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OFCCP Issues Final Rule Reclaiming Considerable Discretion and Leverage in Pre-Enforcement Procedures for Discrimination Claims

August 9, 2023

OFCCP Issues Final Rule Reclaiming Considerable Discretion and Leverage in Pre-Enforcement Procedures for Discrimination Claims

August 9, 2023

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Seeking to strengthen OFCCP’s investigatory and enforcement authority, the final rule retains only two aspects of the 2020 rule: the early resolution procedure and the requirement for OFCCP to issue a PDN before issuing a NOV.

On August 4, 2023, the U.S. Department of Labor’s Office of Federal Contract Compliance Programs (OFCCP) published a final rule targeting pre-enforcement notice and conciliation procedures. The final rule, which goes into effect September 5, 2023, largely returns OFCCP’s pre-enforcement procedures for discrimination claims to how they existed prior to a December 2020 rule issued by the agency in the waning days of the Trump administration.

While the Trump-era 2020 rule had provided federal contractors and subcontractors with long-sought clarity regarding the evidentiary standards and processes applicable to OFCCP when it evaluates and seeks to assert discrimination claims, the agency’s new rule does away with nearly all of those welcome changes. OFCCP’s stated purpose is to realign its practices and procedures with Title VII of the Civil Rights Act of 1964 by providing its compliance officers more flexibility in investigating discrimination and guiding audits to conclusion. Contractors, however, rightfully are wary of the agency’s return to a pre-December 2020 landscape where they often were not provided with information sufficient to understand and fully evaluate OFCCP allegations of discrimination, and felt that the agency leveraged that opacity-driven uncertainty to extract significant monetary settlements.

The 2020 Rule

The 2020 rule had sought to rein in the wide discretion and tight control over evidence that OFCCP historically wielded in audits when it came to investigating and bringing allegations of discrimination. Chief among its changes, the 2020 rule articulated evidentiary requirements the agency was required to meet to establish employment discrimination claims. The 2020 rule detailed the types of evidence needed to meet the evidentiary standards―which, with few exceptions, required the agency to demonstrate mathematical and statistical evidence of discrimination (quantitative evidence), nonstatistical documentary and testimonial evidence (qualitative evidence) and practical significance to support discrimination claims. The 2020 rule also required OFCCP to disclose to the contractor the quantitative and qualitative evidence supporting any discrimination claims, including the production of any statistical model and variables used in any statistical analysis supporting discrimination findings, as well as an explanation for why any variable proposed by the contractor was excluded from the agency’s model.

Additionally, the 2020 rule codified the requirement that OFCCP issue Pre-Determination Notices (PDNs) prior to issuing a Notice of Violation (NOV) in order to inform a federal contractor of the agency’s preliminary findings and provide the contractor with an opportunity to respond to the allegations of discrimination. The 2020 rule also increased the time that federal contractors had to respond to and rebut the findings in the PDN from 15 to 30 days, clarified the standards for issuing a PDN and required any subsequent NOV to directly address any defenses or counterevidence presented by the contractor in response to the PDN. As an alternative to the PDN and NOV process, the 2020 rule introduced an early resolution procedure, pursuant to which a contractor could enter directly into a conciliation agreement and bypass the typical pre-enforcement process (i.e., issuance of PDN and NOV).

The Final Rule

Seeking to strengthen OFCCP’s investigatory and enforcement authority, the final rule retains only two aspects of the 2020 rule: the early resolution procedure and the requirement for OFCCP to issue a PDN before issuing a NOV. The final rule otherwise does away with the substantive and procedural provisions set forth in the 2020 rule, which OFCCP believes constrained its ability to investigate barriers to equal employment opportunities and resolve claims of discrimination.

Most notably, the final rule:

  • Rescinds the evidentiary standards necessary to issue a PDN or NOV alleging discrimination―including the requirements for OFCCP to show qualitative and quantitative evidence, and to demonstrate practical significance.
  • Removes altogether the definitions of and references to quantitative and qualitative evidence, as well as practical significance.
  • No longer requires OFCCP to disclose to a contractor the evidence supporting any discrimination claims including, upon contractor request, disclosure of models and variables the agency relied upon in its statistical analysis (or explanation as to why a contractor-proposed variable was excluded).
  • Eliminates the requirement that OFCCP obtain approval from the Director or acting agency head prior to issuing a PDN or NOV.
  • Returns to the 15-day period for contractors to respond to a PDN, with extensions only for good cause.
  • Clarifies that OFCCP has authority to issue a Show Cause Notice without first issuing a PDN or NOV if a contractor refuses to allow access to its premises or produce witnesses, documents and other information.
  • Expands the severability clause to cover the entirety of OFCCP’s regulatory scheme rather than exclusively apply to OFCCP’s resolution procedures.
  • Maintains the option for contractors to enter into early resolution.

In its FAQs for the final rule, OFCCP reasoned that the 2020 rule impeded its compliance officers from allowing the unique facts and circumstances of each case to dictate the pre-enforcement process. Moreover, OFCCP believes the 2020 rule conflated the PDN and NOV by applying what it describes as identical “heightened” evidentiary standards not found in Title VII (such as the requirement to demonstrate practical significance). Ultimately, the final rule seeks to fix requirements the agency viewed as distracting from its duty to investigate discrimination, through “procedural disputes and other collateral challenges.”

Impact of the Final Rule

Undeniably, the final rule serves to lessen the evidentiary obligations on OFCCP to demonstrate discrimination in a way that federal contractors can understand. While touting its desire to “streamline” an otherwise “inflexible” process, OFCCP is affording its officers more discretion to find discrimination in ways that the 2020 rule sought to curtail. Critically, the final rule grants the agency significant leverage in the negotiation and settlement process by lowering their disclosure responsibilities, leaving contractors with greater uncertainty of the discrimination allegations against them (and their options for mounting a defense), and therefore pressuring more contractors into settlements to avoid litigation. The shortened time frame that contractors have to respond to PDNs and combat allegations of discrimination, which is further exaggerated by the reduced flow of information that contractors may expect now that OFCCP has jettisoned the evidentiary standards, further tips the scales in OFCCP’s favor. The final rule reflects OFCCP’s continued disconnect from federal contractors’ reasonable expectations for transparency and certainty in the OFCCP audit process and a fair opportunity to understand the basis for agency allegations of discrimination that often are accompanied by seven-figure (or higher) settlement demands.

What This Means for Employers

As it also revealed in its April 18, 2023, publication on the anticipated update to its audit scheduling letter, OFCCP’s issuance of the final rule to eradicate nearly all of the 2020 rule’s most impactful provisions continues to demonstrate a much more aggressive enforcement posture since the beginning of the Biden administration. By removing the evidentiary standards and procedural requirements that the 2020 rule adopted to provide structure, transparency and clarity to contractors, the final rule returns OFCCP’s pre-enforcement procedures to a time the agency operated with little accountability to contractors in audits. The final rule will make it that much harder for federal contractors to understand the basis for―and respond to―findings of discrimination, providing the agency with more leverage to push for large settlements of claims that may either lack merit or lack the systemic nature (or at least the size and scope) alleged by OFCCP. Federal contractors will face even more pressure during the audit process, increasing the importance for contractors to ensure compliance with their affirmative action and nondiscrimination obligations on an ongoing basis.

For More Information

If you have any questions about this Alert, please contact Christopher D. Durham, Zev L. Grumet-Morris, 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.