OFCCP Issues Final Rule that Reduces its Heavy Reliance on Statistics

On November 10, 2020, the Department of Labor’s Office of Federal Contract Compliance Programs (OFCCP) released a final rule codifying much of its guidance on how it handles suspected discrimination uncovered through its investigations or compliance evaluations.

OFCCP says that the final rule will permit it to focus its resources to reach more contractors, resolve more substantial cases, and resolve potential violations “through a clear [and] mutual understanding of the issues.”

Qualitative v. Quantitative Evidence

In the final rule, OFCCP provides two new definitions: qualitative evidence and quantitative evidence to replace statistical evidence and nonstatistical evidence – terms that it historically used. Qualitative evidence refers to anecdotal and other evidence OFCCP obtains during its investigations and compliance evaluations, such as testimony, witness interviews, company documentation, or other evidence that gives the inference that discrimination is occurring.  Quantitative evidence includes OFCCP’s traditional statistical analysis and comparative analyses that are less numbers-driven.

The rule states that quantitative evidence is broader than statistical evidence because it uses various tools to determine if a disparity is present. For instance, OFCCP may use a cohort analysis to determine if a disparity exists between similarly situated individuals, or it may use statistical tools, such as Fisher’s exact, Z-test, and regression analyses. The final rule codifies that a discrepancy in selection rates or rates of compensation is statistically significant when:

  • The disparity is two or more times larger than its standard error;
  • The Z statistic has a value greater than two; or
  • The probability value is less than 0.05

The Use of Pre-Determination Notices & Notices of Violation

OFCCP incorporated the Pre-Determination Notice (PDN) and the Notice of Violation (NOV) in its regulations – two notices that it has failed to use in the past consistently. Regarding preliminary findings of disparate treatment or disparate impact discrimination (subject to specific exceptions), the regulations now require that a PDN be issued (approved by the Director or acting agency head) and provide the analyses underlying the preliminary findings.

For disparate treatment cases, the final regulations require that PDNs:

  • Provide quantitative evidence;
  • Demonstrate that the disparity is practically significant; and
  • Provide qualitative evidence, combined with other evidence, that supports a finding that the contractor has discriminatory intent causing the disparate treatment.

For disparate impact cases, the final regulations require that PDNs:

  • Provide quantitative evidence;
  • Demonstrate that the disparity is practically significant; and
  • Identify the specific policy or practice causing the adverse impact (unless the OFCCP cannot separate the selection procedures).

Notably, the final regulations clarify that the OFCCP must disclose OFCCP’s quantitative and qualitative evidence with sufficient detail in the PDN. This allows the contractor the opportunity to investigate OFCCP’s preliminary findings and provide a meaningful response within 30 days of receipt of the PDN. The final rule also gives contractors the right to request the statistical model and variables OFCCP used and explain why it did not use the contractor’s variables. Once requested, OFCCP must provide this information.

Before an NOV is issued, OFCCP must consider a contractor’s response to the PDN. Much like its procedures concerning a PDN, OFCCP must: (1) disclose with sufficient detail the quantitative and qualitative evidence OFCCP relied upon; (2) permit the contractor the opportunity to respond; (3) provide, upon request, the statistical model and variables relied upon by OFCCP; and (4) address all relevant concerns and defenses the contractor included in its in response to the PDN.

Understanding Practical Significance

Although OFCCP does not define practical significance in the regulations, the preamble sheds light on how it will apply this standard. Concerning allegations of discriminatory selection practices, OFCCP will use an impact ratio analysis to measure practical significance. An impact ratio of .8 or less ordinary indicates that the disparity is practically significant. For allegations of discriminatory compensation practices, OFCCP will use compensation percentage differences to determine if the discrepancy is practically significant. A compensation disparity of 2% or more ordinarily indicates the difference in compensation is practically significant.

Practical Impact

Overall, the final rule appears to provide contractors with a window into OFCCP’s approach to analyzing allegations of discrimination against a federal contractor. Traditionally, OFCCP has relied almost exclusively on statistical analyses in assessing whether contractors engaged in discriminatory practices. It is now taking a broader approach by requiring more anecdotal evidence to substantiate that discriminatory intent is present.

Conducting self-critical analyses is crucial for contractors that want to remain compliant and potentially avoid a finding of discrimination by OFCCP. By taking steps to show that you are making good-faith efforts to evaluate your organization’s selection and compensation processes, you can provide such evidence to the OFCCP if there are preliminary findings of discrimination. Indeed, the preamble to the final rule indicates that such evidence can serve as evidence that the contractor lacks discriminatory intent.

Performing self-critical analyses also allows the contractor preemptively to identify barriers to equal employment opportunity and correct uncovered issues. Likewise, it is crucial to fully understand the variables used by your organization in setting pay and making hiring, promotion, and termination decisions. Such knowledge arms your organization to effectively communicate these variables to OFCCP to ensure that its analysis is as consistent as possible with how you make employment decisions. Likewise, it permits you to provide a supportive and robust response to preliminary findings issued by OFCCP.

Bertram LLP is available to review and provide practical guidance and counseling on your organization’s selection and compensation processes, as well as assist with self-critical analyses. Please feel free to contact us with any questions.