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Alerts and Updates

OFCCP Announces Proposed Rule to Modify Enforcement Process and Standards for Potential Employment Discrimination

March 28, 2022

OFCCP Announces Proposed Rule to Modify Enforcement Process and Standards for Potential Employment Discrimination

March 28, 2022

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The changes proposed in the NPRM would return to OFCCP considerably more procedural and substantive enforcement discretion, both agencywide as well as at the regional and district office levels. 

On March 22, 2022, OFCCP published a Notice of Proposed Rulemaking (NPRM) that, if finalized, would substantially hollow out the agency’s regulations setting forth the process and evidentiary standards it uses to resolve potential discrimination. Most of the regulations the NPRM proposes to change were finalized in late 2020 and discussed in our prior Alert. Those regulations provided contractors with some long-sought clarity regarding OFCCP’s enforcement process and the standards of proof the agency would apply in audits to determine whether contractors had engaged in unlawful discrimination. The changes proposed in the NPRM would return to OFCCP considerably more procedural and substantive enforcement discretion, both agencywide as well as at the regional and district office levels. The NPRM is likely to draw comments raising significant concerns among the contractor community regarding a possible return to what some see as a lack of transparency in the OFCCP audit and enforcement process.

Existing Regulations

Existing OFCCP regulations, published at 41 CFR §60 and substantially modified in late 2020, require OFCCP to issue contractors a Predetermination Notice (PDN) prior to issuing a Notice of Violation (NOV) where its audits reveal indicators suggesting discrimination. While this had been OFCCP’s informal practice, the 2020 changes to the regulations codified the PDN requirement and expanded contractors’ time to submit evidence to rebut the PDN from 15 to 30 days. Under the regulations, OFCCP can now only issue an NOV after it has given a contractor a reasonable time to respond to the preliminary findings outlined in the PDN. Further, changes to the regulations in late 2020 clarified that the standards for issuing a PDN are the same for issuing an NOV. The changes also required that the NOV specifically address the defenses or counterevidence presented by a contractor in response to the PDN.

In addition to these process requirements, the regulations also establish standards of proof required for OFCCP to pursue a violation of disparate treatment discrimination. OFCCP is required to put forth evidence meeting these standards in a PDN, which means the agency has to flesh out its case prior to the NOV stage in lieu of using a PDN based on the agency’s incomplete or preliminary analysis to pressure contractors into settlement. Under current regulations, OFCCP must―with three narrow exceptions―have both mathematical/statistical (quantitative) evidence and other documentary or testimonial (qualitative) evidence to support a finding of disparate treatment discrimination.

Finally, existing regulations generally require OFCCP to demonstrate “practical significance” to support a finding of discrimination. In other words, even where disparities may be statistically significant, if they are immaterial from an enforcement perspective, such as a relatively small difference in pay between men and women in a large pay analysis group, OFCCP typically will not pursue allegations of discrimination.

Changes in the Proposed Rule

According to OFCCP, the changes in the NPRM are necessary because:

Upon further review and assessment of the impact of the 2020 rule on OFCCP enforcement, OFCCP believes that the 2020 rule’s inflexible evidentiary requirements mandate overly particularized and confusing evidentiary definitions that impede OFCCP’s ability to tailor the pre-enforcement process to the specific facts and circumstances of each case, delay information exchange with contractors, and create obstacles to remedying discrimination.

OFCCP Director Jenny Yang expanded on OFCCP’s position in a Department of Labor blog post about the NPRM, a little-used and potentially emerging platform for broader proclamations regarding OFCCP enforcement strategy and other perspectives.

The proposed rule will rescind the “rigid” evidentiary standards established in the 2020 final rule, including the dual requirement for qualitative and quantitative evidence supporting a discrimination allegation, as well as the practical significance requirement. The NPRM reasons that enforcement is not a one-size-fits-all process. Additionally, the NPRM contends that the standard required by the 2020 final rule is not consistent with Title VII, at times placing limits on OFCCP that do not exist under the law. For example, OFCCP notes that the practical significance requirement is an unsettled area of law that varies among the federal circuit courts that have considered it. The NPRM also points out that the 2020 final rule in effect requires OFCCP to build most of its case against a contractor at the PDN stage, which should instead be a preliminary communication regarding indicators of discrimination and can foster a dialogue between OFCCP and the contractor to focus an audit on critical areas of concern. Finally, the NPRM suggests that the 2020 final rule hinders enforcement because OFCCP is often spending considerable time fielding challenges from contractors regarding whether OFCCP has sufficiently complied with the rigid requirements of the regulations, which ultimately delays the resolution of audits.

The NPRM retains the required use of PDNs prior to the agency issuing NOVs, as codified in the 2020 regulations, but affords substantially more flexibility as to when OFCCP can issue a PDN, including even before any on-site visit. It also considerably loosens the requirements for the PDN’s substantive contents to require only that OFCCP “describe the preliminary indicators of discrimination and any other potential violations OFCCP has identified, asking the contractor to respond.” Notably, it removes the current requirement that OFCCP articulate supporting evidence at the PDN stage. Under the proposed rule, contractors’ response time for the PDN would revert to 15 days from the current 30 days, unless extended for good cause.

The early resolution procedure established through the 2020 regulations, which OFCCP says has been popular among the contractor community, is wholly retained under the proposed rule.

Finally, it is unclear from the NPRM whether a final rule will apply to new OFCCP audits only, all pending audits or some subset of pending audits (for example, where a PDN has not been issued).

The NPRM has a 30-day comment period following publication in the Federal Register, which ends on April 21, 2022. Thereafter, OFCCP may make changes to the NPRM before issuing the final rule.

What This Means for Contractors

The proposed rule clearly signals that, as expected, OFCCP under the Biden administration is taking a more aggressive enforcement posture. The proposed changes to existing regulations―primarily focused on undoing the late 2020 changes that brought welcome clarity and transparency for contractors―will return contractors to an era where they are at the mercy of OFCCP’s wide enforcement discretion in an audit. Importantly, the removal of clear standards of proof, applicable to situations when the agency alleges discrimination, deprives contractors of a key tool for holding OFCCP accountable in audits. It also makes it more difficult for contractors to take steps to proactively identify and address potential discrimination and equity issues with confidence that they are viewing the evidence through the same lens OFCCP is likely to use in an audit. Contractors taking proactive steps to identify and address potential discrimination risks, as well as those anticipating or under audit, should consult with legal counsel regarding the implications of the expected changes reflected in the proposed rule.

For More Information

If you have any questions about this Alert, please contact Christopher D. Durham, Jenna M. Decker, any of the attorneys in our Employment, Labor, Benefits and Immigration Practice Group or the attorney in the firm with whom you are regularly in contact.

Disclaimer: This Alert has been prepared and published for informational purposes only and is not offered, nor should be construed, as legal advice. For more information, please see the firm's full disclaimer.