Office of Federal Contract Compliance Programs; Interpreting
Nondiscrimination Requirements of Executive Order 11246 With Respect to
Systemic Compensation Discrimination, Notice [11/16/2004]
Volume 69, Number 220, Page 67245-67252
[[Page 67245]]
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Part III
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; Guidelines for Self-Evaluation of
Compensation Practices for Compliance With Nondiscrimination
Requirements of Executive Order 11246 With Respect to Systemic
Compensation Discrimination; Notices
[[Page 67246]]
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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 proposed standards for systemic compensation
discrimination under Executive Order 11246; request for comments.
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SUMMARY: The Office of Federal Contract Compliance Programs requests
comments on proposed standards for systemic compensation discrimination
under Executive Order 11246.
DATES: Comments must be submitted by the following dates:
Hard Copy: Your comments must be postmarked by December 16, 2004.
Facsimile: Your comments must be sent by December 16, 2004.
ADDRESSES: Comments should be submitted to Joseph DuBray, Jr.,
Director, Division of Policy, Planning and Program Development, OFCCP.
Electronic mail is the preferred method for submittal of comments.
Comments by electronic mail must be clearly identified as pertaining to
the notice interpreting nondiscrimination requirements of Executive
Order 11246 with respect to systemic compensation discrimination, and
sent to ofccp-public@dol.gov. As a convenience to commenters, public
comments transmitted by facsimile (FAX) machine will be accepted. The
telephone number of the FAX receiver is (202) 693-1304. To assure
access to the FAX equipment, only public comments of six or fewer pages
will be accepted via FAX transmittal. Where necessary, hard copies of
comments, clearly identified as pertaining to the notice of proposed
standards and methodologies for evaluating contractors' and
subcontractors' compensation practices, may also be delivered to Joseph
DuBray, Jr., Director, Division of Policy, Planning and Program
Development, OFCCP, Room C-3325, 200 Constitution Avenue, NW.,
Washington, DC 20210. Because of delays in mail delivery, OFCCP
suggests that commenters planning to submit comments via U.S. Mail
place those comments in the mail well before the deadline by which
comments must be received. Receipt of submissions will not be
acknowledged, except that the sender may request confirmation of
receipt by calling OFCCP at (202) 693-0102 (voice), or (202) 693-1308
(TTY).
FOR FURTHER INFORMATION CONTACT: Joseph DuBray, Jr., Director, Division
of Policy, Planning and Program Development, OFCCP, Room C-3325, 200
Constitution Avenue, NW., Washington, DC 20210. Telephone (202) 693-
0102 (voice), or (202) 693-1308 (TTY). Copies of this notice in
alternative formats may be obtained by calling (202) 693-0102 (voice),
or (202) 693-1308 (TTY). The alternative formats available are large
print, electronic file on computer disk, and audiotape. The Notice is
available on the Internet at http://www.dol.gov/esa.
SUPPLEMENTARY INFORMATION:
I. Introduction
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.\1\
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\1\ 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
E.O. 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 reasonable
interpretations of Title VII are given some deference by the courts.
See Gen. Elec. Co. v. Gilbert, 429 U.S. 125, 141-42 (1976). E.O.
11246 has been amended several times since its original
promulgation. For ease of reference, ``E.O. 11246'' or ``Executive
Order 11246'' as used hereinafter refers to Executive Order 11246,
as amended.
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OFCCP conducts compliance reviews to determine whether covered
contractors have been engaging in workplace discrimination prohibited
by E.O. 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.\2\ 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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\2\ The term ``systemic compensation discrimination'' used
hereinafter references compensation discrimination under a disparate
treatment, pattern or practice theory of discrimination.
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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
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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 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.\3\ 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.\4\
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\3\ 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 E.O. 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).
\4\ The proposed standards contained in this Notice are intended
to provide definitive interpretations of both the SDG and E.O. 11246
with respect to systemic compensation discrimination, regardless of
the specific basis (e.g., sex, race, national origin, etc.) of the
discrimination.
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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 E.O. 11246. OFCCP has not, however, published formal
guidance providing any interpretation of E.O. 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.\5\
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\5\ Although used in practice by several OFCCP regions for
several years, the grade theory was never formally adopted by OFCCP.
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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:
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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.\6\
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\6\ 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.
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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 E.O. 11246. Update, at
15.
In another version of the grade theory method used by some OFCCP
regions in the late 1990s,\7\ 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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\7\ 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., EEOC Compliance Manual on ``Compensation
Discrimination,'' EEOC Directive No. 915.003 (Dec. 5, 2000), at 10-5 to
10-8 [hereinafter referenced as ``CMCD''] \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., 219 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, 243-53 (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).
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\8\ As noted in footnote 1, supra., the EEOC is the agency with
primary enforcement responsibility for Title VII, and its reasonable
interpretations of Title VII are given some deference by the courts.
See General Elec. Co. v. Gilbert, 429 U.S. 125, 141-42 (1976).
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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.
In practice, utilization of the grade theory (as defined by the
discussion above) resulted in groupings of employees performing
dissimilar work. Indeed, as noted above, this approach was described by
some as ``identify[ing] certain jobs as having similar value to the
organization.'' Update at 6. To evaluate discrimination based on the
``value'' or ``worth'' of work to the employer 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
[[Page 67249]]
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 E.O. 11246
and the SDG as not permitting the grade theory approach to systemic
compensation discrimination. Instead, the Department interprets E.O.
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 Guidance on
Systemic Compensation Discrimination To Guide Agency Officials and
Covered Contractors and Subcontractors
The Department of Labor has decided to formally propose detailed
standards interpreting E.O. 11246 and the SDG with respect to systemic
compensation discrimination and to solicit public comment on the
proposed standards. This interpretive guidance also will provide
standards 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 E.O. 11246. The Department believes that
contractors and subcontractors are more likely to comply with E.O.
11246 if they understand the substantive standards which determine
whether there is systemic compensation discrimination prohibited by
E.O. 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. Finally, the Department will have the benefit of
commentary from all interested parties in developing final guidelines.
These proposed standards are intended to govern OFCCP's analysis of
contractors' compensation practices, and in particular, OFCCP's
determination of whether a contractor has engaged in systemic
compensation discrimination. In addition, these proposed standards are
intended to constitute a definitive interpretation of the SDG and E.O.
11246 with respect to systemic compensation discrimination.
II.Discussion of the Proposed Standards
OFCCP proposes to adopt standards for interpreting E.O. 11246 and
the SDG with respect to systemic compensation discrimination. The
systemic compensation discrimination analysis as set forth in these
proposed 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 will
rely on a statistical technique known as multiple regression.
Under OFCCP's proposed standard, 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 ID, supra.\9\
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\9\ 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, OFCCP will consult with the Office of the Solicitor to
address this issue on a case by case basis.
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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 involve
groupings of similarly situated employees. For example, it cannot be
assumed that employees are similarly situated merely because they share
the same pay grade
[[Page 67250]]
or range, or because their pay can progress to the top of a pay grade
or range without changing jobs.\10\ Thus, OFCCP will investigate
whether such preexisting groupings do in fact group 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.
---------------------------------------------------------------------------
\10\ In this respect, OFCCP will not rely on the grade theory
assumptions discussed supra., at Sections IC and ID.
---------------------------------------------------------------------------
In addition to similarity in work performed, skills and
qualifications, and responsibility levels, systemic compensation
discrimination under E.O. 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). 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
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, 325 (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
[[Page 67251]]
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'' \11\ 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.
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\11\ 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.
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Systemic compensation discrimination under E.O. 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 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.'').
In order to equip OFCCP to conduct statistical analysis necessary
for evaluating whether there is systemic compensation discrimination,
the agency has created a Division of Statistical Analysis and hired
expert-level statisticians to staff this new unit.
III. Proposed 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.
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 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 must in fact group employees who perform
similar work, and who occupy positions involving similar skills,
qualifications, and responsibility levels, which may be determined only
by understanding employees' actual work activities.
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.
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.
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
[[Page 67252]]
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 reveal were used in making pay decisions. 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 results of the regression analysis 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.
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 (e.g., the ``Chow test''), to determine which interaction
terms should be included in the pooled regression model.
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.
Signed at Washington, DC this 10th day of November, 2004.
Victoria A. Lipnic,
Assistant Secretary for the Employment Standards Administration.
Charles E. James, Sr.,
Deputy Assistant Secretary for Federal Contract Compliance.
[FR Doc. 04-25401 Filed 11-15-04; 8:45 am
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