Many things have been written and debated in 2014 about the OFCCP’s (Office of Federal Contract Compliance Programs) renewed interest in the “theory of steering” that the agency re-introduced in Directive 307. While the OFCCP critics have accepted that the theory of steering is adequate for selection claims, they continue to consider its application to compensation claims as inappropriate at best. Nevertheless, the OFCCP was successful and effective in its use of this theory in compensation cases against federal contractors.

The steering theory fits perfectly well with the OFCCP current pay gap reduction agenda. The overall pay gap between men and women (at the societal level) is believed to be substantially affected by the differential in pay among different jobs with different levels of concentration of men and women (men tend to be more concentrated in more highly paid jobs) than by discrimination against women within the same job categories. There is a general debate amongst labor economists and sociologists as to the causes of the pay gap. If men and women are indeed making different choices regarding occupation, caregiving, and commitment to the workforce, then it would be difficult to impute any responsibility for pay differentials to contractors and employers in general. However if the contractors are meddling into those choices — that is, effectively “steering” women into lower-paying jobs — then OFCCP has now a tool at hand that can rein in and even hold those contractors liable.

The Preconditions of the Theory of Steering

Before the OFCCP can assert a claim under the theory of steering in compensation or in selection, there must be two pre-conditions:

  • The contractor must channel employees and/or applicants to certain jobs. For example, this channeling occurs when a contractor does not post internal openings but relies on its managers’ discretion to promote employees, or posts jobs using broad requisitions that cobble together multiple jobs (e.g. parent-child requisition, campaign requisition) giving management the final placement decision to assign an employee or an applicant to a specific job, or move applicants or employees between requisitions. As a matter of fact, when the choice and decision to apply for a specific job is taken away from the applicant or the employee, and is instead made part of the employer placement decision, this first pre-condition is generally met. It remains to be seen whether OFCCP is going to confine itself to cases of channeling or steering based on gender, ethnic or racial stereotypes and biases (i.e., reflecting intentional discrimination) or whether OFCCP will include cases of a facially-neutral process, practice, and policy that appear to steer employees or applicants disproportionately towards certain jobs along their racial, ethnic, or gender statuses, even in absence of intent.
  • The result or the effect of the channeling or steering by the contractor is a lack of diversity in its jobs. The placement decisions by the contractor produces jobs that are segregated or predominantly held by employees of a specific gender, race, or an ethnic group, and there are differences in pay among the different jobs that were subject to the employer placement decisions. The OFCCP does not necessarily need a finding of underutilization to satisfy this second pre-condition; it can be met in jobs without placement goals. It remains to be seen whether OFCCP can infer intent from statistics showing a strong concentration of gender, racial, or ethnic groups in certain jobs.

A simplistic example that the OFCCP provided in Directive 307 is the lack of diversity in the Baker job (dominated by women) and the Butcher job (dominated by men) in the grocery store as a result of the employer’s placement decisions assigning males disproportionately to the higher paid jobs in the meat department and assigning the females to the lower paid jobs in the bakery department. It does not matter if a sole female Butcher, or all the female Butchers, are earning the same amount as their male Butchers co-workers. What matters here is that the Butchers as a group (predominantly men) are earning in average more than the Bakers as a group (predominantly women).

The Theory of Steering in Selection

Consider the hypothetical case of an employer that steers male applicants towards Job A and female applicants towards Job B. As far as the selection claim is concerned, we would expect the following:

  • The selection rate of male applicants for Job A to be significantly higher than the selection rate of female applicants; and
  • The selection rate of female applicants for Job B to be significantly higher than the selection rate of male applicants

Consequently, the OFCCP will assert a discrimination claim in selection against females for Job A and a discrimination claim in selection against males in Job B. Because the selection process of Job A and the selection process of Job B are separately analyzed, the victims are both men and women who were rejected for both jobs.

The Theory of Steering in Compensation

Let’s assume that Job A pays $30 per hour and Job B pays $15 per hour and that Job A and Job B are two different jobs. The OFCCP must first establish that the majority of incumbents (not necessarily all) in Job A are men and that the majority of incumbents in Job B are women, and this difference in concentration is the consequence of the employer’s steering, channeling, or stereotyping. The OFCCP now can make a leap that will bypass the legal standard of comparing “equal pay for equal work” and will compare instead the average pay between incumbents in Job A and Job B (two totally different jobs). If a difference in average pay exists between Job A and Job B, the OFCCP will assert a compensation discrimination claim based on the theory of steering. The theory of steering, while addressing the same inequalities the “comparable worth theory” tried to address, is a more viable theory of imputing liability and responsibility to an employer than the “comparable worth” theory of liability that was discredited by the court.

In the compensation case, the OFCCP will calculate the financial damages (back pay) based on the number of women qualified to perform Job A, but were steered towards Job B, times years of service, times the difference in pay between Job A and Job B ($10 per hour). The victims in the compensation claim are not the men hired for, rejected for or steered to Job A, but only the women steered (hired or promoted) to Job B. Steering theory in compensation produces victims from only one demographic group, which is different from the selection case where the victims are both the unsuccessful male and the female applicants.

Contractors’ Defense in a Steering Case

When a contractor has jobs that are segregated or in group concentration along gender, ethnic, or racial lines, it will draw the attention of the OFCCP during an audit. Next the Compliance officer will inquire whether the placement or assignment choice was unilaterally or overwhelmingly exercised by the contractor and will also review the level of pay of the affected jobs. Under these conditions, there is a high risk of facing allegations of discrimination in selection and compensation under the steering theory.

Contractors can defend themselves against allegations of steering by trying to prove that the segregated or concentrated roles were the result of applicants’ and employees’ choices and that the contractors have had no influence on those choices. To support their cases, contractors could present evidence that their job postings were open to everyone and that the applicant flow shows that only a few or no women (for example) applied for those roles dominated by men. This defense will be impaired when the contractor does not post jobs, or when it allows its recruiters to move applicants or employees between job openings, etc. Any contractor’s process or practice that partially or totally removes the choice from “the hands” of the employee or the applicant and puts it squarely in “the hands” of the employer will foreclose this important and effective defense against steering.

If a contractor loses round one because it does steer its employees and applicants to certain jobs, the contractor should use the second line of defense by making the OFCCP prove intent. The OFCCP has to present evidence of bias or stereotyping that motivated the contractor’s decision to steer, channel, or assign its applicants and/or employees.

We think OFCCP is going to focus on cases where contractors directly steer employees and applicants to certain roles based on their gender, race, or ethnicity. It is unlikely that the OFCCP will pursue cases that are based on indirect steering, as is the case when contractors don’t offer policies and programs compatible with balancing work and family.

Conclusion

Unfortunately, many OFCCP critics were very dismissive when they commented on the compensation applications of the theory of steering. From the OFCCP’s perspective, the theory of steering has more potential and ROI in compensation cases than selection cases. The theory of steering is a viable and clever tool of tackling the most important cause of the pay gap. Compared with the vagueness of the “comparable worth” theory, the individual responsibility of each employer under the theory of steering must be proven by OFCCP on a case-by-case basis. The steering theory in compensation has potentially wide application and implication, as it can be applied to all job levels in an organization including the senior level jobs as long as the jobs have a significant level of segregation/concentration and the employer bears some responsibility for those effects. Thus far, OFCCP has applied the theory of steering to entry level jobs; however, there is nothing that would stop OFCCP from applying it to executive jobs, or from combining the theory of steering with a glass ceiling type of analysis.