.'').\9\ Second, OFCCP
expects that the federal courts will look to Title VII interpretations
when interpreting the nondiscrimination requirements of Executive Order
11246. This is a significant consideration in light of the fact that
Department of Labor determinations under Executive Order 11246 are
subject to review in federal court under the Administrative Procedure
Act. Thus, federal courts are likely to defer to these final
interpretive standards because they accord with the weight of authority
under Title VII, in addition to deference under traditional deference
doctrines. See Barnhart v. Walton, 535 U.S. 212, 217 (2002) (``Courts
grant an agency's interpretation of its own regulations considerable
legal leeway''); Auer v. Robbins, 519 U.S. 452, 461 (1997) (agency's
interpretation of its own regulation is ``controlling unless `plainly
erroneous or inconsistent with the regulation,' '' quoting Bowles v.
Seminole Rock Co., 385 U.S. 410, 413-14 (1945)); Udall v. Tallman, 380
U.S. 1, 16-17 (1965) (agency interpretations of Executive Orders they
are charged with enforcing are afforded deference under Bowles v.
Seminole Rock Co., 385 U.S. 410, 413-14 (1945)); Reynolds v. Rumsfeld,
564 F.2d 663, 668 (4th Cir. 1977) (OFCCP interpretation of Executive
Order 11246 entitled to Seminole Rock deference).
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\9\ Section 3R(a) of OFCCP's Federal Contract Compliance Manual
(FCCM) provides that ``compensation discrimination'' encompasses
``[d]isparate treatment in pay in relationship to the established
range for a job, whether at entry or later; e.g., Blacks with
similar backgrounds to Whites on the legitimate factors considered
for initial salary are hired at less money, etc. * * *.'' To the
extend that this reference, or any other reference in the FCCM,
implies the pay grade theory or any other theory of compensation
discrimination that permits comparison of compensation of
individuals who are not similarly situated under these final
interpretive standards, or otherwise conficts with these
interpretive standards, these interpretive standards supercede the
FCCM in that regard.
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Third, this policy ensures uniformity and consistency with the
principal congressional enactment on equal employment opportunity, and
with EEOC enforcement standards. OFCCP relied expressly and extensively
on the EEOC Compliance Manual chapter on compensation discrimination in
developing the interpretive standards. In addition, the EEOC provided
written comments for the public record in
[[Page 35127]]
which EEOC stated, ``we are pleased that your approach to addressing
compensation discrimination is consistent with EEOC's own view.''
OFCCP also does not agree with ETF's characterization of the
authority cited in the preamble of the proposed interpretive standards.
First, ETF's comments conflict with the EEOC compensation guidelines,
which expressly adopt the ``similarly situated'' standard. EEOC
Compliance Manual on ``Compensation Discrimination,'' EEOC Directive
No. 915.003 (Dec. 5, 2000)[hereinafter, ``CMCD''], at 10-5 to 10-8
(``The investigator should determine the similarity of jobs by
ascertaining whether the jobs generally involve similar tasks, require
similar skill, effort, and responsibility, working conditions, and are
similarly complex or difficult.'').
Second, OFCCP does not agree that the plaintiffs in ``virtually
all'' of the cases cited in the preamble of the proposed interpretive
standards were able to establish a prima facie case by comparing
themselves to individuals who did not perform similar work and whose
positions were not similar in the responsibility level, skills, and
qualifications involved. It has long been established that plaintiffs
must demonstrate that similarly situated employees were treated
differently as part of their own prima facie case. See Texas Dep't of
Community Affairs v. Burdine, 450 U.S. 248, 258 (1981) (``McDonnell
Douglas teaches that it is the plaintiff's task to demonstrate that
similarly situated employees were not treated equally.''); see also
Quarless v. Bronx Lebanon Hosp. Ctr., 228 F. Supp.2d 377, 383 (S.D.N.Y.
2002) (``In order to establish a prima facie case of discriminatory
disparate pay under Title VII, a plaintiff must show * * * that he was
paid less than similarly situated non-members of his protected class; *
* *'') aff'd, 75 Fed. Appx. 846, 848 (2d Cir. 2003); Lewis v. Smith,
255 F. Supp.2d 1054, 1060-61 (D. Ariz. 2003) (``Plaintiff can establish
a prima facie case under Title VII because he can show that * * * he
was given greater or similar responsibilities but paid less than [a
coworker] who occupied a similar, if not substantially equal,
position.''). Indeed, in many of the cited cases, the plaintiffs were
unable to establish a prima facie case precisely because they attempted
to compare themselves to individuals whose work, responsibility level,
and skills and qualifications were not similar to their own. See, e.g.,
Block v. Kwal-Howells, Inc., No. 03-1101, 2004 WL 296976, at *2-*4
(10th Cir. Feb. 17, 2004) (``The district court concluded Ms. Block
failed to establish a prima facie case of discrimination because she
failed to prove she occupied a substantially similar position to Mr.
Dennis. Aplt. Br., Att. A. at 26. Upon a thorough review of the
evidence, we agree. Ms. Block and Mr. Dennis were not similarly
situated.''); Williams v. Galveston Ind. Sch. Dist., No. 03-40436, 78
Fed. Appx. 946, 949-50, 2003 WL 22426852 (5th Cir. Oct. 23, 2003)
(``Appellants attempt to found their prima facie case on a comparison
between their positions and the positions held by Mr. McLarty and Ms.
Garcia. However, each employee's responsibilities are plainly
dissimilar from the responsibilities of the other three grade 8
employees * * *. The fact that GISD lists all four employees at grade 8
is not significant. Pay grades represent a range of possible salaries,
and Appellants concede that salaries can differ within a pay grade.'')
\10\; Verwey v. Illinois Coll. of Optometry, 43 Fed. Appx. 996, 2002 WL
1836507, at *4 (7th Cir. Aug. 9, 2002) (``Verwey also argues that the
district court erred in granting summary judgment to the College on her
wage discrimination claim. She asserts that she raised an inference of
discrimination by showing that the three maintenance men in her
department received raises after voting against unionizing, but that
she, the lone female employee, did not. Verwey's claim fails for
several reasons. First, she did not establish that the maintenance men
were similarly situated to her. Although they worked in the same
department, they had different job titles and responsibilities and
therefore did not hold equivalent positions; Verwey was an
administrative assistant, not a maintenance worker.''); Rodriguez v.
SmithKline Beecham, 224 F.3d 1, 8 (1st Cir. 2000) (``As we set forth
above, the uncontested facts before the district court indicate that
appellant's job functions and responsibilities were not substantially
similar or comparable to those of Document Manager Llivina or Records
Management Leader Feo, nor to those of Edwin L[oacute]pez. Absent such
a showing, plaintiff's Title VII claim fails as a matter of law for
lack of a prima facie case.''); Sprague v. Thorn Americas, Inc., 129
F.3d 1355, 1362 (10th Cir. 1997) (``It is apparent from the record that
Sprague failed to present genuine issues of material fact which would
support her equal pay claim under Title VII. As the district court
observed, Sprague contrasts her functions and pay in the jewelry
department to those of the assistant product manager of electronics and
the assistant product manager of furniture/appliances, both of whom are
males. `However, the Electronics, Furniture/Appliances, and Jewelry
Departments do not contribute equally to [Thorn's] revenues.' See
district court's Memorandum and Order at 5. While the electronics
department comprises approximately 50% of revenues and the furniture/
appliance department accounts for approximately 45% of revenues, the
jewelry department only produces approximately 4% of revenues. Id. * *
* Given the evidence presented to the district court, we find that
Sprague failed to present a prima facie case of intentional gender
discrimination.''); EEOC v. Sears, Roebuck & Co., 839 F.2d 302, 347
(7th Cir. 1988) (``As it turns out, the EEOC's failure to introduce any
evidence of actual job content or job performance is fatal to its sex
discrimination in wages claim in light of Sears' evidence regarding
differences in
[[Page 35128]]
job content. The EEOC appears to suggest that Sears had the burden of
showing the inequality of job content. This line of argument is similar
to that which we recognized in Epstein, 739 F.2d at 278: `Plaintiff
would, it seems, have us infer equal work from the defendants' failure
to prove otherwise.' We responded that this argument ignores the
elementary fact that the burden for proving the prima facie case is on
the plaintiff.''); Eastland v. Tennessee Valley Auth., 704 F.2d 613,
624-25 (11th Cir. 1983) (``In the present case Eastland's analyses
account for many objective qualifications, but the failure to control
for job category casts doubt on whether the regressions are comparing
appropriate groups. Given the weakness of the theoretical foundation
and the failure to control for job category, the district court did not
err in determining that Eastland's regressions were insufficient to
establish a prima facie case.''); Lawton v. Sunoco, Inc., No. 01-2784,
2002 WL 1585582, at *7 (E.D. Pa. Jul 17, 2002) (``In order to establish
a prima facie case of wage discrimination under Title VII * * * the
plaintiffs `must demonstrate that they were performing work
substantially equal to that of white employees who were compensated at
higher rates than they were,' '' quoting Aman v. Cort Furniture Rental
Corp., 85 F.3d 1074 (3d Cir. 1996), but also citing Watson v. Eastman
Kodak Co., 235 F.3d 851 (3d Cir. 2000), for ``similarly situated''
standard).\11\
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\10\ ETF argues that the fact that Williams was unpublished and,
under Fifth Circuit rules, cannot be cited as precedent,
``undermines the case's significance.'' However, under Rule 47.5.4
of the Local Rules of Appellate Procedure for the United States
Court of Appeals for the Fifth Circuit, ``[a]n unpublished opinion
may, however, be persuasive. An unpublished opinion may be cited,
but if cited in any document being submitted to the court, a copy of
the unpublished opinion must be attached to each document. The first
page of each unpublished opinion bears the following legend:
Pursuant to Loc. R. 47.5, the court has determined that this opinion
should not be published and is not precedent except under the
limited circumstances set forth in Loc. R. 47.5.4.'' A district
court in the Fifth Circuit has found the reasoning in Williams to be
persuasive. See Dean v. Kimberly-Clark Corp., No. 3:02-CV-1682-K,
2005 WL 309509, at *2 (N.D. Tex. Feb. 8, 2005) (``Plaintiff claims
that Kimberly-Clark discriminated against him by failing to
compensate him at the same rate it compensated its Process
Specialists, although he admits he was a Production Officer, not a
Process Specialist. ``If a plaintiff's job responsibilities are
significantly different from the responsibilities of employees [he]
cites as a point of comparison, then the plaintiff has not made out
a prima facie case.'' Williams 78 Fed. Appx. at 949.''). In addition
to Williams, the district court in Woodward v. United Parcel Serv.,
Inc., 306 F. Supp. 2d 567, 574-75 (D. S.C. 2004), expressly rejected
the pay grade theory as a basis for establishing a prima facie case
of compensation discrimination: ``In order to establish a prima
facie case of pay discrimination, Woodward must show that he * * *
was paid less than similarly situated employees who were outside his
protected class * * *. Woodward has not identified any relevant
group of similarly situated comparators to support his claim of pay
discrimination * * *. In 1998, Woodward transferred to the District
Assessor position in the South Carolina District--a job in which he
had no comparators because the other six Grade 16 managers in the IE
department during 1998 and 1999 (while Woodward was the Assessor)
all held positions with significantly different duties * * *. In
summary, Woodward has failed to identify any comparators who are
similarly situated with respect to pay. Woodward has made no effort
to demonstrate that any of the alleged comparators that he has
identified held positions whose duties were the same as or
substantially similar to his own. Instead, Woodward relies solely on
his unsupported assertion that all Grade 16 level employees are
similarly situated with respect to pay.''
\11\ By contrast, plaintiffs were successful in their claims
when they offered evidence that they were similarly situated based
on the work they performed, and the responsibility level, skills,
and qualifications involved in their positions. See, e.g., Brinkley-
Ubo v. Hughes Training Inc., 36 F.3d 336, 343 (4th Cir. 1994) (``The
plaintiff may establish a prima facie case by demonstrating * * *
that the job she occupied was similar to higher paying jobs occupied
by males.''); Miranda v. B&B Cash Grocery Store, Inc., 975 F.2d
1518, 1526-31 (11th Cir. 1992) (``We agree with the trial court that
Miranda carried her burden of proof and established that B & B
discriminated against her because of her gender. The plaintiff
establishes a prima facie case of sex discrimination under Title VII
by demonstrating that she is female and that the job she occupied
was similar to higher paying jobs occupied by males. The trial court
found that Miranda's description of the type of duties she performed
as a buyer, as well as testimony from defendant's witnesses
established that she shared the same type of tasks as the other
buyers.'').
---------------------------------------------------------------------------
ETF's arguments also do not address the fundamental point for which
OFCCP cited these cases. OFCCP relied on these cases to identify the
factors that courts use to determine whether employees are similarly
situated in compensation discrimination claims under Title VII. Under
the pay grade theory, OFCCP took the position that employees included
in the same pay grade were necessarily similarly situated, without
regard to their actual job duties, responsibility levels, and skills
and qualifications, and OFCCP persisted in that position, even
threatening enforcement action, regardless of the evidence the employer
submitted about differences in job duties, responsibility levels and
skills and qualifications. Indeed, the defining feature of the pay
grade theory was its assumption that employees were similarly situated
based solely on the fact that they were included in the same pay grade
(or that they were in the same pay grade and their pay could progress
to the top of the pay grade without changing jobs). OFCCP has rejected
the pay grade theory because it conflicts with courts' interpretations
of Title VII.
As noted earlier, ETF expressed concern regarding the stage of the
case in which the similarly situated issue arises. However, ETF did not
expressly endorse the pay grade assumptions that individuals are
similarly situated because they are in the same pay grade. Thus, there
are not substantial differences between the final interpretive
standards and ETF's position. As noted below, in a particular case the
pay grade could coincidentally group employees who in fact performed
similar work, and occupied positions involving similar responsibility
levels, skills, and qualifications. However, what would make such
employees similarly situated is the fact that that they perform similar
work and occupy positions involving similar responsibility levels,
skills and qualifications, not the fact that they are in the same pay
grade. Moreover, ETF apparently accepts that an employer could always
justify pay differentials between employees who occupy the same pay
grade through evidence that the employees are not similar with respect
to the work they perform, their responsibility levels, or the skills
and qualifications involved in their positions.\12\
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\12\ Of course, if OFCCP used pay grade as the initial grouping,
subject to the employer's rebuttal that the jobs were dissimilar,
employers typically would argue that the pay grade grouped positions
that were dissimilar, as they did throughout the period that OFCCP
used the pay grade theory. However, in the past, OFCCP generally did
not investigate the employer's contention that the jobs were
dissimilar because the pay grade theory assumed that employees were
similarly situated if they were in the same pay grade, regardless of
whether they were similar or dissimilar in the work they performed,
their responsibility levels, or the skills and qualifications
involved in their positions. However, if OFCCP used grade as the
initial grouping subject to the employer's rebuttal that the jobs
were dissimilar, OFCCP could not simply accept the employer's
contention that jobs were dissimilar, but would have to investigate
whether the facts supported the employer's contention. This would
require OFCCP to conduct the same type of factual investigation
specified in these final interpretive standards.
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OFCCP disagrees with ETF's last argument, that the agency should
not promulgate the final interpretive standards because they could harm
or curtail future enforcement efforts and development of the law. In
fact, OFCCP's experience demonstrates that just the opposite is true.
OFCCP believes that it is important for the agency to promulgate a
definitive interpretation of Executive Order 11246 and OFCCP
regulations with respect to systemic compensation discrimination. Most
significantly, these final interpretive standards will promote
compliance with Executive Order 11246 by helping agency personnel and
covered contractors and subcontractors understand the meaning of
Executive Order 11246 and OFCCP regulations with respect to systemic
compensation discrimination. OFCCP personnel will be guided by written
standards which will promote uniformity in OFCCP's enforcement of
Executive Order 11246. Together with the Voluntary Self-Evaluation
Guidelines, these interpretive standards will help contractors with
developing programs for monitoring their own compensation practices.
OFCCP also believes these interpretive standards will ensure that
OFCCP's enforcement efforts are effective, by providing standards that
are consistent with administrative and judicial interpretations of
Title VII. In fact, OFCCP has been successful in pursuing systemic
compensation discrimination cases under standards quite similar to the
standards articulated in these final interpretive standards. In the
last three years, OFCCP pursued enforcement litigation in two cases
using multiple regression analyses that did not rely on the grade
theory. These were the first two compensation cases OFCCP has filed in
twenty-five years, and both cases resulted in significant settlements,
including a near record $5.5 million settlement. By contrast, OFCCP did
not pursue even one case through enforcement litigation during the
period in which the agency relied on the grade theory. OFCCP does not
believe that it will be effective in establishing and remedying
systemic compensation discrimination unless contractors perceive that
OFCCP's methods will support a credible threat of successful
enforcement litigation.
In sum, OFCCP agrees with ETF that grade information can be useful
as an indicator of potential compensation discrimination, and OFCCP
intends to
[[Page 35129]]
continue to use grade information to target agency resources on
workplaces where further investigation is warranted. However, OFCCP
disagrees with ETF that the grade theory is consistent with Title VII
standards or that the grade theory is an efficient and effective method
for OFCCP to accomplish its important mission.
C. Similarly Situated Employees
Many commenters approved of OFCCP's proposed interpretive standards
for defining similarly-situated employees.\13\ However, several
commenters, such as Ellen Shong & Associates, Gaucher Associates, and
Society for Human Resource Management (SHRM), argued that OFCCP should
adopt the Equal Pay Act standard of ``substantial equality'' instead of
the ``similarly situated'' standard. OFCCP does not agree with these
commenters. As noted, OFCCP has historically relied on interpretations
of Title VII to interpret the nondiscrimination requirements of
Executive Order 11246. Many courts and the EEOC have interpreted Title
VII to allow comparisons of individuals who are ``similarly situated''
as defined in these final interpretive standards.\14\
---------------------------------------------------------------------------
\13\ See, e.g., Association of Corporate Counsel, Equal
Employment Advisory Council, HR Analytical Services, National
Industry Liaison Group, ORC Worldwide, TOC Management Services, U.S.
Chamber of Commerce, and World at Work.
\14\ See, e.g., Sprague v. Thorn Americas, Inc., 129 F.3d 1355
(10th Cir. 1997); Mulhall v. Advance Sec., Inc., 19 F.3d 586 (11th
Cir. 1994); Brinkley-Obu v. Hughes Training, Inc., 36 F.3d 336 (4th
Cir. 1994); Miranda v. B & B Cash Grocery Store, Inc., 975 F.2d 1518
(11th Cir. 1992); Crockwell v. Blackmon-Mooring Steamatic, Inc., 627
F. Supp. 800 (W.D. Tenn. 1985).
---------------------------------------------------------------------------
Several commenters, such as TOC Management Services, questioned
whether the proposed paragraph 7 of the Standards for OFCCP Evaluation
of Contractors' Compensation Practices conflicted with OFCCP's adoption
of the similarly situated standard. Proposed paragraph 7 stated that
``OFCCP will also assert a compensation discrimination violation if the
contractor establishes compensation rates for jobs (not for particular
employees) that are occupied predominantly by women or minorities that
are significantly lower than rates established for jobs occupied
predominantly by men or non-minorities, where the evidence establishes
that the contractor made the job wage-rate decisions based on the sex,
race or ethnicity of the incumbent employees that predominate in each
job.'' In response to the comments, OFCCP added a footnote to paragraph
7 of the ``Standards for OFCCP Evaluation of Contractors' Compensation
Practices'' in the final interpretive guidelines to make clear that the
intent of paragraph 7 was not to permit a systemic compensation
discrimination theory based on comparison of employees who were not
similarly situated. Rather, the intent is simply to permit the type of
unique compensation discrimination claim approved of in County of
Washington v. Gunther, 452 U.S. 161, 166 (1981) (``[R]espondents seek
to prove, by direct evidence, that their wages were depressed because
of intentional sex discrimination, consisting of setting the wage scale
for female guards, but not for male guards, at a level lower than its
own survey of outside markets and the worth of the jobs warranted.'').
Unlike the systemic compensation discrimination standards set forth in
the final interpretive standards, which involve comparisons of the
compensation of similarly-situated employees using multiple regression
to control for the joint contributions of the various legitimate
factors that influence compensation, the Gunther-type claim ``does not
attempt by statistical technique or other method to quantify the effect
of sex discrimination on the wage rates.'' 452 U.S. at 181 & n. 20
(citing Franklin M. Fisher, Multiple Regression in Legal Proceedings,
80 Colum.L.Rev. 702, 721-725 (1980)).\15\
---------------------------------------------------------------------------
\15\ Because Gunther-type claims are unique, OFCCP has not
included a paragraph regarding such claims in the ``Standards for
Systemic Compensation Discrimination Under Executive Order 11246.''
---------------------------------------------------------------------------
Several of the commenters who agreed that similarity in job duties,
responsibility level, and skills/qualifications is a necessary
condition for employees to be similarly situated,\16\ also argued that
similarity in these factors is not a sufficient condition for employees
to be similarly situated in all cases. These commenters argued that
there may be other factors in particular cases that may make
individuals dissimilar who would otherwise meet the proposed standard
for similarly situated. For example, these commenters noted that
otherwise similarly-situated employees may be paid differently for a
variety of reasons: They work in different departments or other
functional divisions of the organization with different budgets or
different levels of importance to the business; they fall under
different pay plans, such as team-based pay plans or incentive pay
plans; they are paid on a different basis, such as hourly, salary or
through sales commissions; some are covered by wage scales set through
collective bargaining, while others are not; they have different
employment statuses, such as full-time or part-time; etc. OFCCP agrees
with these commenters that such factors may be important to whether
employees are similarly situated in a particular case. See, e.g., CMCD,
at 10-6 (``[T]he fact that employees work in different departments or
other organizational units may be relevant, but is not controlling.'');
see also Cooper v. Southern Co., 390 F.3d 695, 717 (11th Cir. 2004)
(noting that plaintiffs' expert ``did not tailor her analysis to the
specific positions, job locations, or departmental or organizational
structures in question; however, the wide-ranging and highly
diversified nature of the defendants' operations requires that employee
comparisons take these distinctions into account in order to ensure
that the black and white employees being compared are similarly
situated''); Goodwin v. General Motors Corp., 275 F.3d 1005, 1012 n.8
(10th Cir. 2002) (holding employees similarly situated for compensation
discrimination claim under Title VII because ``[a]ll four
representatives had the same supervisor, performed identical job duties
and were subject to the same company standards and policies''); Webb v.
Merck & Co., Inc., 206 F.R.D. 399, 408 (E.D. Pa. 2002) (``We agree with
defendant that [the plaintiffs'' expert's] analysis of hourly (union)
workers is unreliable and irrelevant because it fails to control for
the mandated wage rate set by collective bargaining agreements for an
employee's position * * *''). OFCCP has added provisions (Paragraph 2
of the ``Standards for Systemic Compensation Discrimination Under
Executive Order 11246'' and Paragraph 3 of the ``Standards for OFCCP
Evaluation of Contractors' Compensation Practices'') to the final
standards to make clear that the agency will consider the applicability
of such additional factors in each case and make a determination based
on the facts of the particular case.
---------------------------------------------------------------------------
\16\ See, e.g., Equal Employment Advisory Council, Morgan, Lewis
& Bockius LLP, Northeast Region Corporate Industry Liaison Group,
ORC Worldwide, and Picha & Salisbury, Society for Human Resource
Management.
---------------------------------------------------------------------------
Several commenters, including ETF and National Industry Liaison
Group (NILG), noted that the proposed interpretive standards were
ambiguous about whether similarity of qualifications involves
similarity in qualifications required for the position or similarity of
qualifications possessed by the individual employees who hold the
position. ETF noted that the EEOC
[[Page 35130]]
Compliance Manual chapter on compensation discrimination relies on the
qualifications for the position, not the qualifications of the
particular employees. OFCCP agrees with ETF that it is the
qualifications involved in the position, not the qualifications of the
individuals who occupy the position, that determine whether employees
are similarly situated under these final interpretive standards. See
CMCD, at 10-7. However, OFCCP generally will consider qualifications of
the individuals as an explanatory factor in a regression model because
superior qualifications are a legitimate reason for pay differences
between similarly-situated employees. Id.; see also Goodwin v. General
Motors Corp., 275 F.3d 1005, 1012 n.8 (10th Cir. 2002) (noting in
context of disparate treatment compensation discrimination claim under
Title VII that plaintiff had superior qualifications to similarly
situated male employees: ``And Goodwin was one of just two who had
master's degrees.''); Klindt v. Honeywell Int'l Inc., 303 F. Supp.2d.
1206, 1223 (D. Kan. 2004) (employer not precluded from considering
superior educational qualifications in determining employees'
salaries).
Several commenters, such as SHRM and HR Analytical Services,
requested that OFCCP provide more guidance on how the agency intends to
determine whether employees are similarly situated. OFCCP agrees that
further clarification of this issue will be helpful to interested
parties. OFCCP intends to gather information on employees' job duties,
responsibility levels, and skills and qualifications, and other
pertinent factors (as discussed above) through review of job
descriptions and interviews of employees, managers, and HR and
compensation personnel. Once OFCCP has gathered such information, it
will determine which individuals are similarly situated by assessing
the information under the standard for similarly situated set forth in
these final interpretive standards. Since the final interpretive
standards rely on federal court interpretations of Title VII, OFCCP
will review applicable caselaw as an aid to making such determinations
in particular cases. This review of caselaw typically will involve
research for cases that discuss positions that are factually similar to
the positions at issue in OFCCP's investigation.\17\ OFCCP will review
the reasoning and determinations of the courts in such factually-
similar cases for guidance in making a determination on the facts
before OFCCP.
---------------------------------------------------------------------------
\17\ OFCCP has cited cases in this preamble that discuss whether
specific positions are similarly situated. There are hundreds of
other federal court pay discrimination cases that discuss whether
other positions are similarly situated based on facts about the
specific positions involved in each of those cases.
---------------------------------------------------------------------------
Several commenters expressed concern that OFCCP would be forced to
group dissimilar employees in order to create groupings of sufficient
size for statistical analysis, especially in light of OFCCP's stated
desire to cover ``most'' or ``a significant number of'' employees.\18\
Several of these commenters also requested that OFCCP explicitly
acknowledge that certain employees, such as high-level executives, are
unique and are not similarly situated to any other employees. OFCCP
agrees with these commenters that it may be expected that certain
employees are not similarly situated to any other employee in the
organization, workplace, or AAP. Under no circumstances will OFCCP
attempt to combine, group, or compare employees who are not similarly
situated under these final interpretive standards. If employees are not
similarly situated under these final interpretive standards, they will
not be included in the statistical analysis, regardless of statistical
size requirements or of OFCCP's general objective to include a
significant majority of employees in the regression analyses.\19\
---------------------------------------------------------------------------
\18\ See, e.g., Equal Employment Advisory Council, Gaucher
Associates, and World at Work.
\19\ OFCCP reserves the right, in rare cases, to perform non-
statistical analyses on the wages of those employees who are not
similarly situated to any other employee, such as high-level
executives.
---------------------------------------------------------------------------
Several commenters, including Equal Employment Advisory Council
(EEAC) and ORC Worldwide (ORC), expressed concern with OFCCP's stated
intent to review job descriptions and conduct employee interviews to
determine whether employees are similarly situated. These commenters
noted that job descriptions are often outdated and inaccurate. Several
commenters requested that OFCCP also interview managers or supervisors
to determine which employees are similarly situated. OFCCP agrees with
these commenters that it will be important for agency staff to
interview supervisors, managers, and HR and compensation personnel to
obtain information needed to determine whether employees are similarly
situated, as well as to obtain other pertinent information about the
employer's compensation practices.
D. Multiple Regression Analysis
Many commenters agreed that multiple regression analysis is a
legally and statistically valid method for evaluating systemic
compensation discrimination.\20\ However, several commenters, such as
Ellen Shong & Associates, Peopleclick Research Institute (PRI), and
David W. Peterson, argued that OFCCP's proposed regression analysis is
inaccurate because it does not evaluate pay and personnel decisions
directly (or indirectly through a ``pay progression study''), but
compares employees' compensation at a particular point in time. OFCCP
does not agree with these commenters that multiple regression analysis
of current compensation is legally or statistically deficient. Indeed,
the Supreme Court has approved of such analysis. See Bazemore v.
Friday, 478 U.S. 385, 400 (1986). Without expressing any view as to
whether the types of analysis that these commenters suggest may also be
legally and statistically acceptable,\21\ OFCCP does not believe that
such analysis is preferable to the approach outlined in the final
interpretive standards, for two reasons. First, the analysis suggested
by the commenters would require OFCCP to gather far more information
than required by the regression analysis outlined in these final
interpretive standards. For example, under the commenters' approach,
OFCCP would have to identify the variety of personnel decisions that
influenced employees' compensation over a significant period of time
and, as to each decision, evaluate whether the employer treated the
employee similarly to other employees who were similarly situated with
respect to that particular decision. This would impose significant
burdens both on OFCCP and on contractors during OFCCP's investigation
to obtain the information needed for the suggested analysis. Second,
the commenters' suggested analysis would combine pay, promotion, and
perhaps other personnel decisions in the same analysis, making it
difficult to define the nature of the alleged discrimination or to
determine an appropriate remedy.
---------------------------------------------------------------------------
\20\ See, e.g., Berkshire Associates, Equal Employment Advisory
Council, HR Analytical Service, Society for Human Resource
Management, U.S. Chamber of Commerce, and World at Work.
\21\ Unfortunately, these commenters did not cite any cases in
which the court accepted these types of analysis to prove systemic
compensation discrimination. OFCCP currently is studying methods for
evaluating promotion practices for systemic discrimination and does
not intend this discussion to foreclose exploration of such analysis
for that purpose.
---------------------------------------------------------------------------
Many commenters expressed concern about the complexity of multiple
regression analysis and the burden of collecting the data required for
such analysis.\22\ Others were concerned that
[[Page 35131]]
they would need to hire statisticians or other experts.\23\ OFCCP
understands that multiple regression analysis is complicated and
requires significant compensation and personnel information. However,
because OFCCP will use the analysis as a basis for alleging and
establishing systemic compensation discrimination, the agency believes
that it must conduct an analysis that meets legal and statistical
standards. Indeed, the pay grade method undoubtedly was simple, but
OFCCP could not prove systemic compensation discrimination by using
that method because it did not adhere to legal and statistical
standards and it was widely criticized by contractors for those
reasons. Thus, there is a natural tension between the accuracy of the
analysis and the complexity and burden associated with it. As discussed
above, OFCCP has attempted to balance these competing factors by using
a tiered-review approach, in which a multiple regression analysis is
conducted only after less complex and less intrusive analyses reveal
indicators of potential discrimination. Moreover, OFCCP, not the
contractor, has the burden of gathering data and conducting the
multiple regression analyses. Contractors need not convert their data
to electronic format for purposes of a compliance evaluation. If the
data is already in electronic format, OFCCP will use it, but if not,
OFCCP has the responsibility of taking the raw data and converting it
into an electronic format which can be used in the regression analyses.
Similarly, contractors are not required to hire experts to conduct the
multiple regression analyses, OFCCP will conduct the multiple
regression analyses.
---------------------------------------------------------------------------
\22\ See, e.g., American Society of Employers, Gaucher
Associates, Glenn Barlett Consulting Services, HR Analytical
Services, National Industry Liaison Group, and Picha & Salisbury.
\23\ See, e.g., Berkshire Associates Inc., HR Analytical
Services, and Northeast Region Corporate Industry Liaison Group.
---------------------------------------------------------------------------
Several commenters, such as EEAC and SHRM, requested that OFCCP
provide more guidance about how the agency will determine whether to
use a pooled regression model.\24\ OFCCP's determination will be based
on the general objectives of attempting to cover as many employees as
possible--in light of prohibitions on combining or comparing employees
who are not similarly situated--and statistical requirements about the
size of employee groupings necessary to conduct a meaningful regression
analysis. As noted above, OFCCP will not compare employees who are not
similarly situated as defined in these final interpretive standards.
OFCCP added text to provisions (Paragraph 5 of ``Standards for Systemic
Compensation Discrimination Under Executive Order 11246'' and Paragraph
5 of ``Standards for OFCCP Evaluation of Contractors' Compensation
Practices'') of the final standards which make clear that pooled
regressions must contain category factors that are defined to group
only similarly-situated employees as defined in these standards. The
pooled regression model affords OFCCP flexibility to conduct an
analysis controlling for groupings of similarly-situated employees.
However, OFCCP does not intend to use the pooled regression model on a
widespread basis as a preferred approach.
---------------------------------------------------------------------------
\24\ As noted in the preamble of the proposed interpretive
standards and restated below, if separate regressions by categories
of jobs would not permit OFCCP to assess the way the contractor's
compensation practices impact on a significant number of employees,
OFCCP may perform a ``pooled'' regression, which combines these
categories of jobs into a single regression (while including an
OFCCP-developed category factor in the ``pooled'' regression that
controls for groupings of employees who are similarly situated based
on work performed, responsibility level, and skills and
qualifications).
---------------------------------------------------------------------------
Several commenters, including Northeast Region Corporate Industry
Liaison Group (NRCILG) and Association of Corporate Counsel (ACC),
argued that OFCCP should provide the contractor with the regression
model, not just the results of the regression model, in support of any
NOV containing an allegation of systemic compensation discrimination.
OFCCP agrees that providing such information to contractors will permit
the agency to conciliate alleged violations effectively and
expeditiously. OFCCP will provide the contractor with enough
information about OFCCP's regression model for the contractor to
understand the basis for OFCCP's determinations and for the contractor
to replicate OFCCP's regression model. OFCCP has revised the
interpretive standards (at Paragraph 2 of ``Standards for OFCCP
Evaluation of Contractors' Compensation Practices'') to provide that
OFCCP will attach such information to NOVs which contain an allegation
of systemic compensation discrimination. With such information,
contractors have an opportunity to discuss settlement with OFCCP or to
attempt to rebut OFCCP's determination.
Several commenters raised technical statistical issues regarding
OFCCP's discussion of multiple regression analysis. PRI and David W.
Peterson argued that OFCCP should include all interaction terms when
using a pooled regression model, not just interaction terms that are
statistically significant. These comments raise a statistical
controversy regarding factor reduction techniques in regression
analysis. While some statisticians disagree on the use of automated
stepwise regression techniques to eliminate insignificant factors, most
agree that some form of variable reduction is appropriate. As PRI
noted, factors which are individually insignificant may in combination
have a significant impact on the regression results. However, OFCCP
considers there to be greater risks with full-factor modeling
procedures. In particular, especially in the analyses of smaller
workforces, the statistical precision in the measured disparities
decreases as more factors are added to the analysis. As such, if
several inconsequential factors are added to the analysis, they will
lessen the ability to measure any gender or racial disparities.
Furthermore, as the number of factors increases so does the possibility
of a statistical problem called ``multicollinearity,'' which can
produce inaccurate results. See Daniel L. Rubenfeld, Reference Guide on
Multiple Regression, in Federal Judicial Center, Reference Manual on
Scientific Evidence, at 197 (2d ed. 2000) (``When two or more variables
are highly, but not perfectly, correlated--that is, when there is
multicollinearity--the regression can be estimated, but some concerns
remain. The greater the multicollinearity between two variables, the
less precise are the estimates of individual regression parameters
(even though there is no problem in estimating the joint influence of
the two variables and all other regression parameters).'').
Several commenters questioned OFCCP's adoption of a two standard
deviation threshold for assessing statistical significance. Some
commenters, including ACC, noted that the caselaw is more nuanced and
does not support a bright-line rule. OFCCP recognizes that the courts
have not announced an exact threshold for statistical significance.
However, OFCCP has determined that it is helpful to adopt a bright-line
rule of two standard deviations as an enforcement standard based on the
need for uniformity and predictability in this area.
Several commenters, including NILG, noted that statistical
significance is dependent on sample size and questioned whether OFCCP
would take that fact into consideration. OFCCP notes that standard
tests for statistical significance already take sample size into
account. Since smaller samples have a higher degree of variation, they
require a larger observed disparity to achieve statistical
significance. OFCCP recognizes when sample sizes become
[[Page 35132]]
very large, small and potentially non-meaningful disparities may be
found to be statistically significant at the two or higher standard
deviation threshold. See Daniel L. Rubenfeld, Reference Guide on
Multiple Regression, in Federal Judicial Center, Reference Manual on
Scientific Evidence, at 181 (2d ed. 2000) (``Other things being equal,
the statistical significance of a regression coefficient increases as
the sample size increases. Thus, a $1 per hour wage differential
between men and women that was determined to be insignificantly
different from zero with a sample of 20 men and women could be highly
significant if the sample were increased to 200. Often, results that
are practically significant are also statistically significant.
However, it is possible with a large data set to find statistically
significant coefficients that are practically insignificant. Similarly,
it is also possible (especially when the sample size is small) to
obtain results that are practically significant but statistically
insignificant.''); see also David H. Kaye & David A. Freedman,
Reference Guide on Statistics, in Federal Judicial Center, Reference
Manual on Scientific Evidence, at 127 (2d ed. 2000) (``Significance
depends not only on the magnitude of the effect but on the sample size.
Thus significant differences are evidence of something besides random
error is at work, but they are not evidence that this `something' is
legally or practically important. Statisticians distinguish between
`statistical' and `practical' significance to make that point. When
practical significance is lacking--when the size of a disparity or
correlation is negligible--there is no reason to worry about
statistical significance.'').
Several commenters, including HR Analytical Services and Northeast
Region Corporate Industry Liaison Group, requested that OFCCP provide,
post online, or otherwise make available to contractors, the
statistical software that OFCCP will use in evaluating whether
contractors engaged in systemic compensation discrimination. OFCCP uses
SAS software, which was purchased through the normal procurement
process. Other software may be available to perform the evaluation.
This listing does not constitute any endorsement of SAS software, but
rather is provided pursuant to several commenters' requests.
Several commenters, including NILG and SHRM, requested that OFCCP
provide a grace period or a pilot stage before full implementation of
the final interpretive standards. As OFCCP has explained, the agency
does not require or expect the contractor to gather data, build
databases, or perform multiple regression analyses. OFCCP will do all
of those activities. In fact, OFCCP has been using aspects of the
analyses discussed in these final interpretive standards in a
substantial number of compliance reviews over the last several years.
Because OFCCP is not requiring contractors to engage in any activity to
implement these final interpretive standards, OFCCP disagrees that a
grace or pilot period are appropriate.
E. Factors Included in the Regression Analysis
Several commenters, including the U.S. Chamber of Commerce, were
concerned that the listing of factors in the proposed guidelines could
result in agency investigators presuming that the listed factors must
be used in all cases. These commenters asked OFCCP to clarify that the
factors to be used in the regression analysis must be determined by the
facts of the particular case. By contrast, several commenters, such as
HR Analytical Services, requested that OFCCP provide more guidance on
the factors that the agency would use in the regression analysis. OFCCP
agrees that the factors must be determined based on the facts of the
particular case. OFCCP listed several of the typical factors to provide
some general idea of the types of factors that may be used, not to
identify an exhaustive list that is presumed to apply in every case.
Because the factors must be based on the facts of the particular case,
OFCCP is unable to provide additional guidance on which factors may be
used in a case. OFCCP agrees that there are many other factors that may
be important in a particular case, such as significant leaves of
absence, employment with a predecessor company, whether the educational
degree is related to the employee's position, etc.
Many commenters noted that contractors frequently do not collect
data in their HRIS systems on all of the factors that may influence
compensation decisions, and that some of the factors used in making
compensation decisions cannot be quantified.\25\ As noted above, OFCCP
does not expect a contractor to maintain all of the data necessary to
conduct a multiple regression analysis in its HRIS system. Nor does
OFCCP require that contractors collect such data and build a database
to turn over to OFCCP during a compliance review. Instead, OFCCP will
gather the pertinent information through interviews and though review
of personnel files and other pertinent documents. Once OFCCP gathers
the necessary information, OFCCP staff will build a database. OFCCP
does not presume that every factor that may influence compensation is
necessarily quantifiable. OFCCP may attempt to account for such factors
in the regression model through categorical variables or proxies, if
possible. OFCCP also may assess whether unquantifiable or inherently
qualitative factors explain multiple regression results through non-
statistical methods.
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\25\ See, e.g., DCI Consulting, Equal Employment Advisory
Council, Gaucher Associates, Gayle B. Ashton, Glenn Barlett
Consulting Services, Peopleclick Research Institute, and Society for
Human Resource Management.
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ETF argued that OFCCP should include only factors that the employer
actually relied on in making pay decisions. OFCCP agrees that the
factors that are included in the multiple regression analysis must be
factors that actually had an influence on the employer's compensation
practices. However, OFCCP does not agree that the factor must have been
overtly considered by a particular decisionmaker when making a
particular compensation decision. A legitimate factor may influence
compensation without having been a factor that the employer's
decisionmakers overtly relied on in making a particular compensation
decision. For example, a department manager responsible for setting
merit pay increases in a particular year may only have limited
discretion to determine merit increases because of constraints
established by budget decisions made by other decisionmakers and by the
employer's compensation guidelines. Thus, the merit increase decisions
actually involved a host of other decisions by other decisionmakers at
an earlier point in time. As noted above, some commenters criticized
the proposed standards because the referenced regression model
evaluates current compensation, not each and every individual pay
decision that contributed to current compensation (or compensation at a
particular point in time). OFCCP rejected those commenters' suggestion
of using an analysis that focuses more directly on compensation
decisions. Because the regression approach OFCCP adopts in the final
standards uses compensation at a particular point in time, the factors
that influence compensation may not necessarily be factors that the
employer's decisionmakers relied on overtly in making particular pay
decisions. However, OFCCP can obtain an indication through the multiple
regression analyses whether a particular factor had an influence on
specific
[[Page 35133]]
employees' current compensation (or compensation at the particular
point in time).
F. Anecdotal Evidence
Several commenters, including ETF, ACC, NILG, EEAC, and ORC,
commented on OFCCP's interpretive standard relating to anecdotal
evidence. ETF commented that OFCCP's proposed standard places
additional burdens on OFCCP not required by Title VII or Executive
Order 11246 because the proposed standards suggest that anecdotal
evidence is required to establish a violation of systemic compensation
discrimination. OFCCP disagrees with ETF's characterization of the
interpretive standard relating to anecdotal evidence. The interpretive
standard on anecdotal evidence is not intended to place burdens on
OFCCP in establishing a violation beyond what is required by
interpretations of Title VII. Rather, the interpretive standard sets
forth OFCCP's interpretation that anecdotal evidence is important in
establishing systemic compensation discrimination and its position that
rarely will a Notice of Violation be issued by OFCCP alleging systemic
compensation discrimination absent anecdotal evidence.
OFCCP's strong preference for anecdotal evidence and the important
role that such evidence plays in determining whether systemic
compensation discrimination exists is supported by case law. For
example, in EEOC v. Morgan Stanley & Co., Inc., No. 01 Civ. 8421, 2002
WL 1431685, at *1 (S.D.N.Y. July 1, 2002)[footnote omitted], the court
discussed the importance of anecdotal evidence to the EEOC's case:
The Court agrees that the EEOC is entitled ``to develop its case,
including the circumstances surrounding discrimination against
individual women,'' see Plaintiff's Opp. at 3, with the safeguards
put in place by Judge Ellis. While the EEOC's case ``depends on a
statistical analysis of promotion and compensation data of an entire
class of women, the [EEOC] is also entitled to put on proof of
anecdotal evidence of discrimination.'' Plaintiff's Opp. at 3; see
Rossini, 798 F.2d at 604 (recognizing the importance of anecdotal
evidence in employment discrimination cases) (citing Intl'l
Brotherhood of Teamsters v. United States, 431 U.S. 324, 339, 97
S.Ct. 1843, 52 L.Ed.2d 396 (1977)); see also Coser v. Moore, 739
F.2d 746, 751-752 (2d Cir.1984) (``where a pattern and practice of
discrimination is alleged, [statistical evidence alone] must be
weighed in light of the failure to locate and identify a meaningful
number of concrete examples of discrimination * * *.'').
Similarly, in Obrey v. Johnson, 400 F.3d 691, 698 (9th Cir. 2005), the
court noted the important role of anecdotal evidence:
It is commonplace that a plaintiff attempting to establish a pattern
or practice of discriminatory employment will present some anecdotal
testimony regarding past discriminatory acts. See, e.g., Rossini v.
Ogilvy & Mather, Inc., 798 F.2d 590, 604 (2d Cir. 1986) (``In
evaluating all of the evidence in a discrimination case, a district
court may properly consider the quality of any anecdotal evidence or
the absence of such evidence.''); Coates v. Johnson & Johnson, 756
F.2d 524, 532 (7th Cir. 1985) (``The plaintiffs'' prima facie case
will thus usually consist of statistical evidence demonstrating
substantial disparities in the application of employment actions as
to minorities and the unprotected group, buttressed by evidence of *
* * specific instances of discrimination.''); Valentino v. United
States Postal Serv., 674 F.2d 56, 69 (D.C. Cir. 1982) (``[W]hen the
statistical evidence does not adequately account for the diverse and
specialized qualifications necessary for (the positions in
question), strong evidence of individual instances of discrimination
becomes vital to the plaintiff's case.'') (internal quotation marks
omitted); Garcia v. Rush-Presbyterian-St. Lukes Med. Ctr., 660 F.2d
1217, 1225 (7th Cir. 1981) (``We find very damaging to plaintiff's
position the fact that not only was their statistical evidence
insufficient, but that they failed completely to come forward with
any direct or anecdotal evidence of discriminatory employment
practices by defendants. Plaintiffs did not present in evidence even
one specific instance of discrimination.'').
OFCCP cited additional cases that support the important role of
anecdotal evidence in the preamble of the proposed interpretive
standards. See, e.g., Bazemore, 478 U.S. at 473 (noting that statistics
were supported by ``evidence consisting of individual comparisons
between salaries of blacks and whites similarly situated''); Morgan v.
United Parcel Service of America, Inc., 380 F.3d 459, 471 (8th Cir.
2004) (``One of the most important flaws in Plaintiffs'' case is that
they adduced no individual testimony regarding intentional
discrimination. As mentioned above, Plaintiffs' purported anecdotal
evidence was insufficient for the working-conditions claim, and we see
none with regard to pay. Although such evidence is not required, the
failure to adduce it `reinforces the doubt arising from the questions
about validity of the statistical evidence.' EEOC v. Sears, Roebuck &
Co., 839 F.2d 302, 311 (7th Cir.1988) (quoting Griffin v. Board of
Regents, 795 F.2d 1281, 1292 (7th Cir.1986))''); Dukes v. Wal-Mart
Stores, Inc., 22 F.R.D. 137, 165-66 (N.D. Cal. 2004) (``[P]laintiffs
have submitted * * * 114 declarations from class members around the
country * * *. [who will] testify to being paid less than similarly
situated men, * * *, and being subjected to various individual sexist
acts.''); Bakewell v. Stephen F. Austin Univ., 975 F. Supp. 858, 905-06
(E.D. Tex. 1996) (``The paucity of anecdotal evidence of discrimination
severely diminishes plaintiffs' contention that a pattern or practice
of salary discrimination against female faculty members prevails at
SFA.'').\26\ OFCCP's position is also consistent with EEOC's guidance
on compensation discrimination. See CMCD, at 10-13 n.30 (``A cause
finding of systemic discrimination should rarely be based on statistics
alone.''). OFCCP's Federal Contract Compliance Manual for many years
has included a section on anecdotal evidence and a description of its
use in systemic discrimination cases. See OFCCP's Federal Contract
Compliance Manual, at Section 7D05(e) (``While courts have held that
statistics alone may be sufficient to prove discrimination where
disparities are gross; i.e., at least two standard deviations,
supporting evidence strengthens statistical cases and should always be
sought. One type of supporting evidence is anecdotal evidence.
Anecdotal evidence consists of statements from minorities or women who
can show that they met all of the contractor's requirements but still
did not receive the benefit at issue, and any first hand accounts of
discriminatory acts on the part of the contractor that
[[Page 35134]]
support the statistical inference. Thus, anecdotal evidence is not
limited to independent examples of comparative disparate treatment.'').
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\26\ OFCCP's strong preference for anecdotal evidence does not
imply that the agency believes that anecdotal evidence is sufficient
to refute statistical or other evidence of a pattern or practice of
discrimination. OFCCP's use of anecdotal evidence fits into the
pattern-or-practice framework established by the Supreme Court in
Intl'l Bhd. of Teamsters v. United States, 431 U.S. 324, 360 & n. 46
(1977) (citations omitted):
``The plaintiff in a pattern-or-practice action is the
Government, and its initial burden is to demonstrate that unlawful
discrimination has been a regular procedure or policy followed by an
employer or group of employers. At the initial, ``liability'' stage
of a pattern-or-practice suit the Government is not required to
offer evidence that each person for whom it will ultimately seek
relief was a victim of the employer's discriminatory policy. Its
burden is to establish a prima facie case that such a policy
existed. The burden then shifts to the employer to defeat the prima
facie showing of a pattern or practice by demonstrating that the
Government's proof is either inaccurate or insignificant * * *. The
employer's defense must, of course, meet the prima facie case of the
Government. We do not mean to suggest that there are any particular
limits on the type of evidence an employer may use. The point is
that at the liability stage of a pattern-or-practice trial the focus
often will not be on individual hiring decisions, but on a pattern
of discriminatory decisionmaking. While a pattern might be
demonstrated by examining the discrete decisions of which it is
composed, the Government's suits have more commonly involved proof
of the expected result of a regularly followed discriminatory
policy. In such cases the employer's burden is to provide a
nondiscriminatory explanation for the apparently discriminatory
result.''
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OFCCP agrees with ETF that anecdotal evidence need not be, and in
most cases likely will not be, in the form of ```smoking gun' evidence
of discrimination,'' or what is known in the caselaw as ``direct
evidence'' of discrimination. See, e.g., Desert Palace Co. v. Costa,
539 U.S. 90, 97 (2003) (noting that Ninth Circuit defined direct
evidence as ```substantial evidence of conduct or statements by the
employer directly reflecting discriminatory animus,''' quoting Costa v.
Desert Palace, Inc., 268 F.3d 882, 884 (9th Cir. 2001)). OFCCP's
reference to ``anecdotal evidence'' in these final interpretive
standards is to evidence that leads to an inference that the employer
subjected a particular employee or particular employees to disparate
treatment in compensation. See, e.g., Bazemore, 478 U.S. at 473;
Morgan, 380 F.3d at 471; Dukes, 22 F.R.D. at 165-66; CMCD, at 10-13
n.30 (``Where possible, evidence of individual instances of
discrimination should be used to bring the `cold numbers convincingly
to life,' Teamsters, 431 U.S. at 339, 340 * * *''); Obrey v. Johnson,
400 F.3d 691, 698 (9th Cir. 2005); EEOC v. Morgan Stanley & Co., Inc.,
No. 01 Civ. 8421, 2002 WL 1431685, at *1 (S.D.N.Y. July 1, 2002). OFCCP
agrees with ETF that witness testimony from management officials and
employees concerning the employer's pay practices would help establish
the appropriate factors for the regression analysis and OFCCP will seek
such evidence in evaluating whether there is systemic pay compensation
discrimination. See, e.g., Eastland v. Tennessee Valley Auth., 704 F.2d
613, 623 (11th Cir. 1983) (``By evaluating the basis upon which the
party selected the variables included in its regression the court may
assess the model's validity. `Three kinds of evidence may be offered in
support of a regression model; direct testimony as to what factors
operated in the decision-making process under challenge, what kinds of
factors generally operate in decision-making processes of the kind
under challenge, and expert testimony concerning what factors can be
expected to influence the process under challenge according to
principles of economic theory.' D. Baldus & J. Cole, Statistical Proof
of Discrimination Sec. 8.22 at 70 (1980 & 1982 Supp.) (hereinafter
Baldus & Cole). The strength of the factual foundation supporting a
regression model may be a factor in assessing whether the group status
coefficient indicates discrimination or the influence of legitimate
qualifications which happen to correlate with group status. Baldus &
Cole, supra, Sec. 8.021 at 66 (1982 Supp.).''). However, in addition to
this type of evidence, OFCCP will seek the anecdotal evidence described
above.
Several commenters, including ACC, NILG, and NRCILG, were concerned
that OFCCP's investigation for anecdotal evidence of discrimination
would unduly disrupt the employer's operations when agency staff
interviewed employees. These commenters argued that OFCCP should afford
the contractor an opportunity to rebut OFCCP's regression analysis or
settle the case before the agency conducts such employee interviews.
OFCCP is sensitive to the commenters concerns that employee interviews
may disrupt the employer's operations and OFCCP will accommodate the
employer's legitimate business needs in scheduling the interviews. At
the same time, however, OFCCP disagrees with the commenters that the
agency should allege a violation or offer the contractor an opportunity
to rebut a regression analysis or settle with OFCCP prior to the
completion of the agency's investigation under the final interpretive
standards. In this regard, the proposed standards reflect OFCCP's
strong preference for developing anecdotal evidence in establishing
systemic compensation discrimination.
Several commenters, such as EEAC and ORC, argued that OFCCP should
never allege systemic compensation discrimination without anecdotal
evidence of discrimination, nor should the agency ever allege systemic
compensation discrimination based only on anecdotal evidence. OFCCP
disagrees with these commenters. There may be cases in which the
statistical analysis is so compelling that an allegation of systemic
discrimination is warranted even in the absence of anecdotal evidence
of compensation discrimination.\27\ Similarly, the amount, weight, and
reliability of anecdotal evidence found in a case may support an
inference of systemic discrimination, even in the absence of
statistical evidence.\28\ Of course, the anecdotal evidence of systemic
compensation discrimination in such a case would have to support an
inference that the employer compensated similarly situated employees
differently based on gender or race and that the employer's
compensation ``discrimination was the company's standard operating
procedure--the regular rather than the unusual practice.'' Bazemore,
478 U.S. at 398 (quoting Teamsters, 431 U.S. at 336).
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\27\ As discussed in the cases cited above, one would expect
some anecdotal evidence of compensation discrimination if the
employer has engaged in systemic compensation discrimination.
However, there may be unusual factors, applicable in a particular
case, which explain why OFCCP was unable to uncover anecdotal
evidence during its investigation despite the statistical evidence
of systemic compensation discrimination.
\28\ This issue does not arise in a Gunther-type claim, which
does not involve statistical evidence. See discussion in text above.
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G. Confidentiality of Compensation and Personnel Information
Many commenters expressed concern about the confidentiality of
compensation and personnel information contractors will be required to
submit or make available to OFCCP under the proposed interpretive
standards. These commenters requested that OFCCP provide express
assurances that the agency would not disclose such information to
third-parties or other enforcement agencies. In response to these
comments, OFCCP has added a provision (Paragraph 8 of the ``Standards
for OFCCP Evaluation of Contractors' Compensation Practices'') to the
final interpretive standards under which ``OFCCP will treat
compensation and other personnel information provided by the contractor
to OFCCP during a systemic compensation investigation as confidential
to the maximum extent the information is exempt from public disclosure
under the Freedom of Information Act, 5 U.S.C. 552 * * *.'' OFCCP
borrowed this text from its regulations at 41 CFR 60-2.18(d).
[[Page 35135]]
III. Substantive Discussion Regarding the Final Standards
A. OFCCP Compliance Reviews Focus on Systemic Compensation
Discrimination
The Department of Labor's Office of Federal Contract Compliance
Programs (OFCCP) enforces Executive Order 11246, which prohibits
covered federal contractors and subcontractors from making employment
decisions on the basis of race, color, national origin, religion, or
sex.\29\
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\29\ The Administrative Review Board, and, before its creation,
the Secretary of Labor, have turned to Title VII standards for
determining compliance with the nondiscrimination requirements of
Executive Order 11246. See, e.g., OFCCP v. Greenwood Mills, Inc.,
89-OFC-039, ARB Final Decision and Order, December 20, 2002, at 5;
OFCCP v. Honeywell, 77-OFCCP-3, Secretary of Labor Decision and
Order on Mediation, June 2, 1993, at 14 and 16, Secretary of Labor
Decision and Remand Order, March 2, 1994. The EEOC has issued
guidance on compensation discrimination in the form of a chapter in
the EEOC Compliance Manual on ``Compensation Discrimination.'' EEOC
Directive No. 915.003 (Dec. 5, 2000). EEOC is the agency with
primary enforcement responsibility for Title VII and its
interpretations of that statute constitute a body of experience and
informed judgment to which courts and litigants can turn for
guidance. See, e.g., Clackamas Gastroenterology Assocs., P.C. v.
Wells, 538 U.S. 440, 449 n.9 (2003) (citing with approval and
quoting from an EEOC Compliance Manual chapter applicable to Title
VII).
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OFCCP conducts compliance reviews to determine whether covered
contractors have been engaging in workplace discrimination prohibited
by Executive Order 11246. As part of its compliance review process,
OFCCP investigates whether contractors' pay practices are
discriminatory.
OFCCP compliance reviews typically produce cases that involve
allegations of systemic discrimination, not discrimination against a
particular individual employee. OFCCP systemic compensation
discrimination cases typically are proven under a disparate treatment,
pattern or practice theory of discrimination.\30\ The burdens of
persuasion necessary to succeed on a discrimination claim differ
depending on whether the case involves allegations of a pattern or
practice of discrimination or allegations that a particular individual
was subjected to discrimination. In a case involving alleged
discrimination against a particular individual, the plaintiff must
establish by a preponderance of the evidence that the employer made the
challenged employment decision because of the individual's race, color,
religion, sex, or national origin. United States Postal Service Bd. of
Governors v. Aikens, 460 U.S. 711, 715 (1983). In a pattern or practice
case, ``plaintiffs must `establish by a preponderance of the evidence
that racial discrimination was the company's standard operating
procedure--the regular rather than the unusual practice.' Teamsters v.
United States, 431 U.S. 324, 336 (1977).'' Bazemore v. Friday, 478 U.S.
385, 398 (1986).
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\30\ The term ``systemic compensation discrimination'' used
hereinafter references compensation discrimination under a disparate
treatment, pattern or practice theory of discrimination. These
interpretive standards address only systemic compensation
discrimination. However, nothing in these final interpretive
standards precludes OFCCP from investigating and alleging
compensation discrimination under an individual disparate treatment
theory or under a disparate impact theory of compensation
discrimination in accordance with applicable law.
---------------------------------------------------------------------------
In addition to differences in the burdens of persuasion as between
cases involving alleged discrimination against a particular individual
and an alleged pattern or practice of discrimination, the burdens of
production necessary to survive a motion for summary disposition are
different between the two types of cases. In both types of cases, a
plaintiff bears the initial burden of presenting a prima facie case of
discrimination. There is no precise set of requirements for a
plaintiff's prima facie case. ``The facts necessarily will vary in
Title VII cases, and the specification * * * of the prima facie proof
required from [a plaintiff] is not necessarily applicable in every
respect to differing factual circumstances.'' Int'l Bhd. of Teamsters
v. United States, 431 U.S. 324, 358 (1977) (quoting McDonnell Douglas,
411 U.S. at 802 n. 13). ``The importance of McDonnell Douglas lies, not
in its specification of the discrete elements of the proof there
required, but in its recognition of the general principle that any
Title VII plaintiff must carry the initial burden of offering evidence
adequate to create an inference that an employment decision was based
on a discriminatory criterion illegal under [Title VII].'' Teamsters,
431 U.S. at 358.
In an individual case, the plaintiff typically must rely on
evidence pertaining to his or her own circumstances to establish a
prima facie case of discrimination. The prima facie case creates a
presumption of discrimination that the employer may rebut by
articulating a legitimate nondiscriminatory reason for the alleged
discriminatory employment decision. McDonnell Douglas Corp. v. Green,
411 U.S. 792, 802 (1973). The employer must produce admissible evidence
of a legitimate, nondiscriminatory reason for the challenged employment
decision. Texas Dep't of Community Affairs v. Burdine, 450 U.S. 248,
254 (1981). ``Th[e] [employer's] burden is one of production, not
persuasion; `it can involve no credibility assessment.' '' Reeves v.
Sanderson Plumbing Products, Inc., 530 U.S. 133, 142 (2000) (quoting
St. Mary's Honor Center v. Hicks, 509 U.S. 502, 509 (1993)). Once the
employer articulates a legitimate nondiscriminatory reason for the
challenged employment decision, the plaintiff is afforded the
opportunity to prove that the employer's articulated reason is a
pretext for discrimination. McDonnell Douglas, 411 U.S. at 804; Reeves,
530 U.S. at 142. ``Proof that the [employer's] explanation is unworthy
of credence is simply one form of circumstantial evidence that is
probative of intentional discrimination * * *.'' Reeves, 530 U.S. at
147. ``Other evidence that may be relevant to any showing of pretext
includes * * * [the employer's] general policy and practice with
respect to minority employment * * *. On the latter point, statistics
as to [the employer's] employment policy and practice may be helpful to
a determination of whether [the employer's actions] * * * conformed to
a general pattern of discrimination * * *'' McDonnell Douglas, 411 U.S.
at 804-05.
In a pattern or practice case, the plaintiffs' ``initial burden is
to demonstrate that unlawful discrimination has been a regular
procedure or policy followed by an employer * * *.'' Teamsters, 431
U.S. at 360. ``The burden then shifts to the employer to defeat the
prima facie showing of a pattern or practice by demonstrating that the
[plaintiffs'] proof is either inaccurate or insignificant.'' Id. ``The
employer's defense must, of course, be designed to meet the prima facie
case of the [plaintiffs] * * *.'' which typically focuses on ``a
pattern of discriminatory decisionmaking.'' Id., at 360 n. 46. However,
there are no ``particular limits on the type of evidence an employer
may use.'' Id.
Despite these differences in the burdens of persuasion and
production, however, once the plaintiff has offered evidence that is
sufficient to establish a prima facie case, and the employer has
produced evidence that is sufficient to rebut the prima facie case,
then the factfinder must decide whether plaintiffs have demonstrated
discrimination by a preponderance of the evidence. ``[O]ur decision in
United States Postal Service Board of Governors v. Aikens, 460 U.S. 711
(1983), although not decided in the context of a pattern-and-practice
case, makes clear that if the defendants have not succeeded in having a
case dismissed on the ground that plaintiffs have failed to establish a
prima facie case, and have responded to the plaintiffs' proof by
offering evidence
[[Page 35136]]
of their own, the factfinder then must decide whether the plaintiffs
have demonstrated a pattern or practice of discrimination by a
preponderance of the evidence. This is because the only issue to be
decided at that point is whether the plaintiffs have actually proved
discrimination. Id., at 715.'' Bazemore, 478 U.S. at 398.
B. OFCCP Has Not Issued Significant Interpretive Guidance on Systemic
Compensation Discrimination Under Executive Order 11246
In 1970, the Department of Labor published ``Sex Discrimination
Guidelines,'' codified at 41 CFR part 60-20, which included a section
(60-20.5) on ``[d]iscriminatory wages.'' 35 FR 8888 (June 9, 1970). The
Sex Discrimination Guidelines (SDG) do not provide specific standards
for determining systemic compensation discrimination for OFCCP or a
contractor.\31\ Rather, the SDG provide that ``[t]he employer's wages
(sic) schedules must not be related to or based on the sex of the
employees,'' and contains a short ``note'' that references the ``more
obvious cases of discrimination * * * where employees of different
sexes are paid different wages on jobs which require substantially
equal skill, effort and responsibility and are performed under similar
working conditions.'' 41 CFR 60-20.5(a) (2004). OFCCP has not
promulgated any definitive interpretation of the SDG, nor has a
definitive interpretation arisen through longstanding agency
practice.\32\
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\31\ By contrast to sex-based compensation discrimination, OFCCP
has published regulations providing specific guidance with respect
to hiring discrimination. Thus, OFCCP is a signatory to the Uniform
Guidelines on Employee Selection Procedures (UGESP), which provide
formal guidance as to how OFCCP evaluates contractors' selection
procedures to determine compliance with Executive Order 11246. See
41 CFR part 60-3. Before being published as a final rule, 43 Fed.
Reg. 38290 (August 25, 1978), UGESP was published in the Federal
Register as a proposed rule and subject to public comment. See 42
Fed. Reg. 65542 (December 30, 1977).
\32\ The final interpretive standards contained in this Notice
are intended to provide definitive interpretations of both the SDG
and Executive Order 11246 with respect to systemic compensation
discrimination, regardless of the specific basis (e.g., sex, race,
national origin, etc.) of the discrimination.
---------------------------------------------------------------------------
Instead, OFCCP has provided only a general policy statement about
compensation discrimination in the preamble to a May 4, 2000 Notice of
Proposed Rulemaking (NPRM). In the May 4, 2000 NPRM, OFCCP formally
expressed the Department of Labor's policy regarding compensation
analysis:
More recently, an additional objective of the proposed revision has
been to advance the Department of Labor's goal of pay equity; that
is, ensuring that employees are compensated equally for performing
equal work.
65 FR 26089 (May 4, 2000).
This stated policy was reflected in several significant settlements
in systemic compensation discrimination cases in which OFCCP relied on
sophisticated multiple regression analyses to remedy an alleged
violation of Executive Order 11246. OFCCP has not, however, published
formal guidance providing any interpretation of Executive Order 11246
with respect to systemic compensation discrimination.
C. OFCCP's Informal Approaches to Systemic Compensation Discrimination
in the Late 1990s Involved the Controversial ``Pay Grade Theory''
In the late-1990s several OFCCP regions began to use a
controversial ``grade theory'' approach to compensation discrimination
analysis.\33\
---------------------------------------------------------------------------
\33\ Although used in practice by several OFCCP regions for
several years, the grade theory was never formally adopted by OFCCP.
---------------------------------------------------------------------------
The basic unit of analysis under the grade theory is the pay grade
or pay range. Under this theory, it is assumed that employees are
similarly situated with respect to evaluating compensation decisions
regarding such employees if the contractor has placed their jobs in the
same pay grade:
By the very act of creating a grade level system, where each
employee has approximately the same potential to move from the
minimum to the maximum of his/her grade range dependent upon
performance, the employer has recognized that certain jobs are
essentially similar in terms of skill, effort and responsibility.
``Systemic Compensation Analysis: An Investigatory Approach''
(hereinafter ``SCA''), at 5. A later paper, ``Update on Systemic
Compensation Analysis'' (hereinafter, ``Update''), also described this
pay grade assumption:
Where we determine that each employee in a salary grade system has
the same opportunity, subject to performance, to move to the maximum
rate of the salary grade range without a change in job title, we
believe the employer * * * has already identified certain jobs as
having similar value to the organization.
Update, at 6.\34\
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\34\ OFCCP officials informally distributed the SCA and the
Update in the late 1990's. They were not published by OFCCP nor did
they bear any indication of formal agency approval, e.g., they were
not printed on OFCCP letterhead.
After identifying employees in the same pay grade, one version of
the grade theory method called for a comparison of the median
compensation of males versus females, and minorities versus non-
minorities in each pay grade. SCA, at 6; Update, at 7. If there was a
``significant'' difference (although ``significant'' was not defined)
in median compensation between males/females or minorities/non-
minorities within a given pay grade, then the next step was to assess
whether this disparity is explained by median or average differences in
other factors, such as time in grade, prior experience, education, and
performance. SCA, at 7; Update, at 11. However, this method did not use
tests of statistical significance in determining whether a pattern of
compensation discrimination exists. If a ``pattern'' of pay disparities
(although ``pattern'' was not defined) emerged not explicable by
analysis of median or average differences in time in grade, prior
experience, or other factors, OFCCP alleged that the contractor
violated the nondiscrimination requirements of Executive Order 11246.
Update, at 15.
In another version of the grade theory method used by some OFCCP
regions in the late 1990s,\35\ the pay grade was included as a factor
in a regression model that typically covered all exempt employees in
the workplace within a single, ``pooled'' regression. The regression
typically included factors such as time in grade, experience, and
education. This method did rely on tests of statistical significance,
although rarely did OFCCP develop anecdotal evidence to support the
statistical analysis under this method.
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\35\ This method was not described in materials made available
to the general public. The method was used primarily in OFCCP's
Southeast Region.
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D. The Pay Grade Theory Is Inconsistent With Title VII Standards
OFCCP has discontinued using these pay grade methods because the
agency has determined that the methods' principal assumptions related
to pay grade or pay range do not comport with Title VII standards as to
whether employees are similarly situated. OFCCP recognizes that, with
respect to compensation discrimination, similarity in job content,
skills and qualifications involved in the job, and responsibility level
are crucial determinants of whether employees are similarly situated
under Title VII. See, e.g., CMCD, at 10-5 to 10-8; Block v. Kwal-
Howells, Inc., No. 03-1101, 2004 WL 296976, at *2-*4 (10th Cir. Feb.
17, 2004); Williams v. Galveston Ind. Sch. Dist., No. 03-40436, 78 Fed.
Appx. 946, 949-50, 2003 WL 22426852 (5th Cir. Oct. 23, 2003); Verwey v.
Illinois Coll. of Optometry, 43 Fed. Appx. 996, 2002 WL 1836507, at *4
(7th Cir. Aug. 9, 2002); Lang v. Kohl's Food Stores, Inc., 217
[[Page 35137]]
F.3d 919, 922-23 (7th Cir. 2002); Rodriguez v. SmithKline Beecham, 224
F.3d 1, 8 (1st Cir. 2000); Coward v. ADT Sec. Sys., Inc., 140 F.3d 271,
274 (D.C. Cir. 1998); Aman v. Cort Furniture Rental Corp., 85 F.3d
1078, 1087 (3d Cir. 1996); Sprague v. Thorn Americas, Inc., 129 F.3d
1355, 1362 (10th Cir. 1997); Tomka v. Seiler Corp., 66 F.3d 1295, 1310-
11 (2d Cir. 1995), abrogated on other grounds by Burlington Indus.,
Inc. v. Ellerth, 524 U.S. 742 (1998); Mulhall v. Advance Sec., Inc., 19
F.3d 586, 598 (11th Cir. 1994); Brinkley-Obu v. Hughes Training, Inc.,
36 F.3d 336, 343 (4th Cir. 1994); Miranda v. B&B Cash Grocery Store,
Inc., 975 F.2d 1518, 1526-31 (11th Cir. 1992); EEOC v. Sears, Roebuck &
Co., 839 F.2d 302, 343-53 (7th Cir. 1988); Marcoux v. State of Maine,
797 F.2d 1100, 1107 (1st Cir. 1986); Eastland v. Tennessee Valley
Auth., 704 F.2d 613, 624-25 (11th Cir. 1983); Woodward v. United Parcel
Serv., Inc., 306 F. Supp.2d 567, 574-75 (D. S.C. 2004); Lawton v.
Sunoco, Inc., No. 01-2784, 2002 WL 1585582, at *7 (E.D. Pa. Jul 17,
2002); Stroup v. J.L. Clark, No. 99C50029, 2001 WL 114404, at *6 (N.D.
Ill. Feb. 2, 2001); Donaldson v. Microsoft Corp., 205 F.R.D. 558, 563
(W.D. Wash. 2001); Dobbs-Weinstein v. Vanderbilt Univ., 1 F. Supp.2d
783, 803-04 (M.D. Tenn. 1998); Beard v. Whitley Co. REMC, 656 F. Supp.
1461, 1471-72 (N.D. Ind. 1987); Dalley v. Michigan Blue Cross/Blue
Shield, Inc., 612 F. Supp. 1444, 1451-52 (E.D. Mich. 1985); EEOC v.
Kendall of Dallas, Inc., No. TY-80-441-CA, 1984 WL 978, at *9-*12 (E.D.
Tex. Mar. 8, 1984); Presseisen v. Swarthmore Coll., 442 F. Supp. 593,
615-19 (E.D. Pa. 1977), aff'd 582 F.2d 1275 (3d Cir. 1978) (Table).
Contrary to these standards, the grade theory assumed that
employers' pre-existing job-groupings, such as pay grades or pay
ranges, are absolute indicia of similarity in employees' job content,
skills and qualifications involved in the job, and responsibility
level. While all of the courts in the above string cite have implicitly
rejected the grade theory by emphasizing the importance of facts about
the work employees actually perform, several of these courts have
expressly rejected the proposition that a pay grade offers absolute
indicia of similarity in job content, qualifications and skills
involved in the job, and responsibility level. See Williams, 78 Fed.
Appx. at 949 n. 9; Cort Furniture, 85 F.3d at 1087; Woodward, 306 F.
Supp.2d at 574-75. The facts about employees' actual work activities,
the skills and qualifications involved in the job, and responsibility
levels in a particular case may, of course, happen to coincide with the
employer's pay grade or pay range, but the crucial determinant of
whether the employees are similarly situated is their actual work
activities, not the fact that the employees have been placed in the
same pay grade or range.\36\
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\36\ OFCCP's principal basis for rejecting the grade theory is
that it allows for comparison of employees who are not similarly
situated under applicable legal standards, as discussed in the text.
However, an alternative reason for OFCCP's rejection of the grade
theory applies specifically to attempts to justify the use of pay
grades to compare dissimilar employees or jobs on the grounds that
the employees perform or the jobs entail (dissimilar) work that has
equal or similar ``value'' or ``worth'' to the employer. See Update,
at 6 (justifying use of pay grade on grounds that by creating pay
grades the employer has ``identif[ied] certain jobs as having
similar value to the organization.''). Regardless of whether the
worth or value of the dissimilar work or jobs is alleged to have
been established by the employer (i.e., by placing the employee or
the employee's job into a particular pay grade along with other,
dissimilar employees or jobs) or by someone other than the employer,
the attempt to compare employees who are performing dissimilar work
or who occupy dissimilar jobs based on the ``value'' or ``worth'' of
the work or jobs, constitutes the comparable worth theory of
compensation discrimination, which has been widely discredited by
the courts. See American Federation of State, County, and Municipal
Employees v. State of Washington, 770 F.2d 1401, 1404 (9th Cir.
1985) (``The comparable worth theory, as developed in the case
before us, postulates that sex-based wage discrimination exists if
employees in job classifications occupied primarily by women are
paid less than employees in job classifications filled primarily by
men, if the jobs are of equal value to the employer, though
otherwise dissimilar.''); Colby v. J.C. Penney Co., 811 F.2d 1119,
1125-26 (7th Cir. 1987 (describing comparable worth theory as
``bas[ing] liability on the fact that the[] employer paid higher
wages to workers in job classifications predominantly occupied by
men than to workers in job classifications predominantly occupied by
women, though it paid the same wages to men and women within each
classification''); American Nurses Association v. Illinois, 783 F.2d
716, 720-22 (7th Cir. 1986) (considering plaintiffs ``charge that
the state pays workers in predominantly male job classifications a
higher wage not justified by any difference in the relative worth of
the predominantly male and the predominantly female jobs in the
state's roster.''); Lemons v. City and County of Denver, 620 F.2d
228, 229 (10th Cir. 1980) (``In summary, the suit is based on the
proposition that nurses are underpaid in City positions, and in the
community, in comparison with other and different jobs which they
assert are of equal worth to the employer.''); Christensen v. Iowa,
563 F.2d 353, 354-56 (8th Cir. 1977) (``Appellants, who are clerical
employees at UNI, argue that UNI's practice of paying male plant
workers more than female clerical workers of similar seniority,
where the jobs are of equal value to UNI, constitutes sex
discrimination and violates Title VII''); see also County of
Washington v. Gunther, 452 U.S. 161, 165 (1981) (``Respondents'
claim is not based on the controversial concept of ``comparable
worth'' under which plaintiffs might claim increased compensation on
the basis of a comparison of the intrinsic worth or difficulty of
their job with that of other jobs in the same organization or
community.'' [footnotes omitted]); Gunther, 452 U.S. at 203
(Rehnquist, J., dissenting) (``The opinion does not endorse the so-
called `comparable worth' theory: though the Court does not indicate
how a plaintiff might establish a prima facie case under Title VII,
the Court does suggest that allegations of unequal pay for unequal,
but comparable, work will not state a claim on which relief may be
granted. The Court, for example, repeatedly emphasizes that this is
not a case where plaintiffs ask the court to compare the value of
dissimilar jobs or to quantify the effect of sex discrimination on
wage rates.''); Judith Olans Brown et al., Equal Pay for Jobs of
Comparable Worth: An Analysis of the Rhetoric, 21 Harv. C.R.-C.L.
Rev. 127, 129 (1986) (`` `Comparable worth' means that workers,
regardless of their sex, should earn equal pay for work of
comparable value to their common employer * * *. The basic premise
of comparable worth theory is that women should be able to
substantiate a claim for equal wages by showing that their jobs and
those of male workers are of equal value to their common
employer.''); Hydee R. Feldstein, Comment, Sex-Based Wage
Discrimination Claims After County of Washington v. Gunther, 81
Colum. L. Rev. 1333, 1333 (1981) (noting comparable worth ``theory
holds that employees performing work of equal value, even if the
work they do is different, should receive the same wages.'').
---------------------------------------------------------------------------
Based on these considerations, the Department interprets Executive
Order 11246 and the SDG as not permitting the pay grade theory approach
to systemic compensation discrimination. Instead, the Department
interprets Executive Order 11246 and the SDG as prohibiting systemic
compensation discrimination involving dissimilar treatment of
individuals who are similarly situated, based on similarity in work
performed, skills and qualifications involved in the job, and
responsibility levels.
E. The Department Has Decided To Promulgate Interpretive Standards on
Systemic Compensation Discrimination To Guide Agency Officials and
Covered Contractors and Subcontractors
The Department of Labor has decided to formally promulgate detailed
standards interpreting Executive Order 11246 and the SDG with respect
to systemic compensation discrimination. The final interpretive
standards will provide guidance and methods for OFCCP evaluations of
contractors' compensation practices during compliance reviews. This
will ensure that agency personnel and covered Federal contractors and
subcontractors understand the substantive standards for systemic
compensation discrimination under Executive Order 11246. The Department
believes that contractors and subcontractors are more likely to comply
with Executive Order 11246 if they understand the substantive standards
which determine whether there is systemic compensation discrimination
prohibited by Executive Order 11246. Further, agency officials will
have a stronger basis for pursuing investigations of possible systemic
compensation discrimination because of the transparency and uniformity
provided by these standards.
These final standards are intended to govern OFCCP's analysis of
contractors'
[[Page 35138]]
compensation practices, and in particular, OFCCP's determination of
whether a contractor has engaged in systemic compensation
discrimination. In addition, these final standards are intended to
constitute a definitive interpretation of the SDG and Executive Order
11246 with respect to systemic compensation discrimination.
F. Discussion of the Final Interpretive Standards
OFCCP adopts final standards interpreting Executive Order 11246 and
the SDG with respect to systemic compensation discrimination. The
systemic compensation discrimination analysis as set forth in these
final standards has two major characteristics: (1) The determination of
employees who are ``similarly situated'' for purposes of comparing
contractor pay decisions will focus on the similarity of the work
performed, the levels of responsibility, and the skills and
qualifications involved in the positions; and (2) the analysis relies
on a statistical technique known as multiple regression.
Under OFCCP's final standards, employees are similarly situated
with respect to pay decisions where the employees perform similar work,
have similar responsibility levels, and occupy positions involving
similar qualifications and skills. See discussion and cases cited under
Section IIID, supra.\37\
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\37\ Federal courts disagree on whether the Equal Pay Act's
standard of ``substantial equality'' applies to gender-based pay
discrimination claims under Title VII, absent direct evidence of
discrimination. See, e.g., Conti v. Universal Enter., Inc., 50 Fed.
Appx. 690, 2002 WL 31108827, at *7 (6th Cir. Sept. 20, 2002); Clark
v. Johnson & Higgins, 181 F.3d 100, 1999 WL 357804, at *3-*4 (6th
Cir. May 28, 1999) (Text in Westlaw); Loyd v. Phillips Bros., Inc.,
25 F.3d 518, 525 (7th Cir. 1994); EEOC v. Sears, Roebuck & Co., 839
F.2d 302, 243-53 (7th Cir. 1988); Merrill v. S. Methodist Univ., 806
F.2d 600, 606 (5th Cir. 1986); McKee v. Bi-State Dev. Agency, 801
F.2d 1014, 1019 (8th Cir. 1986); Plemer v. Parsons-Gilbane, 713 F.2d
1127, 1133-34 (5th Cir. 1983); see also CMCD, at 10-6 n.18. Because
an OFCCP enforcement action may be subject to APA review in a
federal court that does not adopt the ``similarly situated''
standard, the Department will address this issue on a case by case
basis.
---------------------------------------------------------------------------
The determination of whether employees are similarly situated must
be based on the actual facts about the work performed, the
responsibility level of the employees, and whether the positions
involve similar skills and qualifications. The employer's preexisting
groupings developed and maintained for other purposes, such as job
families or affirmative action program job groups, may provide some
indication of similarity in work, responsibility level, and skills and
qualifications. However, these preexisting groupings are not
dispositive, and OFCCP will not assume that these groupings contain
similarly situated employees. For example, it cannot be assumed that
employees are similarly situated merely because they share the same pay
grade or range, or because their pay can progress to the top of a pay
grade or range without changing jobs.\38\ Thus, OFCCP will investigate
whether such preexisting groupings do in fact contain employees who
perform similar work, and whose positions involve similar skills,
qualifications, and responsibility levels, by looking at job
descriptions and conducting employee interviews. Based on sufficient
empirical data (e.g., job descriptions and employee interviews), OFCCP
will determine which employees are in fact similarly situated. There
may be other factors that have a bearing on whether employees are
similarly situated, in addition to work performed, responsibility
level, and skills/qualifications involved in the positions. For
example, additional factors may include department or other functional
unit of the employer, employment status (e.g., full-time versus part-
time), compensation status (e.g., union versus non-union, hourly versus
salaried versus commissions), etc. OFCCP will consider the
applicability of these additional factors in each case and make a
determination based on the facts of the particular case.
---------------------------------------------------------------------------
\38\ In this respect, OFCCP will not rely on the grade theory
assumptions discussed supra., at Sections IIIC and IIID.
---------------------------------------------------------------------------
In addition to similarity in work performed, skills and
qualifications, and responsibility levels, systemic compensation
discrimination under Executive Order 11246 requires that the comparison
take into account legitimate factors that affect compensation. In order
to account for the influence of such legitimate factors on
compensation, a statistical analysis known as ``multiple regression''
must be used. Multiple regression is explained as follows:
Multiple regression analysis is a statistical tool for understanding
the relationship between two or more variables. Multiple regression
involves a variable to be explained--called the dependent variable--
and additional explanatory variables that are thought to produce or
be associated with changes in the dependent variable. For example, a
multiple regression analysis might estimate the effect of the number
of years of work on salary. Salary would be the dependent variable
to be explained; years of experience would be the explanatory
variable. Multiple regression analysis is sometimes well suited to
the analysis of data about competing theories in which there are
several possible explanations for the relationship among a number of
explanatory variables. Multiple regression typically uses a single
dependent variable and several explanatory variables to assess the
statistical data pertinent to these theories. In a case alleging sex
discrimination in salaries, for example, a multiple regression
analysis would examine not only sex, but also other explanatory
variables of interest, such as education and experience. The
employer-defendant might use multiple regression to argue that
salary is a function of the employee's education and experience, and
the employee-plaintiff might argue that salary is also a function of
the individual's sex.
Daniel L. Rubenfeld, Reference Guide on Multiple Regression, in Federal
Judicial Center, Reference Manual on Scientific Evidence, at 181 (2d
ed. 2000).
The multiple regression model must include those factors that are
important to how the contractor in practice makes pay decisions. ``Such
factors could include the employees' education, work experience with
previous employers, seniority in the job, time in a particular salary
grade, performance ratings, and others.'' CMCD, at 10-18. OFCCP
generally will attempt to build the regression model in such a way that
controls for the factors that the investigation reveals are important
to the employer's pay decisions, but also allows the agency to assess
how the employers' pay decisions affect most employees. One factor that
must be controlled for in the regression model is categories or
groupings of jobs that are similarly situated based on the analysis of
job similarity noted above (i.e., similarity in the content of the work
employees perform, and similarity in the skills, qualifications, and
responsibility levels of the positions the employees occupy, and
additional factors as discussed above). This will ensure that the
analysis compares the treatment of employees who are in fact similarly
situated.
In addition, OFCCP will investigate the facts of each particular
case to ensure that factors included in the regression are legitimate
and are not themselves influenced by unlawful discrimination, which is
often discussed in case law as a factor ``tainted'' by discrimination.
However, OFCCP will not automatically presume that a factor is tainted
without initially investigating the facts of the particular case. OFCCP
will determine whether a factor is tainted by evaluating proof of
discrimination with respect to that factor, but not based on the fact
that the factor has an influence on the outcome of a regression model
that includes the factor. See, e.g., Morgan v. United Parcel Service of
America, Inc., 380 F.3d 459, 470 (8th Cir. 2004) (``Plaintiffs'' only
[[Page 35139]]
evidence of discrimination in past pay is the apparent correlation
between race and center-manager base pay during the class period. But
that correlation is what Plaintiffs have evidence of only by omitting
past pay. They have no evidence, statistical or otherwise, that past
pay disparities were racially discriminatory. This sort of
bootstrapping cannot create an inference of discrimination with regard
to either class-period base pay or past pay.''); Smith v. Xerox Corp.,
196 F.3d 358, 371 n. 11 (2d Cir. 1999) (``Absent evidence tending to
show that the CAF scores were tainted they should have been included in
a multiple regression analysis in an effort to eliminate a relatively
poor performance compared to coworkers as a cause of each plaintiff's
termination. Certainly, performance is a factor Xerox was permitted to
consider in deciding whom to retain.''); Ottaviani v. State Univ. of
New York, 875 F.2d 365, 375 (2d Cir. 1988) (``The question to be
resolved, then, in cases involving the use of academic rank factors, is
whether rank is tainted by discrimination at the particular institution
charged with violating Title VII. Although appellants reiterate on
appeal their claim that rank at New Paltz was tainted, it is clear that
the district judge accepted and considered evidence from the parties on
both sides of this issue, and that she rejected the plaintiffs'
contentions on this point. At trial, the plaintiffs failed to adduce
any significant statistical evidence of discrimination as to rank. As
the district court stated in its opinion, the plaintiffs' studies of
rank, rank at hire, and waiting time for promotion `were mere
compilations of data' which neither accounted for important factors
relevant to assignment of rank and promotion, `nor demonstrated that
observed differences were statistically significant.' Ottaviani, 679
F.Supp. at 306. The defendants, on the other hand, offered persuasive
objective evidence to demonstrate that there was no discrimination in
either placement into initial rank or promotion at New Paltz between
1973 and 1984, and the district court chose to credit the defendants'
evidence. Upon review of the record, we cannot state that the court's
rulings in this regard were clearly erroneous.''); CMCD, at 10-18
(discussing use of performance rating in multiple regression analysis
for assessing systemic compensation discrimination).
The factors that influence pay decisions may not bear the same
relationship to compensation for all categories of jobs in the
employer's workforce. For example, performance may have a more
significant influence on compensation for a high-level executive, than
for technicians or service workers. This issue must be addressed
through either of two methods. One method is to perform separate
regressions for each category of jobs in which the relationship between
the factors and compensation is similar (while including category
factors in each regression that control for groupings of employees who
are similarly situated based on work performed, responsibility level,
and skills and qualifications). If separate regressions by categories
of jobs would not permit OFCCP to assess the way the contractor's
compensation practices impact on a significant number of employees,
OFCCP may perform a ``pooled'' regression, which combines these
categories of jobs into a single regression (while including an OFCCP-
developed category factor in the ``pooled'' regression that controls
for groupings of employees who are similarly situated based on work
performed, responsibility level, and skills and qualifications).
However, if a pooled regression is used, the regression must include
appropriate ``interaction terms'' \39\ in the pooled regression to
account for differences in the effects of certain factors by job
category. OFCCP will run statistical tests generally accepted in the
statistics profession (e.g., the ``Chow test''), to determine which
interaction terms should be included in the pooled regression analysis.
---------------------------------------------------------------------------
\39\ An ``interaction term'' is a factor used in the regression
model whose value is the result of a combination of subfactors,
which allows the factor to vary based on the combined effect of the
subfactors. For example, a performance by job level interaction term
would allow performance to have a different impact on compensation
depending on the job level.
---------------------------------------------------------------------------
Systemic compensation discrimination under Executive Order 11246
must be based on disparities that are ``statistically significant,''
i.e., those that could not be expected to have occurred by chance.
``While not intending to suggest that `precise calculations of
statistical significance are necessary in employing statistical proof,'
the Supreme Court has stated that `a fluctuation of more than two or
three standard deviations would undercut the hypothesis that decisions
were being made randomly with respect to [a protected trait].'
Hazelwood Sch. Dist. v. United States, 433 U.S. 299, 311 n.17 (1977).''
CMCD, at 10-14 n.32. To ensure uniformity and predictability, OFCCP
will conclude that a compensation disparity is statistically
significant under these final standards if it is significant at a level
of two or more standard deviations, based on measures of statistical
significance that are generally accepted in the statistics profession.
OFCCP will seldom make a finding of systemic discrimination based
on statistical analysis alone, but will obtain anecdotal evidence to
support the statistical evidence. See, e.g., Teamsters, 431 U.S. at
338-39 (``The Government bolstered its statistical evidence with the
testimony of individuals who recounted over 40 specific instances of
discrimination * * *. The individuals who testified about their
personal experiences with the company brought the cold numbers
convincingly to life.''); Bazemore, 478 U.S. at 473 (noting that
statistics were supported by ``evidence consisting of individual
comparisons between salaries of blacks and whites similarly
situated''); Morgan, 380 F.3d at 471 (``One of the most important flaws
in Plaintiffs' case is that they adduced no individual testimony
regarding intentional discrimination. As mentioned above, Plaintiffs'
purported anecdotal evidence was insufficient for the working-
conditions claim, and we see none with regard to pay. Although such
evidence is not required, the failure to adduce it `reinforces the
doubt arising from the questions about validity of the statistical
evidence.' EEOC v. Sears, Roebuck & Co., 839 F.2d 302, 311 (7th
Cir.1988) (quoting Griffin v. Board of Regents, 795 F.2d 1281, 1292
(7th Cir.1986))''); Dukes v. Wal-Mart Stores, Inc., 22 F.R.D. 137, 165-
66 (N.D. Cal. 2004) (``[P]laintiffs have submitted * * * 114
declarations from class members around the country * * *. [who will]
testify to being paid less than similarly situated men, * * *, and
being subjected to various individual sexist acts.''); Bakewell v.
Stephen F. Austin Univ., 975 F. Supp. 858, 905-06 (E.D. Tex. 1996)
(``The paucity of anecdotal evidence of discrimination severely
diminishes plaintiffs' contention that a pattern or practice of salary
discrimination against female faculty members prevails at SFA.''); see
also CMCD, at 10-13 n.30 (``A cause finding of systemic discrimination
should rarely be based on statistics alone.'').
IV. Standards
Standards for Systemic Compensation Discrimination Under Executive
Order 11246
1. As used herein, ``systemic compensation discrimination'' is
discrimination under a pattern or practice theory of disparate
treatment.
[[Page 35140]]
2. Employees are similarly situated under these standards if they
are similar with respect to the work they perform, their responsibility
level, and the skills and qualifications involved in their positions.
In determining whether employees are similarly situated under these
standards, actual facts regarding employees' work activities,
responsibility, and skills and qualifications are determinative.
Preexisting groupings, such as pay grades or Affirmative Action Program
(AAP) job groups, are not controlling; rather, such groupings may be
relevant only to the extent that they do in fact group employees with
similar work, skills and qualifications and responsibility levels. To
determine whether such preexisting groups are relevant one must
evaluate and compare information obtained from job descriptions and
from employee interviews. The determination that employees are
similarly situated may not be based on the fact that the contractor or
subcontractor has grouped employees into a particular grouping, such as
a pay grade or pay range, or that employees' pay can progress to the
top of the pay grade or range based on performance or without changing
jobs. Rather, such preexisting groupings may only be used if employees
within the group perform similar work, and occupy positions involving
similar skills, qualifications, and responsibility levels, which may be
determined only by understanding employees' actual work activities. In
addition to work performed, responsibility level, and skills/
qualifications involved in the positions, other factors may have a
significant bearing on whether employees are similarly situated. Such
additional factors may include, for example, department or other
functional unit of the employer, employment status (e.g., full-time
versus part-time), compensation status (e.g., union versus non-union,
hourly versus salaried versus commissions), etc.
3. Systemic compensation discrimination exists where there are
statistically significant compensation disparities between similarly
situated employees (as defined in Paragraph 2, above), after taking
into account legitimate factors which influence compensation. Such
legitimate factors may include education, experience, performance,
productivity, location, etc. The determination of whether there are
statistically significant compensation disparities between similarly
situated employees after taking into account such legitimate factors
must be based on a multiple regression analysis. However, legitimate
factors that influence compensation may be qualitative or otherwise
unquantifiable, in which case non-statistical methods must be used to
explain the multiple regression analyses.
4. A compensation disparity is statistically significant under
these standards if it is significant at a level of two or more standard
deviations, based on measures of statistical significance that are
generally accepted in the statistics profession.
5. If a pooled regression model is used, this must be accompanied
by statistical tests generally accepted in the statistics profession
(e.g., the ``Chow test''), to determine which interaction terms should
be included in the pooled regression model. Any pooled regression model
must contain category factors defined in such a way as to group only
similarly situated employees (as defined in Paragraph 2, above).
Standards for OFCCP Evaluation of Contractors' Compensation Practices
1. OFCCP will investigate contractors' and subcontractors'
compensation practices to determine whether the contractor or
subcontractor has engaged in systemic compensation discrimination under
these standards. OFCCP will issue a Notice of Violations alleging
systemic discrimination with respect to compensation practices based
only on these standards.
2. OFCCP will make a finding of systemic compensation
discrimination in those cases where there is anecdotal evidence of
discrimination (as discussed in Paragraph 6, below, which notes that,
except in unusual cases, OFCCP will not issue a Notice of Violation
(NOV) alleging systemic compensation discrimination without providing
anecdotal evidence to support OFCCP's statistical analysis) and where
there exists a statistically significant (as defined in Paragraph 4,
below) compensation disparity based on a multiple regression analysis
that compares similarly situated employees (as defined in Paragraph 3,
below) and controls for factors that OFCCP's investigation reveals
influenced employees' compensation. OFCCP may reject inclusion of such
a factor upon proof that the factor was actually tainted by the
employer's discrimination. OFCCP will attach the regression analyses
and results to, and summarize the anecdotal evidence in, the Notice of
Violations issued to the contractor or subcontractor.
3. Employees are similarly situated under these standards if they
are similar with respect to the work they perform, their responsibility
level, and the skills and qualifications involved in their positions.
In determining whether employees are similarly situated under these
standards, OFCCP will collect and rely on actual facts regarding
employees' work activities, responsibility, and skills and
qualifications. In addition, OFCCP will investigate whether preexisting
groupings, such as pay grades or AAP job groups, do in fact group
employees with similar work, skills and qualifications and
responsibility levels, by evaluating and comparing information obtained
from job descriptions and from employee interviews. OFCCP will not base
its determination that employees are similarly situated on the fact
that the contractor or subcontractor has grouped employees into a
particular grouping, such as a pay grade or pay range, or that
employees' pay can progress to the top of the pay grade or range based
on performance or without changing jobs. Rather, OFCCP will investigate
whether such preexisting groupings do in fact group employees who
perform similar work, and who occupy positions involving similar
skills, qualifications, and responsibility levels, by looking at job
descriptions and conducting employee interviews. In addition to work
performed, responsibility level, and skills/qualifications involved in
the positions, other factors may have a significant bearing on whether
employees are similarly situated. Such additional factors may include,
for example, department or other functional unit of the employer,
employment status (e.g., full-time versus part-time), compensation
status (e.g., union versus non-union, hourly versus salaried versus
commissions), etc. OFCCP will consider the applicability of these
additional factors in each case and make a determination based on the
facts of the particular case.
4. A compensation disparity is statistically significant under
these standards if it is significant at a level of two or more standard
deviations, based on measures of statistical significance that are
generally accepted in the statistics profession.
5. OFCCP will determine whether a pooled regression model is
appropriate based on two factors: (a) the objective to include at least
80% of the employees (in the workforce subject to OFCCP's compliance
review) in some regression analysis; and (b) whether there are enough
incumbent employees in a particular regression to produce statistically
meaningful results. If a pooled regression is required, OFCCP will
conduct statistical tests generally accepted in the statistics
profession
[[Page 35141]]
(e.g., the ``Chow test''), to determine which interaction terms should
be included in the pooled regression model. In any pooled regression
model, OFCCP will include category factors defined in such a way as to
group only similarly situated employees (as defined in Paragraph 3,
above).
6. In determining whether a violation has occurred, OFCCP will
consider whether there is anecdotal evidence of compensation
discrimination, in addition to statistically significant compensation
disparities. Except in unusual cases, OFCCP will not issue a Notice of
Violation (NOV) alleging systemic compensation discrimination without
providing anecdotal evidence to support OFCCP's statistical analysis.
In unusual cases, OFCCP may assert a systemic discrimination violation
based only on anecdotal evidence, if such evidence presents a pattern
or practice of compensation discrimination.
7. OFCCP will also assert a compensation discrimination violation
if the contractor establishes compensation rates for jobs (not for
particular employees) that are occupied predominantly by women or
minorities that are significantly lower than rates established for jobs
occupied predominantly by men or non-minorities, where the evidence
establishes that the contractor made the job wage-rate decisions based
on the sex, race or ethnicity of the incumbent employees that
predominate in each job. Such evidence of discriminatory intent may
consist of the fact that the contractor adopted a market survey to
determine the wage rate for the jobs, but established the wage rate for
the predominantly female or minority job lower than what that market
survey specified for that job, while establishing for the predominantly
male or non-minority job the full market rate specified under the same
market survey.\40\
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\40\ See County of Washington v. Gunther, 452 U.S. 161, 166,
180-81 (1981) (``We emphasize at the outset the narrowness of the
question before us in this case. Respondents' claim is not based on
the controversial concept of ``comparable worth,'' under which
plaintiffs might claim increased compensation on the basis of a
comparison of the intrinsic worth or difficulty of their job with
that of other jobs in the same organization or community. Rather,
respondents seek to prove, by direct evidence, that their wages were
depressed because of intentional sex discrimination, consisting of
setting the wage scale for female guards, but not for male guards,
at a level lower than its own survey of outside markets and the
worth of the jobs warranted.'').
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8. OFCCP will treat compensation and other personnel information
provided by the contractor to OFCCP during a systemic compensation
investigation as confidential to the maximum extent the information is
exempt from public disclosure under the Freedom of Information Act, 5
U.S.C. 552. It is the practice of OFCCP not to release data where the
contractor is still in business, and the contractor indicates, and
through the Department of Labor review process it is determined, that
the data are confidential and sensitive and that the release of data
would subject the contractor to commercial harm.
Signed at Washington, DC, this 12th day of June, 2006.
Victoria A. Lipnic,
Assistant Secretary for the Employment Standards,
Charles E. James, Sr.,
Deputy Assistant Secretary for Federal Contract Compliance.
[FR Doc. 06-5458 Filed 6-15-06; 8:45 am]
BILLING CODE 4510-CM-P