September 2012

Notes from Kona and the 2012 NILG Meeting

For those of you who do not know, the National Industry Liaison Group (“NILG”) held its annual meeting at Kona, on the Big Island of Hawaii August 27-31, 2012. For those of you unfamiliar with the NILG, please go to: www.nationalilg.org

Most lasting impression (other than pink/purple sunsets with a fireball red sun sinking into the ocean over the horizon):

  • Keynote speaker Lilly Ledbetter sitting at a table signing her book at the head of a line of NILG attendees 30-40 yards long…ALL women.

Fox Takeaway: While compensation discrimination is in fact a very small dollar value and very small volume issue in our society, the issue is not yet going away. Indeed, there is a great deal of continuing interest in this issue. Also, I repeatedly observe—as I did in Kona—that the ardor for the compensation issue is particularly strong among professional women.

I say that compensation discrimination is a “small dollar value issue” because the Obama administration has now done society a large favor, I believe, by aggressively over-allocating resources to attack compensation discrimination. After over three full years of the Obama administration, it has now convincingly proved there is very little compensation discrimination, in fact, in America. Indeed, OFCCP’s latest reports show that it has:

  • audited almost 10 million employee compensation files during that portion of the Obama administration in which OFCCP has had complete and unfettered access to all compensation data at contractor establishments under audit;
  • in over 12,000 OFCCP audits, including in over 150 so-called “Glass Ceiling audits”, and
  • has found only about $500,000 in compensation discrimination per year (about $1.5M total in the last 3 full years of the Obama administration).

But, this small dollar-value collection issue is not an Obama OFCCP issue. Rather, the Bush administration, which broke wide open all of OFCCP’s prior annual back pay collection records, did about the same dollar value or occasionally collected even less back pay for compensation discrimination. But, outside of almost 200 “Glass-Ceiling audits and an occasional audit here or there, the Bush administration-era OFCCP investigations only looked at small portions of the contractor’s workforce or looked at a high-level. But not so during the last three years of the Obama administration which has had unfettered access to contractor compensation data. There just is not that much compensation discrimination to find and when someone does find it, it is typically localized and worth only 5-10 thousand dollars per violation.

NOTE: Pamela Coukos, Senior Program Advisor in the OFCCP’s National Office, led the OFCCP “Interactive Broadcast” panel discussion of the “Discrimination Enforcement Update” and reported that in FY 2011 OFCCP was now claiming that it had collected $1.06M in compensation discrimination harvested from 27 audits involving 435 female victims. However, to get to even the $1M back pay number, OFCCP has now revised what it counts as a “compensation discrimination case” to additionally include both failure to promote and failure to select for hire cases, and not just cases in which contractors paid women less compensation than similarly situated males. The true “compensation discrimination cases” comparing male and female pay for the same or similar work continues to meter out to about $500,000 per OFCCP Fiscal Year. One wonders why not count all OFCCP back pay as a “compensation case” (including involuntary terminations of women) if the measure of “compensation discrimination” is that a woman received back pay?

By “small volume” issue, I mean that the EEOC and all state civil rights deferral agencies continue to report that they collectively receive fewer than 1,000 compensation charges each Fiscal Year from among the approximately 100,000 charges of alleged unlawful discrimination filed each Fiscal Year. And at the OFCCP, while it continues to find unlawful discrimination in about 2% of its annual audits, it found compensation discrimination in only 27 of the agency’s over 4,000 audits (.006%)…yes, there are 3 places after that decimal point. And, that .006 percentage uses OFCCP’s expanded definition of “compensation discrimination”!

OFCCP is “drilling a dry hole” on its compensation initiative, and it knows it. OFCCP is therefore making one last great effort. At this time, to prove to the country there is a problem and that it is worth the $1Billion+ per year in compliance costs, it is imposing on federal contractors to defend every compensation decision for every employee on payroll in every one of those approximately 4,000 audits per year.

But there are two VERY large roadblocks in front of OFCCP in its headlong chase after compensation discrimination in America, even apart from the fact that there are not, in fact, billions and billions of dollars of unlawful compensation discrimination in America lying in great pools like undiscovered oil fields as compensation discrimination advocates would lead us to believe.

First, Executive Order 11246 only permits OFCCP to recompense and rectify those unlawful compensation decisions which occurred in the two years prior to OFCCP’s audit Scheduling Letter. So, only the specific pay events which occurred in that two year window before the audit Scheduling Letter are properly at issue in an OFCCP audit (and later pay events after the audit Scheduling Letter if the Administrative Review Board’s Frito-Lay opinion holds up, as I fear it might). So, that means contractors and OFCCP should ONLY be focusing on:

  • all new hire initial pay decisions which occurred in the two years prior to the OFCCP audit Scheduling Letter, and
  • any other pay decisions which might have also occurred in that 2-year window…perhaps a decision about increasing pay upon an employee’s promotion, and/or perhaps a decision to award incentive pay, or a bonus(es) by whatever name. CURRENT PAY ANALYSES (that is an analysis of what the employee is currently paid) are UTTER LEGAL NONSENSE.

Nonetheless, OFCCP undertakes “current pay” analyses in every audit and most contractors willingly engage OFCCP in that “wrong footprint” discussion every day of the week. Contractors do so either because there is no problem even using the “wrong footprint” analyses upon which OFCCP insists or they do not know any better. Indeed, all of these regression analyses of current pay I review almost weekly are utter nonsense…as to OFCCP audits…even though quite useful to liability analyses of Title VII compensation analyses.

WHY THE DIFFERENCE IN COMPENSATION ANALYSES BETWEEN THE EXECUTIVE ORDER AND TITLE VII?

The Lilly Ledbetter Act did not amend Executive Order 11246 (or even Section 503 of the 1973 Rehabilitation Act even though it did amend Section 504 of the Rehabilitation Act. (Note: I do not discuss here the Vietnam Era Veterans Readjustment Assistance Act of 1974 since it does not make discrimination based on protected veteran status unlawful. Surprise!) In fact, The Lilly Ledbetter Act, which makes pay events outside the statute of limitations period relevant to liability analyses under Title VII did not amend all of discrimination law in some global fashion. Rather, the Ledbetter Act only narrowly rifle-shot changes to only 4 statutes, and indeed to only one section, to be precise, of 4 statutes.

But, the Ledbetter Act did not amend the Executive Order, so we now have another part of the Executive Order which is different from Title VII. So, what this means is that the discriminatory pay decision to pay Sally less than her similarly situated comparator Harry 10 years ago when the contractor hired them both on the same day is not actionable because no longer unlawful (because outside OFCCP’s statute of limitations period). OFCCP cannot reach it (although the Equal Pay Act and Title VII, as amended by The Ledbetter Act, could take account of that ancient discrimination to hold the “employer” (not “contractor”) liable today for that long ago (outside the statute of limitations period) discrimination and render it “unlawful” discrimination.)

The second roadblock is the coming final report of the National Academy of Sciences (NAS) which I discussed for the first time publicly at the NILG meeting. The 130 page draft NAS report (titled: “Collecting Compensation Data from Employers”) finds that OFCCP (and the EEOC) do not currently have a proper plan to collect compensation information or proper technological capabilities to safeguard and store/retrieve this sensitive data. Indeed, the Academy has made 6 specific recommendations including that OFCCP and EEOC seek special legislation to further protect compensation data from public disclosure if they remain intent to collect compensation data. (Remember, OFCCP now has warehoused complete wall-to-wall compensation data from over 12,000 offices and plants relating to almost 10 Million employees…just from audits in the last almost 4 years alone).

The NAS compensation report pivots attention again to the protection of compensation data and points out profound privacy concerns which affect not only OFCCP’s plans to re-inaugurate an EEO-survey-like compensation data collection tool sweeping up every federal contractor’s compensation data for every one of its employees, but also raises profound questions about the wisdom and proprietary of not only OFCCP’s outstanding audit Scheduling Letter revision request to the Office of Management & Budget to allow OFCCP to compel federal contractors to supply it with employee-level digitized compensation data for every employee in audited facilities. The NAS report and recommendations also bring into hard question whether contractors ought to be feeding OFCCP data TODAY which the contractor representatives have not first preturbated (look that word up…CAREFULLY).

The NAS compensation report is available now in a free pre-release version:

http://www.nap.edu/catalog.php?record_id=13496&utm_medium=etmail&utm_source=The%20National%20Academies%20Press&utm_campaign=NAP+mail+new+8.21.12&utm_content=Downloader&utm_term

The NAS compensation report is a sobering reminder that professional standards need to precede some mad chase to collect compensation information with no plan in place to store it safely, let alone before securing needed training budgets to educate government employees how to properly analyze this complex data. OFCCP will need at least four to six years to implement the NAS recommendations, I estimate. OFCCP is that far away from being ready to perform in a competent and professional manner in this difficult area of the law. In the meantime, OFCCP should stop (FULL STOP) in its coming Fiscal Year 2013 ALL compensation audits pending compliance with the NAS recommendations and the training of an elite squad of OFCCP statisticians and compensation analysts to harvest and analyze compensation data.

It is, of course, a major policy decision as to when to call the compensation discrimination experiment finished. But for the NAS report, my instinct would have been to let the compensation initiative continue one more year, despite its extraordinary cost and toll on the contractors tapped for audit, to help get the country past its misconception, once and for all, that there is widespread and large value compensation discrimination in play. But, in light of the serious shortcomings in agency preparedness the NAS report points out, and the real danger to society to proceed as we are, it is time to shut down OFCCP’s compensation audits now. If you cannot do it right and safely, don’t do it at all.

OFFCP’S PROUDEST ACHIEVEMENT IN THE LAST YEAR

The secret is now out: OFCCP’s solicitors are winning, and winning consistently, and winning big. While most of their caseload is regrettably “access cases” (seeking to compel contractors to provide data to OFCCP during audits), and they still file far too few court complaints, they have recently won one very tough (for OFCCP, I thought) failure-to-hire discrimination trial. That case involves the Bank of America and has been hard fought for many years and has spawned numerous case decisions of interest.

Jeff Norris President of the EEAC and David Fortney, a former Acting Solicitor of Labor, told the NILG assembly about the horror stories (for contractors) of OFCCP’s victories in the Frito-Lay case (now on appeal to the Federal District Court in Dallas) and the United Space Alliance (“USA”) case. Both are access cases and give OFCCP the broad right to update data requests during the Desk Audit, even though the data is not listed on the OMB-approved Itemized Listing OFCCP attaches to all audit Scheduling Letters for Supply and Service contractors. Jeff made the important point that it seems like objections based on “relevance” may now be the only limit on OFCCP data and document grabs in audits. Exactly right. But, good luck pushing that shield too far forward: what employment decision is not relevant to an OFCCP audit? This is especially problematic when both case decisions seem to buy uncritically into whatever test for “indicators” OFCCP may gin up to provoke the need to further chase their (bogus) “indicators” of potential unlawful discrimination (including indicator tests which most contractors not guilty of unlawful discrimination fail).

David made the important point, too, that the U.S. Supreme Court’s recent Fair Labor Standards Act case in Christopher v. Smithkline Beecham Corp., June 18, 2012 (pharmaceutical sales representatives exempt) provides an important limit on suddenly changed agency policies. Exactly right. However, the big budget problem is that, given the USA decision (now final after OFCCP’s win in the Federal District Court for the District of Columbia), a contractor would have to be willing to litigate all the way through to the Court of Appeals in Washington D.C. or to at least the Federal District Court elsewhere after necessarily losing first before the Administrative Law Judge (who would try the case and must apply the Frito-Lay and USA case decision precedents against the contractor) and then lose again before the Administrative Review Board (which would hear the case on administrative appeal and must apply the Frito-Lay and USA case decision precedents against the contractor). So, it is a L-O-N-G and perilous journey which lies ahead for only the most bold of contractors willing to fight to protect their rights. But, these are important and valuable legal fights to have…unless OFCCP moderates its now voracious appetite for documents and information which is driving the price of even non-problematic audits to tens of thousands of dollars.

We will discuss these and all the other numerous administrative and judicial developments now rapidly unfolding at OFCCP in the annual October National Employment Law Institute (NELI) Affirmative Action Workshop (and in the two days thereafter) the Affirmative Action Briefing (two seminars back-to-back, as always). I will chair this conference in Chicago, Washington D.C., Austin, and San Francisco for the 30th time. Ethics Alert: Neither I, nor any of the faculty, earn any compensation from the seminar. We donate our time to NELI, a non-profit seminar company so it may host what many people believe is the finest publicly available seminar on OFCCP compliance, law, and procedures for Human Resources and legal professionals. This year’s faculty is particularly super-charged, even before you get to OFCCP’s provocative and controversial operating procedures and regulatory reform efforts.

FASTEN YOUR SEATBELTS:

Workshop: http://www.neli.org/programs2.asp?programid=18Briefing: http://www.neli.org/programs2.asp?programid=14

I hope to see you on the road next month!

Thanks…John

THIS COLUMN IS MEANT TO ASSIST IN A GENERAL UNDERSTANDING OF THE CURRENT LAW AND PRACTICE RELATING TO OFCCP. IT IS NOT TO BE REGARDED AS LEGAL ADVICE. COMPANIES OR INDIVIDUALS WITH PARTICULAR QUESTIONS SHOULD SEEK ADVICE OF COUNSEL.