Friday, June 16, 2006

Part VI

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

VerDate Aug<31>2005 18:50 Jun 15, 2006 Jkt 208001 PO 00000 Frm 00001 Fmt 4717 Sfmt 4717 E:\FR\FM\16JNN4.SGM 16JNN4 wwhite on PROD1PC61 with NOTICES4 35124 Federal Register / Vol. 71, No. 116 / Friday, June 16, 2006 / Notices

DEPARTMENT OF LABOR discrimination. 69 FR 67246 n. 2. The assessing the combined effects of the Notice explained that OFCCP multiple, legitimate factors that Employment Standards Administration historically has relied on interpretations influence employers’ compensation of Title VII as a basis for interpreting the decisions. 69 FR 67250. This statistical Office of Federal Contract Compliance nondiscrimination requirements of technique is called multiple regression Programs; Interpreting Executive Order 11246, but that OFCCP analysis. Id. Under the multiple Nondiscrimination Requirements of had not issued any definitive regression analysis, OFCCP would Executive Order 11246 With Respect to interpretation of Executive Order 11246 compare the compensation of similarly Systemic Compensation with respect to systemic compensation situated employees, while controlling Discrimination; Notice discrimination. 69 FR 67246–47. The for legitimate factors that influenced the AGENCY: Office of Federal Contract Notice also explained that, in the late- employers’ pay decisions, such as Compliance Programs, Employment 1990s, OFCCP informally used a education, experience, performance, Standards Administration, Department controversial ‘‘pay grade theory’’ of productivity, etc. Id. OFCCP explained of Labor. analyzing compensation practices for that it would investigate whether any systemic discrimination. 69 FR 67247– ACTION: Notice of final interpretive such factors were actually ‘‘tainted’’ by 48. Under the pay grade theory, OFCCP standards for systemic compensation discrimination, and, if so, OFCCP would compared the compensation of discrimination under Executive Order not include such factors in the multiple employees who were in the same pay 11246. regression analysis. Id. OFCCP also grade or range, based on the assertion explained that in a particular case it SUMMARY: The Office of Federal Contract that by creating the pay grade, the might use a ‘‘pooled’’ regression, in Compliance Programs is publishing employer either ‘‘has recognized that which different groups of similarly- final interpretive standards for systemic certain jobs are essentially similar in situated employees were combined in a compensation discrimination under terms of skill, effort and responsibility’’ regression while controlling for their Executive Order 11246, as amended. or ‘‘has already identified certain jobs as membership in their particular This document sets forth the final having similar value to the similarly-situated group. 69 FR 67250– interpretive standards and discusses organization.’’ 69 FR 67247–48. The 67251. When using a pooled regression, comments that OFCCP received in Notice provided a detailed discussion of OFCCP explained, it would test for response to proposed interpretive OFCCP’s reasons for rejecting the grade whether ‘‘interaction terms’’ were standards published in the Federal theory, primarily because the required. 69 FR 67251. Register on November 16, 2004. assumptions underlying the grade The third component of the proposed theory are inconsistent with EFFECTIVE DATE: June 16, 2006. interpretive standards was its emphasis administrative and judicial FOR FURTHER INFORMATION CONTACT: on the importance of anecdotal evidence interpretations of Title VII and because Director, Division of Policy, Planning, of discrimination for a determination of use of the pay grade theory proved to be whether systemic compensation and Program Development, Office of a highly ineffective enforcement tool. 69 Federal Contract Compliance Programs, discrimination exists. 69 FR 67251. FR 67248–49. OFCCP noted that it would rarely issue 200 Constitution Avenue, NW., Room The proposed interpretive standards a Notice of Violations alleging systemic N3422, Washington, DC 20210. had three principal components. The compensation discrimination without Telephone: (202) 693–0102 (voice) or first component of the proposed (202) 693–1337 (TTY). interpretive standards was adoption of anecdotal evidence of discrimination to SUPPLEMENTARY INFORMATION: In this the ‘‘similarly situated’’ standard for support the statistical evidence of preamble, OFCCP summarizes the comparisons of employees’ discrimination. Id. proposed interpretive standards, compensation. 69 FR 67249–67252. II. Discussion of the Comments discusses the comments received in Under the proposed standards, Received response to its publication of the employees are similarly situated if they proposed standards, and provides a perform similar work and occupy OFCCP received 28 comments on the substantive discussion of the final positions involving similar Notice of proposed standards interpretive standards. The substantive responsibility levels, skills, and interpreting Executive Order 11246 with discussion of the final interpretive qualifications. Id. OFCCP interpreted respect to systemic compensation standards substantially restates the Executive Order 11246 1 with respect to discrimination. In response to the preamble of the proposed standards, systemic compensation discrimination comments, OFCCP made several except that modifications or as involving disparate treatment of modifications to the proposed clarifications were added in response to individuals who are similarly situated interpretive standards, discussed below. the comments. under this standard. 69 FR 67251. In In addition, many of the commenters adopting the similarly situated standard, asked for clarification of OFCCP’s intent I. Summary of the Proposed OFCCP relied on judicial and with respect to various aspects of the Interpretive Standards administrative interpretations of Title interpretive standards, which OFCCP On November 16, 2004, OFCCP VII. 69 FR 67248–67249. OFCCP provides as appropriate below. published a Notice in the Federal stressed that those interpretations were For the following discussion, OFCCP Register [hereinafter ‘‘Notice’’] in which inconsistent with OFCCP’s prior ‘‘pay has grouped the comments around the the agency proposed standards grade’’ method. 69 FR 67248. following major subjects: (A) Systemic interpreting Executive Order 11246 with The second component of the Compensation Discrimination; (B) The respect to systemic compensation proposed interpretive standards was Pay Grade Theory; (C) Similarly discrimination. 69 FR 67246 (Nov. 16, adoption of a statistical technique for Situated Employees; (D) Multiple 2004). Systemic compensation Regression Analysis; (E) Factors discrimination was defined in the 1 Executive Order 11246 has been amended Included in the Regression Analysis; (F) Federal Register Notice as several times since its original promulgation. For Anecdotal Evidence; and (G) ease of reference, ‘‘Executive Order 11246’’ as used discrimination under a pattern or hereinafter refers to Executive Order 11246, as Confidentiality of Compensation and practice, disparate treatment theory of amended. Personnel Information.

VerDate Aug<31>2005 18:50 Jun 15, 2006 Jkt 208001 PO 00000 Frm 00002 Fmt 4701 Sfmt 4703 E:\FR\FM\16JNN4.SGM 16JNN4 wwhite on PROD1PC61 with NOTICES4 Federal Register / Vol. 71, No. 116 / Friday, June 16, 2006 / Notices 35125

A. Systemic Compensation compensation systems to meet a variety historically used a tiered-review Discrimination of business interests, OFCCP’s purpose approach in its evaluation of contractors Several commenters, such as the U.S. when investigating an employer’s that relies on both pay grade Chamber of Commerce and HR compensation practices is to determine information and individual employee Analytical Services, Inc., argued that whether the employer has engaged in information to determine whether to OFCCP should not focus its efforts on systemic compensation discrimination conduct a comprehensive investigation investigating systemic employment prohibited by Executive Order 11246. into the contractor’s pay practices. discrimination, but should instead As noted below, EEOC and courts Under the tiered-review approach, spend more agency resources on interpreting Title VII have cautioned OFCCP uses pay grade (or other monitoring compliance with OFCCP’s against reliance on employer aggregated compensation) information affirmative action regulations. OFCCP classifications in favor of evidence of submitted in response to Item 11 of 4 does not agree with these commenters. actual work activities, responsibility OFCCP’s Scheduling Letter. Once it OFCCP believes that elimination of level, and skills and qualifications receives the Item 11 data, OFCCP systemic workplace discrimination is an involved in the job. conducts a simple comparison of group important component of its historical A few other commenters, including average compensation by pay grade or mission. Indeed, affirmative action the Employment Task Force of the other aggregation unit by which the programs are designed to be tools to Leadership Conference on Civil Rights employer has provided the data. If this prevent workplace discrimination. See (ETF), argued against OFCCP’s comparison indicates a significant 41 CFR 60–2.10(a)(3) (‘‘OFCCP has conclusion that the pay grade theory disparity, OFCCP will ask the contractor found that when an affirmative action should be rejected because it is for employee-specific compensation and 5 program is approached from this inconsistent with Title VII. ETF, for personnel information. OFCCP intends perspective, as a powerful management example, generally offered two sets of to continue this tiered-review 6 tool, there is a positive correlation arguments against OFCCP’s rejection of approach and, in fact, recently between the presence of affirmative the grade theory. implemented additional components to action and the absence of In the first set of arguments, ETF further focus compensation discrimination.’’). Further, the argued that pay grade information can investigations on workplaces where commenters’ suggestion disregards be an effective indicator of potential pay there are significant indicators of OFCCP’s historical enforcement of discrimination. ETF noted that ‘‘the pay potential discrimination. In particular, Executive Order 11246 by requiring grade approach serves as a unique OFCCP now conducts a ‘‘cluster payment of back pay and other make investigatory tool’’ and ‘‘provided a regression’’ using the employee-specific whole relief to victims of suitable starting point for investigators information requested following the 7 discrimination. See 41 CFR 60– to determine which jobs to compare and desk audit. If the cluster regression 1.26(a)(2) (‘‘OFCCP may seek back pay analyze.’’ ETF questioned, ‘‘[i]f the pay indicates significant disparities, OFCCP and other make whole relief for victims grade approach is to be abandoned, it is conducts a comprehensive evaluation of of discrimination identified during a unclear from these proposed standards the pertinent compensation practices, at complaint investigation or compliance how OFCCP intends to utilize its which point these final interpretive evaluation.’’). OFCCP’s focus on finding limited resources to identify the standards govern OFCCP’s investigation and remedying systemic workplace appropriate cases for further activity and determinations. OFCCP will discrimination has provided tangible investigation and enforcement.’’ Several afford the contractor an opportunity to incentives for contractors to implement other commenters also expressed 4 affirmative action programs to prevent concerns about the burden to employers Item 11 of the Scheduling Letter currently and to the agency if OFCCP conducts requests ‘‘annualized compensation data (wages, workplace discrimination. salaries, commissions, and bonuses) by either salary the investigation and analysis required range, grade, or level showing total number of B. The Pay Grade Theory by the proposed standards in each employees by race and gender and total Almost all of the commenters compliance review.3 OFCCP agrees with compensation by race and gender.’’ addressed the subject of OFCCP’s prior ETF that pay grade information has 5 OFCCP is studying potential alternatives to use of pay grade information so that the agency can ‘‘pay grade’’ method as discussed in the some value as an indicator of potential better target its investigative resources. preamble of the proposed standards. discrimination. OFCCP also agrees with 6 OFCCP may modify the investigation process Many commenters agreed with OFCCP ETF and the other referenced leading up to the application of these final that the pay grade theory was commenters that the agency does not interpretive standards, so as to maximize agency inconsistent with Title VII standards.2 desire to conduct a full-scale resources and efficiency. 7 The ‘‘cluster regression’’ creates comparison A few commenters, such as Jude compensation investigation in every groups by relying on job titles and, where a Sotherlund, argued that OFCCP should compliance review. Thus, the particular job title does not contain at least 30 rely on employer-created classifications interpretive standards are not intended employees and at least 5 from each comparator such as pay grades because these to restrict OFCCP’s use of pay grade group (females/males, minorities/non-minorities), groups job titles based on the average compensation classifications were designed by information or any other information as within each job title. In particular, the cluster compensation professionals for the an indicator of potential discrimination. regression groups job titles with the closest average particular employer. OFCCP does not Rather, the interpretive standards only compensation values until the 30/5 size agree with these comments. Unlike foreclose the use of the pay grade theory requirements are reached. The cluster model uses only two or three explanatory factors in the compensation professionals, who design as the basis upon which OFCCP will regression, including age as a proxy for experience, allege and establish systemic and education level. As noted below, the cluster 2 See, e.g., Association of Corporate Counsel, compensation discrimination in regression does not comport with Title VII Equal Employment Advisory Council, Gayle B. violation of Executive Order 11246 and standards for grouping similarly-situated Ashton, Gaucher Associates, National Industry employees, nor does the cluster regression include Liaison Group, ORC Worldwide, Society for Human OFCCP regulations. Indeed, OFCCP has factors that were determined from an investigation Resource Management, Sonalysts, TOC of the employer’s pay practices. For these reasons, Management Services, U.S. Chamber of Commerce, 3 See, e.g., American Society of Employers, the cluster regression will be used only as an and World at Work. As discussed below, some of Berkshire Associates, Maly Consulting LLC, indicator of potential systemic compensation these commenters argued that OFCCP should adopt National Industry Liaison Group, Sonalysts, and the discrimination; it is not a sufficient basis to issue the Equal Pay Act’s ‘‘substantial equality’’ standard. U.S. Chamber of Commerce. a Notice of Violation.

VerDate Aug<31>2005 18:50 Jun 15, 2006 Jkt 208001 PO 00000 Frm 00003 Fmt 4701 Sfmt 4703 E:\FR\FM\16JNN4.SGM 16JNN4 wwhite on PROD1PC61 with NOTICES4 35126 Federal Register / Vol. 71, No. 116 / Friday, June 16, 2006 / Notices

provide any additional information and/ investigation which may not be practice, as well as the practice of the or analyses that the contractor believes admissible in litigation. However, Department of Labor in rendering final to be pertinent to OFCCP’s decision OFCCP disagrees that the substantive agency decisions in cases arising under about whether to conduct further standards for whether an employment Executive Order 11246. See note 29, investigation of the contractor’s practice constitutes a violation of below; see also OFCCP Federal Contract compensation practices. OFCCP will Executive Order 11246 can depend on Compliance Manual, at Section 3K00(c) consider such information as well as the whether the matter is in the (‘‘It is OFCCP policy, in conducting results of the cluster regression in ‘‘investigation stage’’ or in litigation. If analyses of potential discrimination making a determination of whether the pay grade theory assumptions under the Executive Order, to follow further investigation is warranted. Of (discussed in the preamble of the Title VII principles.’’).9 Second, OFCCP course, OFCCP will also consider any proposed interpretive standards and expects that the federal courts will look evidence of discrimination in below) do not adhere to legal standards, to Title VII interpretations when determining whether to proceed. OFCCP has no authority to rely on such interpreting the nondiscrimination Accordingly, OFCCP intends to assumptions to allege a violation even requirements of Executive Order 11246. continue using analysis of pay grade during the investigation stage. Because This is a significant consideration in information, supplemented by the the pay grade assumptions are contrary light of the fact that Department of cluster regression, as indicators of to legal standards, to base a violation on Labor determinations under Executive potential compensation discrimination. the pay grade theory during the Order 11246 are subject to review in However, the pay grade analysis, the investigation stage is tantamount to federal court under the Administrative cluster regression analysis, and other changing the substantive requirements Procedure Act. Thus, federal courts are generalized approaches are only of Executive Order 11246. likely to defer to these final interpretive indicators of potential compensation ETF offered additional arguments standards because they accord with the discrimination. These techniques fall far against OFCCP’s rejection of the pay weight of authority under Title VII, in short of the type of fact-intensive grade theory. These arguments were addition to deference under traditional investigation and tailored analysis premised on a correct understanding deference doctrines. See Barnhart v. required to make and sustain an that the interpretive standards ruled out Walton, 535 U.S. 212, 217 (2002) allegation of systemic compensation the pay grade theory as a basis for (‘‘Courts grant an agency’s interpretation discrimination under Executive Order alleging and establishing systemic of its own regulations considerable legal 11246 and OFCCP regulations. These compensation discrimination under leeway’’); Auer v. Robbins, 519 U.S. 452, final interpretive standards fit into the Executive Order 11246 and OFCCP 461 (1997) (agency’s interpretation of its latter part of the OFCCP compliance regulations. First, ETF argued that own regulation is ‘‘controlling unless review process: They serve as the OFCCP should continue to use the pay ‘plainly erroneous or inconsistent with substantive standards interpreting grade theory, suggesting that it is the regulation,’’’ quoting Bowles v. Executive Order 11246 and OFCCP consistent with interpretations of Title Seminole Rock Co., 385 U.S. 410, 413– regulations with respect to systemic VII. Second, ETF argued that the Title 14 (1945)); Udall v. Tallman, 380 U.S. compensation discrimination. In VII cases OFCCP cited do not require 1, 16–17 (1965) (agency interpretations practical terms, this means that OFCCP rejection of the pay grade theory of Executive Orders they are charged must allege and prove facts which meet because the plaintiffs failed in the cited with enforcing are afforded deference the interpretive standards in order to cases when they were unable ‘‘to under Bowles v. Seminole Rock Co., 385 establish systemic compensation provide additional evidence where U.S. 410, 413–14 (1945)); Reynolds v. discrimination in violation of Executive employers have put forward a legitimate Rumsfeld, 564 F.2d 663, 668 (4th Cir. Order 11246 and OFCCP’s regulations. nondiscriminatory reason.’’ In this 1977) (OFCCP interpretation of ETF also objected to the provisions of regard, ETF noted that, ‘‘[w]hile pay Executive Order 11246 entitled to the proposed interpretive standards grade information may not have been Seminole Rock deference). which mandated prerequisites to issuing enough to win these particular cases, Third, this policy ensures uniformity a Notice of Violation (NOV). ETF argued such information was clearly and consistency with the principal that OFCCP should not subject itself to instrumental in establishing possible congressional enactment on equal a standard during the ‘‘investigatory discrimination in the first place.’’ employment opportunity, and with stage’’ that is the same standard that Finally, ETF argued that the rejection of EEOC enforcement standards. OFCCP OFCCP would be subject to when it the pay grade theory could harm or relied expressly and extensively on the pursued enforcement litigation.8 OFCCP curtail future enforcement efforts or EEOC Compliance Manual chapter on agrees that its investigations need not developments in the law. compensation discrimination in adhere to the precise requirements of OFCCP does not find ETF’s comments developing the interpretive standards. enforcement litigation in order to issue to be persuasive reasons for retaining In addition, the EEOC provided written an NOV. For example, OFCCP need not the pay grade theory as a basis for comments for the public record in base its decision to issue an NOV on alleging and establishing systemic information that has been obtained in a compensation discrimination under 9 Section 3R(a) of OFCCP’s Federal Contract format which would be admissible in Executive Order 11246 and OFCCP Compliance Manual (FCCM) provides that court, e.g., OFCCP can rely on notes of regulations. As to ETF’s argument that ‘‘compensation discrimination’’ encompasses ‘‘[d]isparate treatment in pay in relationship to the an employee interview during an OFCCP should continue to rely on the established range for a job, whether at entry or later; pay grade theory to establish systemic e.g., Blacks with similar backgrounds to Whites on 8 This is one of the arguments presented in the compensation discrimination, OFCCP the legitimate factors considered for initial salary publication circulated in support of the pay grade believes that the pay grade theory was are hired at less money, etc. * * *.’’ To the extend theory. See ‘‘Update on Systemic Compensation that this reference, or any other reference in the Analysis,’’ at 1 (‘‘It is not OFCCP’s policy or inconsistent with Title VII standards FCCM, implies the pay grade theory or any other practice to ‘litigate’ the merits of investigation and that there are compelling reasons theory of compensation discrimination that permits findings at the investigatory stage of a review.’’). for ensuring that the nondiscrimination comparison of compensation of individuals who are However, the ‘‘Update on Systemic Compensation provisions of Executive Order 11246 are not similarly situated under these final interpretive Analysis’’ also noted that ‘‘OFCCP has always standards, or otherwise conficts with these applied Title VII principles to its methods of interpreted consistently with Title VII. interpretive standards, these interpretive standards investigation.’’Id. First, this has been OFCCP’s historical supercede the FCCM in that regard.

VerDate Aug<31>2005 18:50 Jun 15, 2006 Jkt 208001 PO 00000 Frm 00004 Fmt 4701 Sfmt 4703 E:\FR\FM\16JNN4.SGM 16JNN4 wwhite on PROD1PC61 with NOTICES4 Federal Register / Vol. 71, No. 116 / Friday, June 16, 2006 / Notices 35127

which EEOC stated, ‘‘we are pleased failed to establish a prima facie case of Verwey v. Illinois Coll. of Optometry, 43 that your approach to addressing discrimination because she failed to Fed. Appx. 996, 2002 WL 1836507, at *4 compensation discrimination is prove she occupied a substantially (7th Cir. Aug. 9, 2002) (‘‘Verwey also consistent with EEOC’s own view.’’ similar position to Mr. Dennis. Aplt. Br., argues that the district court erred in OFCCP also does not agree with ETF’s Att. A. at 26. Upon a thorough review granting summary judgment to the characterization of the authority cited in of the evidence, we agree. Ms. Block and College on her wage discrimination the preamble of the proposed Mr. Dennis were not similarly claim. She asserts that she raised an interpretive standards. First, ETF’s situated.’’); Williams v. Galveston Ind. inference of discrimination by showing comments conflict with the EEOC Sch. Dist., No. 03–40436, 78 Fed. Appx. that the three maintenance men in her compensation guidelines, which 946, 949–50, 2003 WL 22426852 (5th department received raises after voting expressly adopt the ‘‘similarly situated’’ Cir. Oct. 23, 2003) (‘‘Appellants attempt against unionizing, but that she, the standard. EEOC Compliance Manual on to found their prima facie case on a lone female employee, did not. ‘‘Compensation Discrimination,’’ EEOC comparison between their positions and Verwey’s claim fails for several reasons. Directive No. 915.003 (Dec. 5, the positions held by Mr. McLarty and First, she did not establish that the 2000)[hereinafter, ‘‘CMCD’’], at 10–5 to Ms. Garcia. However, each employee’s maintenance men were similarly 10–8 (‘‘The investigator should responsibilities are plainly dissimilar situated to her. Although they worked determine the similarity of jobs by from the responsibilities of the other in the same department, they had ascertaining whether the jobs generally three grade 8 employees * * *. The fact different job titles and responsibilities involve similar tasks, require similar that GISD lists all four employees at and therefore did not hold equivalent skill, effort, and responsibility, working grade 8 is not significant. Pay grades positions; Verwey was an administrative conditions, and are similarly complex or represent a range of possible salaries, assistant, not a maintenance worker.’’); difficult.’’). and Appellants concede that salaries Rodriguez v. SmithKline Beecham, 224 Second, OFCCP does not agree that can differ within a pay grade.’’) 10; the plaintiffs in ‘‘virtually all’’ of the F.3d 1, 8 (1st Cir. 2000) (‘‘As we set forth above, the uncontested facts before cases cited in the preamble of the 10 ETF argues that the fact that Williams was proposed interpretive standards were unpublished and, under Fifth Circuit rules, cannot the district court indicate that able to establish a prima facie case by be cited as precedent, ‘‘undermines the case’s appellant’s job functions and significance.’’ However, under Rule 47.5.4 of the comparing themselves to individuals responsibilities were not substantially Local Rules of Appellate Procedure for the United similar or comparable to those of who did not perform similar work and States Court of Appeals for the Fifth Circuit, ‘‘[a]n whose positions were not similar in the unpublished opinion may, however, be persuasive. Document Manager Llivina or Records responsibility level, skills, and An unpublished opinion may be cited, but if cited Management Leader Feo, nor to those of in any document being submitted to the court, a qualifications involved. It has long been Edwin Lo´pez. Absent such a showing, copy of the unpublished opinion must be attached plaintiff’s Title VII claim fails as a established that plaintiffs must to each document. The first page of each demonstrate that similarly situated unpublished opinion bears the following legend: matter of law for lack of a prima facie employees were treated differently as Pursuant to Loc. R. 47.5, the court has determined case.’’); Sprague v. Thorn Americas, that this opinion should not be published and is not Inc., 129 F.3d 1355, 1362 (10th Cir. part of their own prima facie case. See precedent except under the limited circumstances Texas Dep’t of Community Affairs v. set forth in Loc. R. 47.5.4.’’ A district court in the 1997) (‘‘It is apparent from the record Burdine, 450 U.S. 248, 258 (1981) Fifth Circuit has found the reasoning in Williams that Sprague failed to present genuine (‘‘McDonnell Douglas teaches that it is to be persuasive. See Dean v. Kimberly-Clark Corp., issues of material fact which would No. 3:02–CV–1682–K, 2005 WL 309509, at *2 (N.D. support her equal pay claim under Title the plaintiff’s task to demonstrate that Tex. Feb. 8, 2005) (‘‘Plaintiff claims that Kimberly- similarly situated employees were not Clark discriminated against him by failing to VII. As the district court observed, treated equally.’’); see also Quarless v. compensate him at the same rate it compensated its Sprague contrasts her functions and pay Bronx Lebanon Hosp. Ctr., 228 F. Process Specialists, although he admits he was a in the jewelry department to those of the Production Officer, not a Process Specialist. ‘‘If a assistant product manager of electronics Supp.2d 377, 383 (S.D.N.Y. 2002) (‘‘In plaintiff’s job responsibilities are significantly order to establish a prima facie case of different from the responsibilities of employees [he] and the assistant product manager of discriminatory disparate pay under Title cites as a point of comparison, then the plaintiff has furniture/appliances, both of whom are VII, a plaintiff must show * * * that he not made out a prima facie case.’’ Williams 78 Fed. males. ‘However, the Electronics, Appx. at 949.’’). In addition to Williams, the district Furniture/Appliances, and Jewelry was paid less than similarly situated court in Woodward v. United Parcel Serv., Inc., 306 non-members of his protected class; F. Supp. 2d 567, 574–75 (D. S.C. 2004), expressly Departments do not contribute equally ***’’) aff’d, 75 Fed. Appx. 846, 848 rejected the pay grade theory as a basis for to [Thorn’s] revenues.’ See district (2d Cir. 2003); Lewis v. Smith, 255 F. establishing a prima facie case of compensation court’s Memorandum and Order at 5. discrimination: ‘‘In order to establish a prima facie Supp.2d 1054, 1060–61 (D. Ariz. 2003) case of pay discrimination, Woodward must show While the electronics department (‘‘Plaintiff can establish a prima facie that he * * * was paid less than similarly situated comprises approximately 50% of case under Title VII because he can employees who were outside his protected class revenues and the furniture/appliance show that * * * he was given greater or * * *. Woodward has not identified any relevant department accounts for approximately group of similarly situated comparators to support similar responsibilities but paid less his claim of pay discrimination * * *. In 1998, 45% of revenues, the jewelry than [a coworker] who occupied a Woodward transferred to the District Assessor department only produces similar, if not substantially equal, position in the South Carolina District—a job in approximately 4% of revenues. Id. position.’’). Indeed, in many of the cited which he had no comparators because the other six * * * Given the evidence presented to Grade 16 managers in the IE department during cases, the plaintiffs were unable to 1998 and 1999 (while Woodward was the Assessor) the district court, we find that Sprague establish a prima facie case precisely all held positions with significantly different duties failed to present a prima facie case of because they attempted to compare * * *. In summary, Woodward has failed to intentional gender discrimination.’’); themselves to individuals whose work, identify any comparators who are similarly situated EEOC v. Sears, Roebuck & Co., 839 F.2d with respect to pay. Woodward has made no effort responsibility level, and skills and to demonstrate that any of the alleged comparators 302, 347 (7th Cir. 1988) (‘‘As it turns qualifications were not similar to their that he has identified held positions whose duties out, the EEOC’s failure to introduce any own. See, e.g., Block v. Kwal-Howells, were the same as or substantially similar to his evidence of actual job content or job own. Instead, Woodward relies solely on his Inc., No. 03–1101, 2004 WL 296976, at unsupported assertion that all Grade 16 level performance is fatal to its sex *2–*4 (10th Cir. Feb. 17, 2004) (‘‘The employees are similarly situated with respect to discrimination in wages claim in light of district court concluded Ms. Block pay.’’ Sears’ evidence regarding differences in

VerDate Aug<31>2005 18:50 Jun 15, 2006 Jkt 208001 PO 00000 Frm 00005 Fmt 4701 Sfmt 4703 E:\FR\FM\16JNN4.SGM 16JNN4 wwhite on PROD1PC61 with NOTICES4 35128 Federal Register / Vol. 71, No. 116 / Friday, June 16, 2006 / Notices

job content. The EEOC appears to necessarily similarly situated, without OFCCP disagrees with ETF’s last suggest that Sears had the burden of regard to their actual job duties, argument, that the agency should not showing the inequality of job content. responsibility levels, and skills and promulgate the final interpretive This line of argument is similar to that qualifications, and OFCCP persisted in standards because they could harm or which we recognized in Epstein, 739 that position, even threatening curtail future enforcement efforts and F.2d at 278: ‘Plaintiff would, it seems, enforcement action, regardless of the development of the law. In fact, have us infer equal work from the evidence the employer submitted about OFCCP’s experience demonstrates that defendants’ failure to prove otherwise.’ differences in job duties, responsibility just the opposite is true. OFCCP believes We responded that this argument levels and skills and qualifications. that it is important for the agency to ignores the elementary fact that the Indeed, the defining feature of the pay promulgate a definitive interpretation of burden for proving the prima facie case grade theory was its assumption that Executive Order 11246 and OFCCP is on the plaintiff.’’); Eastland v. employees were similarly situated based regulations with respect to systemic Tennessee Valley Auth., 704 F.2d 613, solely on the fact that they were compensation discrimination. Most 624–25 (11th Cir. 1983) (‘‘In the present included in the same pay grade (or that significantly, these final interpretive case Eastland’s analyses account for they were in the same pay grade and standards will promote compliance with many objective qualifications, but the their pay could progress to the top of the Executive Order 11246 by helping failure to control for job category casts pay grade without changing jobs). agency personnel and covered doubt on whether the regressions are OFCCP has rejected the pay grade contractors and subcontractors comparing appropriate groups. Given theory because it conflicts with courts’ understand the meaning of Executive the weakness of the theoretical interpretations of Title VII. Order 11246 and OFCCP regulations foundation and the failure to control for As noted earlier, ETF expressed with respect to systemic compensation job category, the district court did not concern regarding the stage of the case discrimination. OFCCP personnel will err in determining that Eastland’s in which the similarly situated issue be guided by written standards which regressions were insufficient to establish arises. However, ETF did not expressly will promote uniformity in OFCCP’s a prima facie case.’’); Lawton v. Sunoco, endorse the pay grade assumptions that enforcement of Executive Order 11246. Inc., No. 01–2784, 2002 WL 1585582, at individuals are similarly situated Together with the Voluntary Self- *7 (E.D. Pa. Jul 17, 2002) (‘‘In order to because they are in the same pay grade. Evaluation Guidelines, these establish a prima facie case of wage Thus, there are not substantial interpretive standards will help discrimination under Title VII * * * the differences between the final contractors with developing programs plaintiffs ‘must demonstrate that they interpretive standards and ETF’s for monitoring their own compensation were performing work substantially position. As noted below, in a particular practices. OFCCP also believes these equal to that of white employees who case the pay grade could coincidentally interpretive standards will ensure that were compensated at higher rates than group employees who in fact performed OFCCP’s enforcement efforts are they were,’’’ quoting Aman v. Cort similar work, and occupied positions effective, by providing standards that Furniture Rental Corp., 85 F.3d 1074 (3d involving similar responsibility levels, are consistent with administrative and Cir. 1996), but also citing Watson v. skills, and qualifications. However, judicial interpretations of Title VII. In Eastman Kodak Co., 235 F.3d 851 (3d what would make such employees fact, OFCCP has been successful in Cir. 2000), for ‘‘similarly situated’’ similarly situated is the fact that that pursuing systemic compensation standard).11 they perform similar work and occupy discrimination cases under standards ETF’s arguments also do not address positions involving similar quite similar to the standards articulated the fundamental point for which OFCCP responsibility levels, skills and in these final interpretive standards. In cited these cases. OFCCP relied on these qualifications, not the fact that they are the last three years, OFCCP pursued cases to identify the factors that courts in the same pay grade. Moreover, ETF enforcement litigation in two cases use to determine whether employees are apparently accepts that an employer using multiple regression analyses that similarly situated in compensation could always justify pay differentials did not rely on the grade theory. These discrimination claims under Title VII. between employees who occupy the were the first two compensation cases Under the pay grade theory, OFCCP same pay grade through evidence that OFCCP has filed in twenty-five years, took the position that employees the employees are not similar with and both cases resulted in significant included in the same pay grade were respect to the work they perform, their settlements, including a near record responsibility levels, or the skills and $5.5 million settlement. By contrast, 11 By contrast, plaintiffs were successful in their qualifications involved in their OFCCP did not pursue even one case claims when they offered evidence that they were 12 similarly situated based on the work they positions. through enforcement litigation during performed, and the responsibility level, skills, and the period in which the agency relied on qualifications involved in their positions. See, e.g., 12 Of course, if OFCCP used pay grade as the the grade theory. OFCCP does not Brinkley-Ubo v. Hughes Training Inc., 36 F.3d 336, initial grouping, subject to the employer’s rebuttal believe that it will be effective in 343 (4th Cir. 1994) (‘‘The plaintiff may establish a that the jobs were dissimilar, employers typically prima facie case by demonstrating * * * that the would argue that the pay grade grouped positions establishing and remedying systemic job she occupied was similar to higher paying jobs that were dissimilar, as they did throughout the compensation discrimination unless occupied by males.’’); Miranda v. B&B Cash Grocery period that OFCCP used the pay grade theory. contractors perceive that OFCCP’s Store, Inc., 975 F.2d 1518, 1526–31 (11th Cir. 1992) However, in the past, OFCCP generally did not methods will support a credible threat (‘‘We agree with the trial court that Miranda carried investigate the employer’s contention that the jobs her burden of proof and established that B & B were dissimilar because the pay grade theory of successful enforcement litigation. discriminated against her because of her gender. assumed that employees were similarly situated if In sum, OFCCP agrees with ETF that The plaintiff establishes a prima facie case of sex they were in the same pay grade, regardless of grade information can be useful as an discrimination under Title VII by demonstrating whether they were similar or dissimilar in the work indicator of potential compensation that she is female and that the job she occupied was they performed, their responsibility levels, or the similar to higher paying jobs occupied by males. skills and qualifications involved in their positions. discrimination, and OFCCP intends to The trial court found that Miranda’s description of However, if OFCCP used grade as the initial the type of duties she performed as a buyer, as well grouping subject to the employer’s rebuttal that the the facts supported the employer’s contention. This as testimony from defendant’s witnesses established jobs were dissimilar, OFCCP could not simply would require OFCCP to conduct the same type of that she shared the same type of tasks as the other accept the employer’s contention that jobs were factual investigation specified in these final buyers.’’). dissimilar, but would have to investigate whether interpretive standards.

VerDate Aug<31>2005 18:50 Jun 15, 2006 Jkt 208001 PO 00000 Frm 00006 Fmt 4701 Sfmt 4703 E:\FR\FM\16JNN4.SGM 16JNN4 wwhite on PROD1PC61 with NOTICES4 Federal Register / Vol. 71, No. 116 / Friday, June 16, 2006 / Notices 35129

continue to use grade information to of the ‘‘Standards for OFCCP Evaluation plans, such as team-based pay plans or target agency resources on workplaces of Contractors’ Compensation Practices’’ incentive pay plans; they are paid on a where further investigation is in the final interpretive guidelines to different basis, such as hourly, salary or warranted. However, OFCCP disagrees make clear that the intent of paragraph through sales commissions; some are with ETF that the grade theory is 7 was not to permit a systemic covered by wage scales set through consistent with Title VII standards or compensation discrimination theory collective bargaining, while others are that the grade theory is an efficient and based on comparison of employees who not; they have different employment effective method for OFCCP to were not similarly situated. Rather, the statuses, such as full-time or part-time; accomplish its important mission. intent is simply to permit the type of etc. OFCCP agrees with these unique compensation discrimination commenters that such factors may be C. Similarly Situated Employees claim approved of in County of important to whether employees are Many commenters approved of Washington v. Gunther, 452 U.S. 161, similarly situated in a particular case. OFCCP’s proposed interpretive 166 (1981) (‘‘[R]espondents seek to See, e.g., CMCD, at 10–6 (‘‘[T]he fact standards for defining similarly-situated prove, by direct evidence, that their that employees work in different employees.13 However, several wages were depressed because of departments or other organizational commenters, such as Ellen Shong & intentional sex discrimination, units may be relevant, but is not Associates, Gaucher Associates, and consisting of setting the wage scale for controlling.’’); see also Cooper v. Society for Human Resource female guards, but not for male guards, Southern Co., 390 F.3d 695, 717 (11th Management (SHRM), argued that at a level lower than its own survey of Cir. 2004) (noting that plaintiffs’ expert OFCCP should adopt the Equal Pay Act outside markets and the worth of the ‘‘did not tailor her analysis to the standard of ‘‘substantial equality’’ jobs warranted.’’). Unlike the systemic specific positions, job locations, or instead of the ‘‘similarly situated’’ compensation discrimination standards departmental or organizational standard. OFCCP does not agree with set forth in the final interpretive structures in question; however, the these commenters. As noted, OFCCP has standards, which involve comparisons wide-ranging and highly diversified historically relied on interpretations of of the compensation of similarly- nature of the defendants’ operations Title VII to interpret the situated employees using multiple requires that employee comparisons nondiscrimination requirements of regression to control for the joint take these distinctions into account in Executive Order 11246. Many courts contributions of the various legitimate order to ensure that the black and white and the EEOC have interpreted Title VII factors that influence compensation, the employees being compared are similarly to allow comparisons of individuals Gunther-type claim ‘‘does not attempt situated’’); Goodwin v. General Motors who are ‘‘similarly situated’’ as defined by statistical technique or other method Corp., 275 F.3d 1005, 1012 n.8 (10th Cir. in these final interpretive standards.14 to quantify the effect of sex 2002) (holding employees similarly Several commenters, such as TOC discrimination on the wage rates.’’ 452 situated for compensation Management Services, questioned U.S. at 181 & n. 20 (citing Franklin M. discrimination claim under Title VII whether the proposed paragraph 7 of the Fisher, Multiple Regression in Legal because ‘‘[a]ll four representatives had Standards for OFCCP Evaluation of Proceedings, 80 Colum.L.Rev. 702, 721– the same supervisor, performed Contractors’ Compensation Practices 725 (1980)).15 identical job duties and were subject to conflicted with OFCCP’s adoption of the Several of the commenters who the same company standards and similarly situated standard. Proposed agreed that similarity in job duties, policies’’); Webb v. Merck & Co., Inc., paragraph 7 stated that ‘‘OFCCP will responsibility level, and skills/ 206 F.R.D. 399, 408 (E.D. Pa. 2002) (‘‘We also assert a compensation qualifications is a necessary condition agree with defendant that [the discrimination violation if the for employees to be similarly situated,16 plaintiffs’’ expert’s] analysis of hourly contractor establishes compensation also argued that similarity in these (union) workers is unreliable and rates for jobs (not for particular factors is not a sufficient condition for irrelevant because it fails to control for employees) that are occupied employees to be similarly situated in all the mandated wage rate set by collective predominantly by women or minorities cases. These commenters argued that bargaining agreements for an employee’s that are significantly lower than rates there may be other factors in particular position * * *’’). OFCCP has added established for jobs occupied cases that may make individuals provisions (Paragraph 2 of the predominantly by men or non- dissimilar who would otherwise meet ‘‘Standards for Systemic Compensation minorities, where the evidence the proposed standard for similarly Discrimination Under Executive Order establishes that the contractor made the situated. For example, these 11246’’ and Paragraph 3 of the job wage-rate decisions based on the commenters noted that otherwise ‘‘Standards for OFCCP Evaluation of sex, race or ethnicity of the incumbent similarly-situated employees may be Contractors’ Compensation Practices’’) employees that predominate in each paid differently for a variety of reasons: to the final standards to make clear that job.’’ In response to the comments, They work in different departments or the agency will consider the OFCCP added a footnote to paragraph 7 other functional divisions of the applicability of such additional factors organization with different budgets or in each case and make a determination 13 See, e.g., Association of Corporate Counsel, different levels of importance to the based on the facts of the particular case. Equal Employment Advisory Council, HR Analytical Services, National Industry Liaison business; they fall under different pay Several commenters, including ETF Group, ORC Worldwide, TOC Management and National Industry Liaison Group Services, U.S. Chamber of Commerce, and World at 15 Because Gunther-type claims are unique, (NILG), noted that the proposed Work. OFCCP has not included a paragraph regarding 14 See, e.g., Sprague v. Thorn Americas, Inc., 129 such claims in the ‘‘Standards for Systemic interpretive standards were ambiguous F.3d 1355 (10th Cir. 1997); Mulhall v. Advance Compensation Discrimination Under Executive about whether similarity of Sec., Inc., 19 F.3d 586 (11th Cir. 1994); Brinkley- Order 11246.’’ qualifications involves similarity in Obu v. Hughes Training, Inc., 36 F.3d 336 (4th Cir. 16 See, e.g., Equal Employment Advisory Council, qualifications required for the position 1994); Miranda v. B & B Cash Grocery Store, Inc., Morgan, Lewis & Bockius LLP, Northeast Region 975 F.2d 1518 (11th Cir. 1992); Crockwell v. Corporate Industry Liaison Group, ORC Worldwide, or similarity of qualifications possessed Blackmon-Mooring Steamatic, Inc., 627 F. Supp. and Picha & Salisbury, Society for Human Resource by the individual employees who hold 800 (W.D. Tenn. 1985). Management. the position. ETF noted that the EEOC

VerDate Aug<31>2005 18:50 Jun 15, 2006 Jkt 208001 PO 00000 Frm 00007 Fmt 4701 Sfmt 4703 E:\FR\FM\16JNN4.SGM 16JNN4 wwhite on PROD1PC61 with NOTICES4 35130 Federal Register / Vol. 71, No. 116 / Friday, June 16, 2006 / Notices

Compliance Manual chapter on review the reasoning and discrimination.20 However, several compensation discrimination relies on determinations of the courts in such commenters, such as Ellen Shong & the qualifications for the position, not factually-similar cases for guidance in Associates, Peopleclick Research the qualifications of the particular making a determination on the facts Institute (PRI), and David W. Peterson, employees. OFCCP agrees with ETF that before OFCCP. argued that OFCCP’s proposed it is the qualifications involved in the Several commenters expressed regression analysis is inaccurate because position, not the qualifications of the concern that OFCCP would be forced to it does not evaluate pay and personnel individuals who occupy the position, group dissimilar employees in order to decisions directly (or indirectly through that determine whether employees are create groupings of sufficient size for a ‘‘pay progression study’’), but similarly situated under these final statistical analysis, especially in light of compares employees’ compensation at a interpretive standards. See CMCD, at OFCCP’s stated desire to cover ‘‘most’’ particular point in time. OFCCP does 10–7. However, OFCCP generally will or ‘‘a significant number of’’ not agree with these commenters that consider qualifications of the employees.18 Several of these multiple regression analysis of current individuals as an explanatory factor in commenters also requested that OFCCP compensation is legally or statistically a regression model because superior explicitly acknowledge that certain deficient. Indeed, the Supreme Court qualifications are a legitimate reason for employees, such as high-level has approved of such analysis. See pay differences between similarly- executives, are unique and are not Bazemore v. Friday, 478 U.S. 385, 400 situated employees. Id.; see also similarly situated to any other (1986). Without expressing any view as Goodwin v. General Motors Corp., 275 employees. OFCCP agrees with these to whether the types of analysis that F.3d 1005, 1012 n.8 (10th Cir. 2002) commenters that it may be expected that these commenters suggest may also be (noting in context of disparate treatment certain employees are not similarly legally and statistically acceptable,21 compensation discrimination claim situated to any other employee in the OFCCP does not believe that such under Title VII that plaintiff had organization, workplace, or AAP. Under analysis is preferable to the approach superior qualifications to similarly no circumstances will OFCCP attempt to outlined in the final interpretive situated male employees: ‘‘And combine, group, or compare employees standards, for two reasons. First, the Goodwin was one of just two who had who are not similarly situated under analysis suggested by the commenters master’s degrees.’’); Klindt v. Honeywell these final interpretive standards. If would require OFCCP to gather far more Int’l Inc., 303 F. Supp.2d. 1206, 1223 (D. employees are not similarly situated information than required by the Kan. 2004) (employer not precluded under these final interpretive standards, regression analysis outlined in these from considering superior educational they will not be included in the final interpretive standards. For qualifications in determining statistical analysis, regardless of example, under the commenters’ employees’ salaries). statistical size requirements or of approach, OFCCP would have to Several commenters, such as SHRM OFCCP’s general objective to include a identify the variety of personnel and HR Analytical Services, requested significant majority of employees in the decisions that influenced employees’ that OFCCP provide more guidance on regression analyses.19 compensation over a significant period how the agency intends to determine Several commenters, including Equal of time and, as to each decision, whether employees are similarly Employment Advisory Council (EEAC) evaluate whether the employer treated situated. OFCCP agrees that further and ORC Worldwide (ORC), expressed the employee similarly to other clarification of this issue will be helpful concern with OFCCP’s stated intent to employees who were similarly situated to interested parties. OFCCP intends to review job descriptions and conduct with respect to that particular decision. gather information on employees’ job employee interviews to determine This would impose significant burdens duties, responsibility levels, and skills whether employees are similarly both on OFCCP and on contractors and qualifications, and other pertinent situated. These commenters noted that during OFCCP’s investigation to obtain factors (as discussed above) through job descriptions are often outdated and the information needed for the review of job descriptions and inaccurate. Several commenters suggested analysis. Second, the interviews of employees, managers, and requested that OFCCP also interview commenters’ suggested analysis would HR and compensation personnel. Once managers or supervisors to determine combine pay, promotion, and perhaps OFCCP has gathered such information, which employees are similarly situated. other personnel decisions in the same it will determine which individuals are OFCCP agrees with these commenters analysis, making it difficult to define the similarly situated by assessing the that it will be important for agency staff nature of the alleged discrimination or information under the standard for to interview supervisors, managers, and to determine an appropriate remedy. similarly situated set forth in these final HR and compensation personnel to Many commenters expressed concern interpretive standards. Since the final obtain information needed to determine about the complexity of multiple interpretive standards rely on federal whether employees are similarly regression analysis and the burden of court interpretations of Title VII, OFCCP situated, as well as to obtain other collecting the data required for such will review applicable caselaw as an aid pertinent information about the analysis.22 Others were concerned that to making such determinations in employer’s compensation practices. particular cases. This review of caselaw D. Multiple Regression Analysis 20 See, e.g., Berkshire Associates, Equal typically will involve research for cases Employment Advisory Council, HR Analytical that discuss positions that are factually Many commenters agreed that Service, Society for Human Resource Management, similar to the positions at issue in multiple regression analysis is a legally U.S. Chamber of Commerce, and World at Work. 21 Unfortunately, these commenters did not cite 17 and statistically valid method for OFCCP’s investigation. OFCCP will any cases in which the court accepted these types evaluating systemic compensation of analysis to prove systemic compensation 17 OFCCP has cited cases in this preamble that discrimination. OFCCP currently is studying discuss whether specific positions are similarly 18 See, e.g., Equal Employment Advisory Council, methods for evaluating promotion practices for situated. There are hundreds of other federal court Gaucher Associates, and World at Work. systemic discrimination and does not intend this pay discrimination cases that discuss whether other 19 OFCCP reserves the right, in rare cases, to discussion to foreclose exploration of such analysis positions are similarly situated based on facts about perform non-statistical analyses on the wages of for that purpose. the specific positions involved in each of those those employees who are not similarly situated to 22 See, e.g., American Society of Employers, cases. any other employee, such as high-level executives. Gaucher Associates, Glenn Barlett Consulting

VerDate Aug<31>2005 18:50 Jun 15, 2006 Jkt 208001 PO 00000 Frm 00008 Fmt 4701 Sfmt 4703 E:\FR\FM\16JNN4.SGM 16JNN4 wwhite on PROD1PC61 with NOTICES4 Federal Register / Vol. 71, No. 116 / Friday, June 16, 2006 / Notices 35131

they would need to hire statisticians or of prohibitions on combining or techniques in regression analysis. While other experts.23 OFCCP understands comparing employees who are not some statisticians disagree on the use of that multiple regression analysis is similarly situated—and statistical automated stepwise regression complicated and requires significant requirements about the size of employee techniques to eliminate insignificant compensation and personnel groupings necessary to conduct a factors, most agree that some form of information. However, because OFCCP meaningful regression analysis. As variable reduction is appropriate. As will use the analysis as a basis for noted above, OFCCP will not compare PRI noted, factors which are alleging and establishing systemic employees who are not similarly individually insignificant may in compensation discrimination, the situated as defined in these final combination have a significant impact agency believes that it must conduct an interpretive standards. OFCCP added on the regression results. However, analysis that meets legal and statistical text to provisions (Paragraph 5 of OFCCP considers there to be greater standards. Indeed, the pay grade method ‘‘Standards for Systemic Compensation risks with full-factor modeling undoubtedly was simple, but OFCCP Discrimination Under Executive Order procedures. In particular, especially in could not prove systemic compensation 11246’’ and Paragraph 5 of ‘‘Standards the analyses of smaller workforces, the discrimination by using that method for OFCCP Evaluation of Contractors’ statistical precision in the measured because it did not adhere to legal and Compensation Practices’’) of the final disparities decreases as more factors are statistical standards and it was widely standards which make clear that pooled added to the analysis. As such, if several criticized by contractors for those regressions must contain category inconsequential factors are added to the reasons. Thus, there is a natural tension factors that are defined to group only analysis, they will lessen the ability to between the accuracy of the analysis similarly-situated employees as defined measure any gender or racial disparities. and the complexity and burden in these standards. The pooled Furthermore, as the number of factors associated with it. As discussed above, regression model affords OFCCP increases so does the possibility of a OFCCP has attempted to balance these flexibility to conduct an analysis statistical problem called competing factors by using a tiered- controlling for groupings of similarly- ‘‘multicollinearity,’’ which can produce review approach, in which a multiple situated employees. However, OFCCP inaccurate results. See Daniel L. regression analysis is conducted only does not intend to use the pooled Rubenfeld, Reference Guide on Multiple after less complex and less intrusive regression model on a widespread basis Regression, in Federal Judicial Center, analyses reveal indicators of potential as a preferred approach. Reference Manual on Scientific discrimination. Moreover, OFCCP, not Several commenters, including Evidence, at 197 (2d ed. 2000) (‘‘When the contractor, has the burden of Northeast Region Corporate Industry two or more variables are highly, but not gathering data and conducting the Liaison Group (NRCILG) and perfectly, correlated—that is, when multiple regression analyses. Association of Corporate Counsel (ACC), there is multicollinearity—the Contractors need not convert their data argued that OFCCP should provide the regression can be estimated, but some to electronic format for purposes of a contractor with the regression model, concerns remain. The greater the compliance evaluation. If the data is not just the results of the regression multicollinearity between two variables, already in electronic format, OFCCP model, in support of any NOV the less precise are the estimates of will use it, but if not, OFCCP has the containing an allegation of systemic individual regression parameters (even responsibility of taking the raw data and compensation discrimination. OFCCP though there is no problem in converting it into an electronic format agrees that providing such information estimating the joint influence of the two which can be used in the regression to contractors will permit the agency to variables and all other regression analyses. Similarly, contractors are not conciliate alleged violations effectively parameters).’’). required to hire experts to conduct the and expeditiously. OFCCP will provide Several commenters questioned multiple regression analyses, OFCCP the contractor with enough information OFCCP’s adoption of a two standard will conduct the multiple regression about OFCCP’s regression model for the deviation threshold for assessing analyses. contractor to understand the basis for statistical significance. Some Several commenters, such as EEAC OFCCP’s determinations and for the commenters, including ACC, noted that and SHRM, requested that OFCCP contractor to replicate OFCCP’s the caselaw is more nuanced and does provide more guidance about how the regression model. OFCCP has revised not support a bright-line rule. OFCCP agency will determine whether to use a the interpretive standards (at Paragraph recognizes that the courts have not pooled regression model.24 OFCCP’s 2 of ‘‘Standards for OFCCP Evaluation announced an exact threshold for determination will be based on the of Contractors’ Compensation statistical significance. However, general objectives of attempting to cover Practices’’) to provide that OFCCP will OFCCP has determined that it is helpful as many employees as possible—in light attach such information to NOVs which to adopt a bright-line rule of two contain an allegation of systemic standard deviations as an enforcement Services, HR Analytical Services, National Industry compensation discrimination. With standard based on the need for Liaison Group, and Picha & Salisbury. such information, contractors have an uniformity and predictability in this 23 See, e.g., Berkshire Associates Inc., HR opportunity to discuss settlement with area. Analytical Services, and Northeast Region Corporate Industry Liaison Group. OFCCP or to attempt to rebut OFCCP’s Several commenters, including NILG, 24 As noted in the preamble of the proposed determination. noted that statistical significance is interpretive standards and restated below, if Several commenters raised technical dependent on sample size and separate regressions by categories of jobs would not statistical issues regarding OFCCP’s questioned whether OFCCP would take permit OFCCP to assess the way the contractor’s discussion of multiple regression that fact into consideration. OFCCP compensation practices impact on a significant number of employees, OFCCP may perform a analysis. PRI and David W. Peterson notes that standard tests for statistical ‘‘pooled’’ regression, which combines these argued that OFCCP should include all significance already take sample size categories of jobs into a single regression (while interaction terms when using a pooled into account. Since smaller samples including an OFCCP-developed category factor in regression model, not just interaction have a higher degree of variation, they the ‘‘pooled’’ regression that controls for groupings of employees who are similarly situated based on terms that are statistically significant. require a larger observed disparity to work performed, responsibility level, and skills and These comments raise a statistical achieve statistical significance. OFCCP qualifications). controversy regarding factor reduction recognizes when sample sizes become

VerDate Aug<31>2005 19:47 Jun 15, 2006 Jkt 208001 PO 00000 Frm 00009 Fmt 4701 Sfmt 4703 E:\FR\FM\16JNN4.SGM 16JNN4 wwhite on PROD1PC61 with NOTICES4 35132 Federal Register / Vol. 71, No. 116 / Friday, June 16, 2006 / Notices

very large, small and potentially non- or expect the contractor to gather data, information through interviews and meaningful disparities may be found to build databases, or perform multiple though review of personnel files and be statistically significant at the two or regression analyses. OFCCP will do all other pertinent documents. Once higher standard deviation threshold. See of those activities. In fact, OFCCP has OFCCP gathers the necessary Daniel L. Rubenfeld, Reference Guide been using aspects of the analyses information, OFCCP staff will build a on Multiple Regression, in Federal discussed in these final interpretive database. OFCCP does not presume that Judicial Center, Reference Manual on standards in a substantial number of every factor that may influence Scientific Evidence, at 181 (2d ed. 2000) compliance reviews over the last several compensation is necessarily (‘‘Other things being equal, the years. Because OFCCP is not requiring quantifiable. OFCCP may attempt to statistical significance of a regression contractors to engage in any activity to account for such factors in the coefficient increases as the sample size implement these final interpretive regression model through categorical increases. Thus, a $1 per hour wage standards, OFCCP disagrees that a grace variables or proxies, if possible. OFCCP differential between men and women or pilot period are appropriate. also may assess whether unquantifiable that was determined to be E. Factors Included in the Regression or inherently qualitative factors explain insignificantly different from zero with Analysis multiple regression results through non- a sample of 20 men and women could statistical methods. Several commenters, including the be highly significant if the sample were ETF argued that OFCCP should U.S. Chamber of Commerce, were increased to 200. Often, results that are include only factors that the employer practically significant are also concerned that the listing of factors in the proposed guidelines could result in actually relied on in making pay statistically significant. However, it is decisions. OFCCP agrees that the factors possible with a large data set to find agency investigators presuming that the listed factors must be used in all cases. that are included in the multiple statistically significant coefficients that regression analysis must be factors that are practically insignificant. Similarly, it These commenters asked OFCCP to clarify that the factors to be used in the actually had an influence on the is also possible (especially when the employer’s compensation practices. sample size is small) to obtain results regression analysis must be determined by the facts of the particular case. By However, OFCCP does not agree that the that are practically significant but factor must have been overtly statistically insignificant.’’); see also contrast, several commenters, such as considered by a particular David H. Kaye & David A. Freedman, HR Analytical Services, requested that decisionmaker when making a Reference Guide on Statistics, in Federal OFCCP provide more guidance on the particular compensation decision. A Judicial Center, Reference Manual on factors that the agency would use in the legitimate factor may influence Scientific Evidence, at 127 (2d ed. 2000) regression analysis. OFCCP agrees that compensation without having been a (‘‘Significance depends not only on the the factors must be determined based on factor that the employer’s magnitude of the effect but on the the facts of the particular case. OFCCP decisionmakers overtly relied on in sample size. Thus significant differences listed several of the typical factors to making a particular compensation are evidence of something besides provide some general idea of the types decision. For example, a department random error is at work, but they are not of factors that may be used, not to evidence that this ‘something’ is legally identify an exhaustive list that is manager responsible for setting merit or practically important. Statisticians presumed to apply in every case. pay increases in a particular year may distinguish between ‘statistical’ and Because the factors must be based on only have limited discretion to ‘practical’ significance to make that the facts of the particular case, OFCCP determine merit increases because of point. When practical significance is is unable to provide additional guidance constraints established by budget lacking—when the size of a disparity or on which factors may be used in a case. decisions made by other decisionmakers correlation is negligible—there is no OFCCP agrees that there are many other and by the employer’s compensation reason to worry about statistical factors that may be important in a guidelines. Thus, the merit increase significance.’’). particular case, such as significant decisions actually involved a host of Several commenters, including HR leaves of absence, employment with a other decisions by other decisionmakers Analytical Services and Northeast predecessor company, whether the at an earlier point in time. As noted Region Corporate Industry Liaison educational degree is related to the above, some commenters criticized the Group, requested that OFCCP provide, employee’s position, etc. proposed standards because the post online, or otherwise make available Many commenters noted that referenced regression model evaluates to contractors, the statistical software contractors frequently do not collect current compensation, not each and that OFCCP will use in evaluating data in their HRIS systems on all of the every individual pay decision that whether contractors engaged in systemic factors that may influence compensation contributed to current compensation (or compensation discrimination. OFCCP decisions, and that some of the factors compensation at a particular point in uses SAS software, which was used in making compensation decisions time). OFCCP rejected those purchased through the normal cannot be quantified.25 As noted above, commenters’ suggestion of using an procurement process. Other software OFCCP does not expect a contractor to analysis that focuses more directly on may be available to perform the maintain all of the data necessary to compensation decisions. Because the evaluation. This listing does not conduct a multiple regression analysis regression approach OFCCP adopts in constitute any endorsement of SAS in its HRIS system. Nor does OFCCP the final standards uses compensation at software, but rather is provided require that contractors collect such a particular point in time, the factors pursuant to several commenters’ data and build a database to turn over that influence compensation may not requests. to OFCCP during a compliance review. necessarily be factors that the Several commenters, including NILG Instead, OFCCP will gather the pertinent employer’s decisionmakers relied on and SHRM, requested that OFCCP overtly in making particular pay provide a grace period or a pilot stage 25 See, e.g., DCI Consulting, Equal Employment decisions. However, OFCCP can obtain before full implementation of the final Advisory Council, Gaucher Associates, Gayle B. an indication through the multiple Ashton, Glenn Barlett Consulting Services, interpretive standards. As OFCCP has Peopleclick Research Institute, and Society for regression analyses whether a particular explained, the agency does not require Human Resource Management. factor had an influence on specific

VerDate Aug<31>2005 18:50 Jun 15, 2006 Jkt 208001 PO 00000 Frm 00010 Fmt 4701 Sfmt 4703 E:\FR\FM\16JNN4.SGM 16JNN4 wwhite on PROD1PC61 with NOTICES4 Federal Register / Vol. 71, No. 116 / Friday, June 16, 2006 / Notices 35133

employees’ current compensation (or the important role of anecdotal being subjected to various individual compensation at the particular point in evidence: sexist acts.’’); Bakewell v. Stephen F. time). It is commonplace that a plaintiff attempting Austin Univ., 975 F. Supp. 858, 905–06 to establish a pattern or practice of (E.D. Tex. 1996) (‘‘The paucity of F. Anecdotal Evidence discriminatory employment will present anecdotal evidence of discrimination Several commenters, including ETF, some anecdotal testimony regarding past severely diminishes plaintiffs’ ACC, NILG, EEAC, and ORC, discriminatory acts. See, e.g., Rossini v. Ogilvy & Mather, Inc., 798 F.2d 590, 604 (2d contention that a pattern or practice of commented on OFCCP’s interpretive Cir. 1986) (‘‘In evaluating all of the evidence salary discrimination against female standard relating to anecdotal evidence. in a discrimination case, a district court may faculty members prevails at SFA.’’).26 ETF commented that OFCCP’s proposed properly consider the quality of any OFCCP’s position is also consistent with standard places additional burdens on anecdotal evidence or the absence of such EEOC’s guidance on compensation OFCCP not required by Title VII or evidence.’’); Coates v. Johnson & Johnson, discrimination. See CMCD, at 10–13 Executive Order 11246 because the 756 F.2d 524, 532 (7th Cir. 1985) (‘‘The n.30 (‘‘A cause finding of systemic proposed standards suggest that plaintiffs’’ prima facie case will thus usually discrimination should rarely be based anecdotal evidence is required to consist of statistical evidence demonstrating on statistics alone.’’). OFCCP’s Federal substantial disparities in the application of establish a violation of systemic employment actions as to minorities and the Contract Compliance Manual for many compensation discrimination. OFCCP unprotected group, buttressed by evidence of years has included a section on disagrees with ETF’s characterization of * * * specific instances of discrimination.’’); anecdotal evidence and a description of the interpretive standard relating to Valentino v. United States Postal Serv., 674 its use in systemic discrimination cases. anecdotal evidence. The interpretive F.2d 56, 69 (D.C. Cir. 1982) (‘‘[W]hen the See OFCCP’s Federal Contract standard on anecdotal evidence is not statistical evidence does not adequately Compliance Manual, at Section 7D05(e) intended to place burdens on OFCCP in account for the diverse and specialized (‘‘While courts have held that statistics establishing a violation beyond what is qualifications necessary for (the positions in alone may be sufficient to prove question), strong evidence of individual discrimination where disparities are required by interpretations of Title VII. instances of discrimination becomes vital to Rather, the interpretive standard sets the plaintiff’s case.’’) (internal quotation gross; i.e., at least two standard forth OFCCP’s interpretation that marks omitted); Garcia v. Rush-Presbyterian- deviations, supporting evidence anecdotal evidence is important in St. Lukes Med. Ctr., 660 F.2d 1217, 1225 (7th strengthens statistical cases and should establishing systemic compensation Cir. 1981) (‘‘We find very damaging to always be sought. One type of discrimination and its position that plaintiff’s position the fact that not only was supporting evidence is anecdotal rarely will a Notice of Violation be their statistical evidence insufficient, but that evidence. Anecdotal evidence consists issued by OFCCP alleging systemic they failed completely to come forward with of statements from minorities or women any direct or anecdotal evidence of who can show that they met all of the compensation discrimination absent discriminatory employment practices by anecdotal evidence. defendants. Plaintiffs did not present in contractor’s requirements but still did OFCCP’s strong preference for evidence even one specific instance of not receive the benefit at issue, and any anecdotal evidence and the important discrimination.’’). first hand accounts of discriminatory acts on the part of the contractor that role that such evidence plays in OFCCP cited additional cases that determining whether systemic support the important role of anecdotal compensation discrimination exists is 26 OFCCP’s strong preference for anecdotal evidence in the preamble of the evidence does not imply that the agency believes supported by case law. For example, in proposed interpretive standards. See, EEOC v. Morgan Stanley & Co., Inc., No. that anecdotal evidence is sufficient to refute e.g., Bazemore, 478 U.S. at 473 (noting statistical or other evidence of a pattern or practice 01 Civ. 8421, 2002 WL 1431685, at *1 that statistics were supported by of discrimination. OFCCP’s use of anecdotal (S.D.N.Y. July 1, 2002)[footnote evidence fits into the pattern-or-practice framework ‘‘evidence consisting of individual established by the Supreme Court in Intl’l Bhd. of omitted], the court discussed the comparisons between salaries of blacks importance of anecdotal evidence to the Teamsters v. United States, 431 U.S. 324, 360 & n. and whites similarly situated’’); Morgan 46 (1977) (citations omitted): EEOC’s case: v. United Parcel Service of America, ‘‘The plaintiff in a pattern-or-practice action is The Court agrees that the EEOC is entitled Inc., 380 F.3d 459, 471 (8th Cir. 2004) the Government, and its initial burden is to ‘‘to develop its case, including the demonstrate that unlawful discrimination has been (‘‘One of the most important flaws in a regular procedure or policy followed by an circumstances surrounding discrimination Plaintiffs’’ case is that they adduced no employer or group of employers. At the initial, against individual women,’’ see Plaintiff’s individual testimony regarding ‘‘liability’’ stage of a pattern-or-practice suit the Opp. at 3, with the safeguards put in place Government is not required to offer evidence that by Judge Ellis. While the EEOC’s case intentional discrimination. As each person for whom it will ultimately seek relief ‘‘depends on a statistical analysis of mentioned above, Plaintiffs’ purported was a victim of the employer’s discriminatory promotion and compensation data of an anecdotal evidence was insufficient for policy. Its burden is to establish a prima facie case entire class of women, the [EEOC] is also the working-conditions claim, and we that such a policy existed. The burden then shifts entitled to put on proof of anecdotal evidence to the employer to defeat the prima facie showing see none with regard to pay. Although of a pattern or practice by demonstrating that the of discrimination.’’ Plaintiff’s Opp. at 3; see such evidence is not required, the Government’s proof is either inaccurate or Rossini, 798 F.2d at 604 (recognizing the failure to adduce it ‘reinforces the doubt insignificant * * *. The employer’s defense must, importance of anecdotal evidence in arising from the questions about validity of course, meet the prima facie case of the employment discrimination cases) (citing of the statistical evidence.’ EEOC v. Government. We do not mean to suggest that there Intl’l Brotherhood of Teamsters v. United are any particular limits on the type of evidence an States, 431 U.S. 324, 339, 97 S.Ct. 1843, 52 Sears, Roebuck & Co., 839 F.2d 302, 311 employer may use. The point is that at the liability L.Ed.2d 396 (1977)); see also Coser v. Moore, (7th Cir.1988) (quoting Griffin v. Board stage of a pattern-or-practice trial the focus often 739 F.2d 746, 751–752 (2d Cir.1984) (‘‘where of Regents, 795 F.2d 1281, 1292 (7th will not be on individual hiring decisions, but on a pattern of discriminatory decisionmaking. While a pattern and practice of discrimination is Cir.1986))’’); Dukes v. Wal-Mart Stores, a pattern might be demonstrated by examining the alleged, [statistical evidence alone] must be Inc., 22 F.R.D. 137, 165–66 (N.D. Cal. discrete decisions of which it is composed, the weighed in light of the failure to locate and 2004) (‘‘[P]laintiffs have submitted Government’s suits have more commonly involved identify a meaningful number of concrete * * * 114 declarations from class proof of the expected result of a regularly followed examples of discrimination * * *.’’). discriminatory policy. In such cases the employer’s members around the country * * *. burden is to provide a nondiscriminatory Similarly, in Obrey v. Johnson, 400 F.3d [who will] testify to being paid less than explanation for the apparently discriminatory 691, 698 (9th Cir. 2005), the court noted similarly situated men, * * *, and result.’’

VerDate Aug<31>2005 18:50 Jun 15, 2006 Jkt 208001 PO 00000 Frm 00011 Fmt 4701 Sfmt 4703 E:\FR\FM\16JNN4.SGM 16JNN4 wwhite on PROD1PC61 with NOTICES4 35134 Federal Register / Vol. 71, No. 116 / Friday, June 16, 2006 / Notices

support the statistical inference. Thus, process under challenge according to discrimination.27 Similarly, the amount, anecdotal evidence is not limited to principles of economic theory.’ D. weight, and reliability of anecdotal independent examples of comparative Baldus & J. Cole, Statistical Proof of evidence found in a case may support disparate treatment.’’). Discrimination Sec. 8.22 at 70 (1980 & an inference of systemic discrimination, OFCCP agrees with ETF that 1982 Supp.) (hereinafter Baldus & Cole). even in the absence of statistical anecdotal evidence need not be, and in The strength of the factual foundation evidence.28 Of course, the anecdotal most cases likely will not be, in the form supporting a regression model may be a evidence of systemic compensation of ‘‘‘smoking gun’ evidence of factor in assessing whether the group discrimination in such a case would discrimination,’’ or what is known in status coefficient indicates have to support an inference that the the caselaw as ‘‘direct evidence’’ of discrimination or the influence of employer compensated similarly discrimination. See, e.g., Desert Palace legitimate qualifications which happen situated employees differently based on Co. v. Costa, 539 U.S. 90, 97 (2003) to correlate with group status. Baldus & gender or race and that the employer’s Cole, supra, Sec. 8.021 at 66 (1982 (noting that Ninth Circuit defined direct compensation ‘‘discrimination was the Supp.).’’). However, in addition to this evidence as ‘‘‘substantial evidence of company’s standard operating type of evidence, OFCCP will seek the conduct or statements by the employer procedure—the regular rather than the anecdotal evidence described above. unusual practice.’’ Bazemore, 478 U.S. directly reflecting discriminatory Several commenters, including ACC, animus,’’’ quoting Costa v. Desert at 398 (quoting Teamsters, 431 U.S. at NILG, and NRCILG, were concerned that 336). Palace, Inc., 268 F.3d 882, 884 (9th Cir. OFCCP’s investigation for anecdotal 2001)). OFCCP’s reference to ‘‘anecdotal evidence of discrimination would G. Confidentiality of Compensation and evidence’’ in these final interpretive unduly disrupt the employer’s Personnel Information standards is to evidence that leads to an operations when agency staff inference that the employer subjected a interviewed employees. These Many commenters expressed concern particular employee or particular commenters argued that OFCCP should about the confidentiality of employees to disparate treatment in afford the contractor an opportunity to compensation and personnel compensation. See, e.g., Bazemore, 478 rebut OFCCP’s regression analysis or information contractors will be required U.S. at 473; Morgan, 380 F.3d at 471; settle the case before the agency to submit or make available to OFCCP Dukes, 22 F.R.D. at 165–66; CMCD, at conducts such employee interviews. under the proposed interpretive 10–13 n.30 (‘‘Where possible, evidence OFCCP is sensitive to the commenters standards. These commenters requested of individual instances of concerns that employee interviews may that OFCCP provide express assurances discrimination should be used to bring disrupt the employer’s operations and that the agency would not disclose such the ‘cold numbers convincingly to life,’ OFCCP will accommodate the information to third-parties or other Teamsters, 431 U.S. at 339, 340 * * *’’); employer’s legitimate business needs in enforcement agencies. In response to Obrey v. Johnson, 400 F.3d 691, 698 (9th scheduling the interviews. At the same these comments, OFCCP has added a Cir. 2005); EEOC v. Morgan Stanley & time, however, OFCCP disagrees with provision (Paragraph 8 of the Co., Inc., No. 01 Civ. 8421, 2002 WL the commenters that the agency should ‘‘Standards for OFCCP Evaluation of 1431685, at *1 (S.D.N.Y. July 1, 2002). allege a violation or offer the contractor Contractors’ Compensation Practices’’) OFCCP agrees with ETF that witness an opportunity to rebut a regression to the final interpretive standards under testimony from management officials analysis or settle with OFCCP prior to which ‘‘OFCCP will treat compensation and employees concerning the the completion of the agency’s and other personnel information employer’s pay practices would help investigation under the final provided by the contractor to OFCCP establish the appropriate factors for the interpretive standards. In this regard, during a systemic compensation regression analysis and OFCCP will seek the proposed standards reflect OFCCP’s investigation as confidential to the such evidence in evaluating whether strong preference for developing maximum extent the information is there is systemic pay compensation anecdotal evidence in establishing exempt from public disclosure under discrimination. See, e.g., Eastland v. systemic compensation discrimination. the Freedom of Information Act, 5 Tennessee Valley Auth., 704 F.2d 613, Several commenters, such as EEAC U.S.C. 552 * * *.’’ OFCCP borrowed 623 (11th Cir. 1983) (‘‘By evaluating the and ORC, argued that OFCCP should this text from its regulations at 41 CFR basis upon which the party selected the never allege systemic compensation 60–2.18(d). variables included in its regression the discrimination without anecdotal court may assess the model’s validity. evidence of discrimination, nor should 27 As discussed in the cases cited above, one ‘Three kinds of evidence may be offered the agency ever allege systemic would expect some anecdotal evidence of in support of a regression model; direct compensation discrimination based compensation discrimination if the employer has testimony as to what factors operated in only on anecdotal evidence. OFCCP engaged in systemic compensation discrimination. the decision-making process under disagrees with these commenters. There However, there may be unusual factors, applicable in a particular case, which explain why OFCCP was challenge, what kinds of factors may be cases in which the statistical unable to uncover anecdotal evidence during its generally operate in decision-making analysis is so compelling that an investigation despite the statistical evidence of processes of the kind under challenge, allegation of systemic discrimination is systemic compensation discrimination. and expert testimony concerning what warranted even in the absence of 28 This issue does not arise in a Gunther-type factors can be expected to influence the anecdotal evidence of compensation claim, which does not involve statistical evidence. See discussion in text above.

VerDate Aug<31>2005 18:50 Jun 15, 2006 Jkt 208001 PO 00000 Frm 00012 Fmt 4701 Sfmt 4703 E:\FR\FM\16JNN4.SGM 16JNN4 wwhite on PROD1PC61 with NOTICES4 Federal Register / Vol. 71, No. 116 / Friday, June 16, 2006 / Notices 35135

III. Substantive Discussion Regarding particular individual, the plaintiff must involve no credibility assessment.’’’ the Final Standards establish by a preponderance of the Reeves v. Sanderson Plumbing evidence that the employer made the Products, Inc., 530 U.S. 133, 142 (2000) A. OFCCP Compliance Reviews Focus challenged employment decision (quoting St. Mary’s Honor Center v. on Systemic Compensation because of the individual’s race, color, Hicks, 509 U.S. 502, 509 (1993)). Once Discrimination religion, sex, or national origin. United the employer articulates a legitimate The Department of Labor’s Office of States Postal Service Bd. of Governors v. nondiscriminatory reason for the Federal Contract Compliance Programs Aikens, 460 U.S. 711, 715 (1983). In a challenged employment decision, the (OFCCP) enforces Executive Order pattern or practice case, ‘‘plaintiffs must plaintiff is afforded the opportunity to 11246, which prohibits covered federal ‘establish by a preponderance of the prove that the employer’s articulated contractors and subcontractors from evidence that racial discrimination was reason is a pretext for discrimination. making employment decisions on the the company’s standard operating McDonnell Douglas, 411 U.S. at 804; basis of race, color, national origin, procedure—the regular rather than the Reeves, 530 U.S. at 142. ‘‘Proof that the religion, or sex.29 unusual practice.’ Teamsters v. United [employer’s] explanation is unworthy of OFCCP conducts compliance reviews States, 431 U.S. 324, 336 (1977).’’ credence is simply one form of to determine whether covered Bazemore v. Friday, 478 U.S. 385, 398 circumstantial evidence that is contractors have been engaging in (1986). probative of intentional discrimination workplace discrimination prohibited by In addition to differences in the ***.’’ Reeves, 530 U.S. at 147. ‘‘Other Executive Order 11246. As part of its burdens of persuasion as between cases evidence that may be relevant to any compliance review process, OFCCP involving alleged discrimination against showing of pretext includes * * * [the investigates whether contractors’ pay a particular individual and an alleged employer’s] general policy and practice practices are discriminatory. pattern or practice of discrimination, the with respect to minority employment OFCCP compliance reviews typically burdens of production necessary to * * *. On the latter point, statistics as produce cases that involve allegations of survive a motion for summary to [the employer’s] employment policy systemic discrimination, not disposition are different between the and practice may be helpful to a discrimination against a particular two types of cases. In both types of determination of whether [the individual employee. OFCCP systemic cases, a plaintiff bears the initial burden employer’s actions] * * * conformed to compensation discrimination cases of presenting a prima facie case of a general pattern of discrimination typically are proven under a disparate discrimination. There is no precise set ***’’ McDonnell Douglas, 411 U.S. at treatment, pattern or practice theory of of requirements for a plaintiff’s prima 804–05. discrimination.30 The burdens of facie case. ‘‘The facts necessarily will In a pattern or practice case, the persuasion necessary to succeed on a vary in Title VII cases, and the plaintiffs’ ‘‘initial burden is to discrimination claim differ depending specification * * * of the prima facie demonstrate that unlawful on whether the case involves allegations proof required from [a plaintiff] is not discrimination has been a regular of a pattern or practice of discrimination necessarily applicable in every respect procedure or policy followed by an or allegations that a particular to differing factual circumstances.’’ Int’l employer * * *.’’ Teamsters, 431 U.S. individual was subjected to Bhd. of Teamsters v. United States, 431 at 360. ‘‘The burden then shifts to the discrimination. In a case involving U.S. 324, 358 (1977) (quoting McDonnell employer to defeat the prima facie alleged discrimination against a Douglas, 411 U.S. at 802 n. 13). ‘‘The showing of a pattern or practice by importance of McDonnell Douglas lies, demonstrating that the [plaintiffs’] proof 29 The Administrative Review Board, and, before not in its specification of the discrete is either inaccurate or insignificant.’’ Id. its creation, the Secretary of Labor, have turned to Title VII standards for determining compliance with elements of the proof there required, but ‘‘The employer’s defense must, of the nondiscrimination requirements of Executive in its recognition of the general course, be designed to meet the prima Order 11246. See, e.g., OFCCP v. Greenwood Mills, principle that any Title VII plaintiff facie case of the [plaintiffs] * * *.’’ Inc., 89–OFC–039, ARB Final Decision and Order, must carry the initial burden of offering which typically focuses on ‘‘a pattern of December 20, 2002, at 5; OFCCP v. Honeywell, 77– OFCCP–3, Secretary of Labor Decision and Order on evidence adequate to create an inference discriminatory decisionmaking.’’ Id., at Mediation, June 2, 1993, at 14 and 16, Secretary of that an employment decision was based 360 n. 46. However, there are no Labor Decision and Remand Order, March 2, 1994. on a discriminatory criterion illegal ‘‘particular limits on the type of The EEOC has issued guidance on compensation under [Title VII].’’ Teamsters, 431 U.S. evidence an employer may use.’’ Id. discrimination in the form of a chapter in the EEOC Compliance Manual on ‘‘Compensation at 358. Despite these differences in the Discrimination.’’ EEOC Directive No. 915.003 (Dec. In an individual case, the plaintiff burdens of persuasion and production, 5, 2000). EEOC is the agency with primary typically must rely on evidence however, once the plaintiff has offered enforcement responsibility for Title VII and its pertaining to his or her own evidence that is sufficient to establish a interpretations of that statute constitute a body of experience and informed judgment to which courts circumstances to establish a prima facie prima facie case, and the employer has and litigants can turn for guidance. See, e.g., case of discrimination. The prima facie produced evidence that is sufficient to Clackamas Gastroenterology Assocs., P.C. v. Wells, case creates a presumption of rebut the prima facie case, then the 538 U.S. 440, 449 n.9 (2003) (citing with approval discrimination that the employer may factfinder must decide whether and quoting from an EEOC Compliance Manual rebut by articulating a legitimate plaintiffs have demonstrated chapter applicable to Title VII). 30 The term ‘‘systemic compensation nondiscriminatory reason for the alleged discrimination by a preponderance of discrimination’’ used hereinafter references discriminatory employment decision. the evidence. ‘‘[O]ur decision in United compensation discrimination under a disparate McDonnell Douglas Corp. v. Green, 411 States Postal Service Board of Governors treatment, pattern or practice theory of U.S. 792, 802 (1973). The employer v. Aikens, 460 U.S. 711 (1983), although discrimination. These interpretive standards address only systemic compensation must produce admissible evidence of a not decided in the context of a pattern- discrimination. However, nothing in these final legitimate, nondiscriminatory reason for and-practice case, makes clear that if the interpretive standards precludes OFCCP from the challenged employment decision. defendants have not succeeded in investigating and alleging compensation Texas Dep’t of Community Affairs v. having a case dismissed on the ground discrimination under an individual disparate treatment theory or under a disparate impact theory Burdine, 450 U.S. 248, 254 (1981). that plaintiffs have failed to establish a of compensation discrimination in accordance with ‘‘Th[e] [employer’s] burden is one of prima facie case, and have responded to applicable law. production, not persuasion; ‘it can the plaintiffs’ proof by offering evidence

VerDate Aug<31>2005 18:50 Jun 15, 2006 Jkt 208001 PO 00000 Frm 00013 Fmt 4701 Sfmt 4703 E:\FR\FM\16JNN4.SGM 16JNN4 wwhite on PROD1PC61 with NOTICES4 35136 Federal Register / Vol. 71, No. 116 / Friday, June 16, 2006 / Notices

of their own, the factfinder then must Department of Labor’s goal of pay equity; that at 6; Update, at 7. If there was a decide whether the plaintiffs have is, ensuring that employees are compensated ‘‘significant’’ difference (although demonstrated a pattern or practice of equally for performing equal work. ‘‘significant’’ was not defined) in discrimination by a preponderance of 65 FR 26089 (May 4, 2000). median compensation between males/ the evidence. This is because the only This stated policy was reflected in females or minorities/non-minorities issue to be decided at that point is several significant settlements in within a given pay grade, then the next whether the plaintiffs have actually systemic compensation discrimination step was to assess whether this disparity proved discrimination. Id., at 715.’’ cases in which OFCCP relied on is explained by median or average Bazemore, 478 U.S. at 398. sophisticated multiple regression differences in other factors, such as time analyses to remedy an alleged violation in grade, prior experience, education, B. OFCCP Has Not Issued Significant and performance. SCA, at 7; Update, at Interpretive Guidance on Systemic of Executive Order 11246. OFCCP has not, however, published formal 11. However, this method did not use Compensation Discrimination Under tests of statistical significance in Executive Order 11246 guidance providing any interpretation of Executive Order 11246 with respect to determining whether a pattern of In 1970, the Department of Labor systemic compensation discrimination. compensation discrimination exists. If a published ‘‘Sex Discrimination ‘‘pattern’’ of pay disparities (although Guidelines,’’ codified at 41 CFR part 60– C. OFCCP’s Informal Approaches to ‘‘pattern’’ was not defined) emerged not 20, which included a section (60–20.5) Systemic Compensation Discrimination explicable by analysis of median or on ‘‘[d]iscriminatory wages.’’ 35 FR in the Late 1990s Involved the average differences in time in grade, 8888 (June 9, 1970). The Sex Controversial ‘‘Pay Grade Theory’’ prior experience, or other factors, Discrimination Guidelines (SDG) do not In the late-1990s several OFCCP OFCCP alleged that the contractor provide specific standards for regions began to use a controversial violated the nondiscrimination determining systemic compensation ‘‘grade theory’’ approach to requirements of Executive Order 11246. discrimination for OFCCP or a compensation discrimination analysis.33 Update, at 15. contractor.31 Rather, the SDG provide The basic unit of analysis under the In another version of the grade theory that ‘‘[t]he employer’s wages (sic) grade theory is the pay grade or pay method used by some OFCCP regions in schedules must not be related to or range. Under this theory, it is assumed the late 1990s,35 the pay grade was based on the sex of the employees,’’ and that employees are similarly situated included as a factor in a regression contains a short ‘‘note’’ that references with respect to evaluating compensation model that typically covered all exempt the ‘‘more obvious cases of decisions regarding such employees if employees in the workplace within a discrimination * * * where employees the contractor has placed their jobs in single, ‘‘pooled’’ regression. The of different sexes are paid different the same pay grade: regression typically included factors wages on jobs which require By the very act of creating a grade level such as time in grade, experience, and substantially equal skill, effort and system, where each employee has education. This method did rely on tests responsibility and are performed under approximately the same potential to move of statistical significance, although similar working conditions.’’ 41 CFR from the minimum to the maximum of his/ rarely did OFCCP develop anecdotal 60–20.5(a) (2004). OFCCP has not her grade range dependent upon evidence to support the statistical promulgated any definitive performance, the employer has recognized analysis under this method. interpretation of the SDG, nor has a that certain jobs are essentially similar in terms of skill, effort and responsibility. D. The Pay Grade Theory Is Inconsistent definitive interpretation arisen through With Title VII Standards longstanding agency practice.32 ‘‘Systemic Compensation Analysis: Instead, OFCCP has provided only a An Investigatory Approach’’ (hereinafter OFCCP has discontinued using these general policy statement about ‘‘SCA’’), at 5. A later paper, ‘‘Update on pay grade methods because the agency compensation discrimination in the Systemic Compensation Analysis’’ has determined that the methods’ preamble to a May 4, 2000 Notice of (hereinafter, ‘‘Update’’), also described principal assumptions related to pay Proposed Rulemaking (NPRM). In the this pay grade assumption: grade or pay range do not comport with May 4, 2000 NPRM, OFCCP formally Where we determine that each employee in Title VII standards as to whether expressed the Department of Labor’s a salary grade system has the same employees are similarly situated. policy regarding compensation analysis: opportunity, subject to performance, to move OFCCP recognizes that, with respect to to the maximum rate of the salary grade range compensation discrimination, similarity More recently, an additional objective of the without a change in job title, we believe the proposed revision has been to advance the in job content, skills and qualifications employer * * * has already identified involved in the job, and responsibility certain jobs as having similar value to the 31 level are crucial determinants of By contrast to sex-based compensation organization. discrimination, OFCCP has published regulations whether employees are similarly providing specific guidance with respect to hiring Update, at 6.34 situated under Title VII. See, e.g., discrimination. Thus, OFCCP is a signatory to the After identifying employees in the CMCD, at 10–5 to 10–8; Block v. Kwal- Uniform Guidelines on Employee Selection Procedures (UGESP), which provide formal same pay grade, one version of the grade Howells, Inc., No. 03–1101, 2004 WL guidance as to how OFCCP evaluates contractors’ theory method called for a comparison 296976, at *2–*4 (10th Cir. Feb. 17, selection procedures to determine compliance with of the median compensation of males 2004); Williams v. Galveston Ind. Sch. Executive Order 11246. See 41 CFR part 60–3. versus females, and minorities versus Dist., No. 03–40436, 78 Fed. Appx. 946, Before being published as a final rule, 43 Fed. Reg. 38290 (August 25, 1978), UGESP was published in non-minorities in each pay grade. SCA, 949–50, 2003 WL 22426852 (5th Cir. the Federal Register as a proposed rule and subject Oct. 23, 2003); Verwey v. Illinois Coll. of to public comment. See 42 Fed. Reg. 65542 33 Although used in practice by several OFCCP Optometry, 43 Fed. Appx. 996, 2002 WL (December 30, 1977). regions for several years, the grade theory was never 1836507, at *4 (7th Cir. Aug. 9, 2002); 32 The final interpretive standards contained in formally adopted by OFCCP. this Notice are intended to provide definitive 34 OFCCP officials informally distributed the SCA Lang v. Kohl’s Food Stores, Inc., 217 interpretations of both the SDG and Executive and the Update in the late 1990’s. They were not Order 11246 with respect to systemic compensation published by OFCCP nor did they bear any 35 This method was not described in materials discrimination, regardless of the specific basis (e.g., indication of formal agency approval, e.g., they made available to the general public. The method sex, race, national origin, etc.) of the discrimination. were not printed on OFCCP letterhead. was used primarily in OFCCP’s Southeast Region.

VerDate Aug<31>2005 18:50 Jun 15, 2006 Jkt 208001 PO 00000 Frm 00014 Fmt 4701 Sfmt 4703 E:\FR\FM\16JNN4.SGM 16JNN4 wwhite on PROD1PC61 with NOTICES4 Federal Register / Vol. 71, No. 116 / Friday, June 16, 2006 / Notices 35137

F.3d 919, 922–23 (7th Cir. 2002); course, happen to coincide with the Based on these considerations, the Rodriguez v. SmithKline Beecham, 224 employer’s pay grade or pay range, but Department interprets Executive Order F.3d 1, 8 (1st Cir. 2000); Coward v. ADT the crucial determinant of whether the 11246 and the SDG as not permitting the Sec. Sys., Inc., 140 F.3d 271, 274 (D.C. employees are similarly situated is their pay grade theory approach to systemic Cir. 1998); Aman v. Cort Furniture actual work activities, not the fact that compensation discrimination. Instead, Rental Corp., 85 F.3d 1078, 1087 (3d the employees have been placed in the the Department interprets Executive Cir. 1996); Sprague v. Thorn Americas, same pay grade or range.36 Order 11246 and the SDG as prohibiting Inc., 129 F.3d 1355, 1362 (10th Cir. systemic compensation discrimination 1997); Tomka v. Seiler Corp., 66 F.3d 36 OFCCP’s principal basis for rejecting the grade involving dissimilar treatment of 1295, 1310–11 (2d Cir. 1995), abrogated theory is that it allows for comparison of employees individuals who are similarly situated, who are not similarly situated under applicable on other grounds by Burlington Indus., legal standards, as discussed in the text. However, based on similarity in work performed, Inc. v. Ellerth, 524 U.S. 742 (1998); an alternative reason for OFCCP’s rejection of the skills and qualifications involved in the Mulhall v. Advance Sec., Inc., 19 F.3d grade theory applies specifically to attempts to job, and responsibility levels. 586, 598 (11th Cir. 1994); Brinkley-Obu justify the use of pay grades to compare dissimilar employees or jobs on the grounds that the E. The Department Has Decided To v. Hughes Training, Inc., 36 F.3d 336, employees perform or the jobs entail (dissimilar) Promulgate Interpretive Standards on 343 (4th Cir. 1994); Miranda v. B&B work that has equal or similar ‘‘value’’ or ‘‘worth’’ Systemic Compensation Discrimination Cash Grocery Store, Inc., 975 F.2d 1518, to the employer. See Update, at 6 (justifying use of pay grade on grounds that by creating pay grades To Guide Agency Officials and Covered 1526–31 (11th Cir. 1992); EEOC v. the employer has ‘‘identif[ied] certain jobs as Contractors and Subcontractors Sears, Roebuck & Co., 839 F.2d 302, having similar value to the organization.’’). 343–53 (7th Cir. 1988); Marcoux v. State Regardless of whether the worth or value of the The Department of Labor has decided of Maine, 797 F.2d 1100, 1107 (1st Cir. dissimilar work or jobs is alleged to have been to formally promulgate detailed 1986); Eastland v. Tennessee Valley established by the employer (i.e., by placing the standards interpreting Executive Order employee or the employee’s job into a particular 11246 and the SDG with respect to Auth., 704 F.2d 613, 624–25 (11th Cir. pay grade along with other, dissimilar employees or 1983); Woodward v. United Parcel Serv., jobs) or by someone other than the employer, the systemic compensation discrimination. Inc., 306 F. Supp.2d 567, 574–75 (D. attempt to compare employees who are performing The final interpretive standards will dissimilar work or who occupy dissimilar jobs S.C. 2004); Lawton v. Sunoco, Inc., No. provide guidance and methods for based on the ‘‘value’’ or ‘‘worth’’ of the work or OFCCP evaluations of contractors’ 01–2784, 2002 WL 1585582, at *7 (E.D. jobs, constitutes the comparable worth theory of Pa. Jul 17, 2002); Stroup v. J.L. Clark, compensation discrimination, which has been compensation practices during No. 99C50029, 2001 WL 114404, at *6 widely discredited by the courts. See American compliance reviews. This will ensure Federation of State, County, and Municipal that agency personnel and covered (N.D. Ill. Feb. 2, 2001); Donaldson v. Employees v. State of Washington, 770 F.2d 1401, Federal contractors and subcontractors Microsoft Corp., 205 F.R.D. 558, 563 1404 (9th Cir. 1985) (‘‘The comparable worth understand the substantive standards (W.D. Wash. 2001); Dobbs-Weinstein v. theory, as developed in the case before us, for systemic compensation Vanderbilt Univ., 1 F. Supp.2d 783, postulates that sex-based wage discrimination exists if employees in job classifications occupied discrimination under Executive Order 803–04 (M.D. Tenn. 1998); Beard v. primarily by women are paid less than employees 11246. The Department believes that Whitley Co. REMC, 656 F. Supp. 1461, in job classifications filled primarily by men, if the contractors and subcontractors are more 1471–72 (N.D. Ind. 1987); Dalley v. jobs are of equal value to the employer, though likely to comply with Executive Order Michigan Blue Cross/Blue Shield, Inc., otherwise dissimilar.’’); Colby v. J.C. Penney Co., 811 F.2d 1119, 1125–26 (7th Cir. 1987 (describing 11246 if they understand the 612 F. Supp. 1444, 1451–52 (E.D. Mich. comparable worth theory as ‘‘bas[ing] liability on substantive standards which determine the fact that the[] employer paid higher wages to 1985); EEOC v. Kendall of Dallas, Inc., whether there is systemic compensation No. TY–80–441–CA, 1984 WL 978, at workers in job classifications predominantly occupied by men than to workers in job discrimination prohibited by Executive *9–*12 (E.D. Tex. Mar. 8, 1984); classifications predominantly occupied by women, Order 11246. Further, agency officials Presseisen v. Swarthmore Coll., 442 F. though it paid the same wages to men and women will have a stronger basis for pursuing within each classification’’); American Nurses Supp. 593, 615–19 (E.D. Pa. 1977), aff’d investigations of possible systemic 582 F.2d 1275 (3d Cir. 1978) (Table). Association v. Illinois, 783 F.2d 716, 720–22 (7th Cir. 1986) (considering plaintiffs ‘‘charge that the compensation discrimination because of Contrary to these standards, the grade state pays workers in predominantly male job the transparency and uniformity theory assumed that employers’ pre- classifications a higher wage not justified by any provided by these standards. difference in the relative worth of the existing job-groupings, such as pay predominantly male and the predominantly female These final standards are intended to grades or pay ranges, are absolute jobs in the state’s roster.’’); Lemons v. City and govern OFCCP’s analysis of contractors’ indicia of similarity in employees’ job County of Denver, 620 F.2d 228, 229 (10th Cir. content, skills and qualifications 1980) (‘‘In summary, the suit is based on the that allegations of unequal pay for unequal, but involved in the job, and responsibility proposition that nurses are underpaid in City comparable, work will not state a claim on which positions, and in the community, in comparison relief may be granted. The Court, for example, level. While all of the courts in the with other and different jobs which they assert are repeatedly emphasizes that this is not a case where above string cite have implicitly rejected of equal worth to the employer.’’); Christensen v. plaintiffs ask the court to compare the value of the grade theory by emphasizing the Iowa, 563 F.2d 353, 354–56 (8th Cir. 1977) dissimilar jobs or to quantify the effect of sex importance of facts about the work (‘‘Appellants, who are clerical employees at UNI, discrimination on wage rates.’’); Judith Olans argue that UNI’s practice of paying male plant Brown et al., Equal Pay for Jobs of Comparable employees actually perform, several of workers more than female clerical workers of Worth: An Analysis of the Rhetoric, 21 Harv. C.R.– these courts have expressly rejected the similar seniority, where the jobs are of equal value C.L. Rev. 127, 129 (1986) (‘‘ ‘Comparable worth’ proposition that a pay grade offers to UNI, constitutes sex discrimination and violates means that workers, regardless of their sex, should Title VII’’); see also County of Washington v. earn equal pay for work of comparable value to absolute indicia of similarity in job Gunther, 452 U.S. 161, 165 (1981) (‘‘Respondents’ their common employer * * *. The basic premise content, qualifications and skills claim is not based on the controversial concept of of comparable worth theory is that women should involved in the job, and responsibility ‘‘comparable worth’’ under which plaintiffs might be able to substantiate a claim for equal wages by level. See Williams, 78 Fed. Appx. at claim increased compensation on the basis of a showing that their jobs and those of male workers comparison of the intrinsic worth or difficulty of are of equal value to their common employer.’’); 949 n. 9; Cort Furniture, 85 F.3d at 1087; their job with that of other jobs in the same Hydee R. Feldstein, Comment, Sex-Based Wage Woodward, 306 F. Supp.2d at 574–75. organization or community.’’ [footnotes omitted]); Discrimination Claims After County of Washington The facts about employees’ actual work Gunther, 452 U.S. at 203 (Rehnquist, J., dissenting) v. Gunther, 81 Colum. L. Rev. 1333, 1333 (1981) activities, the skills and qualifications (‘‘The opinion does not endorse the so-called (noting comparable worth ‘‘theory holds that ‘comparable worth’ theory: though the Court does employees performing work of equal value, even if involved in the job, and responsibility not indicate how a plaintiff might establish a prima the work they do is different, should receive the levels in a particular case may, of facie case under Title VII, the Court does suggest same wages.’’).

VerDate Aug<31>2005 18:50 Jun 15, 2006 Jkt 208001 PO 00000 Frm 00015 Fmt 4701 Sfmt 4703 E:\FR\FM\16JNN4.SGM 16JNN4 wwhite on PROD1PC61 with NOTICES4 35138 Federal Register / Vol. 71, No. 116 / Friday, June 16, 2006 / Notices

compensation practices, and in dispositive, and OFCCP will not assume relationship among a number of explanatory particular, OFCCP’s determination of that these groupings contain similarly variables. Multiple regression typically uses whether a contractor has engaged in situated employees. For example, it a single dependent variable and several systemic compensation discrimination. explanatory variables to assess the statistical cannot be assumed that employees are data pertinent to these theories. In a case In addition, these final standards are similarly situated merely because they alleging sex discrimination in salaries, for intended to constitute a definitive share the same pay grade or range, or example, a multiple regression analysis interpretation of the SDG and Executive because their pay can progress to the top would examine not only sex, but also other Order 11246 with respect to systemic of a pay grade or range without explanatory variables of interest, such as compensation discrimination. changing jobs.38 Thus, OFCCP will education and experience. The employer- defendant might use multiple regression to F. Discussion of the Final Interpretive investigate whether such preexisting groupings do in fact contain employees argue that salary is a function of the Standards employee’s education and experience, and who perform similar work, and whose OFCCP adopts final standards the employee-plaintiff might argue that salary positions involve similar skills, is also a function of the individual’s sex. interpreting Executive Order 11246 and qualifications, and responsibility levels, Daniel L. Rubenfeld, Reference Guide the SDG with respect to systemic by looking at job descriptions and on Multiple Regression, in Federal compensation discrimination. The conducting employee interviews. Based Judicial Center, Reference Manual on systemic compensation discrimination on sufficient empirical data (e.g., job Scientific Evidence, at 181 (2d ed. analysis as set forth in these final descriptions and employee interviews), standards has two major characteristics: 2000). OFCCP will determine which The multiple regression model must (1) The determination of employees who employees are in fact similarly situated. are ‘‘similarly situated’’ for purposes of include those factors that are important There may be other factors that have a to how the contractor in practice makes comparing contractor pay decisions will bearing on whether employees are focus on the similarity of the work pay decisions. ‘‘Such factors could similarly situated, in addition to work include the employees’ education, work performed, the levels of responsibility, performed, responsibility level, and and the skills and qualifications experience with previous employers, skills/qualifications involved in the seniority in the job, time in a particular involved in the positions; and (2) the positions. For example, additional analysis relies on a statistical technique salary grade, performance ratings, and factors may include department or other others.’’ CMCD, at 10–18. OFCCP known as multiple regression. functional unit of the employer, Under OFCCP’s final standards, generally will attempt to build the employment status (e.g., full-time versus employees are similarly situated with regression model in such a way that part-time), compensation status (e.g., respect to pay decisions where the controls for the factors that the union versus non-union, hourly versus employees perform similar work, have investigation reveals are important to similar responsibility levels, and occupy salaried versus commissions), etc. the employer’s pay decisions, but also positions involving similar OFCCP will consider the applicability of allows the agency to assess how the qualifications and skills. See discussion these additional factors in each case and employers’ pay decisions affect most and cases cited under Section IIID, make a determination based on the facts employees. One factor that must be supra.37 of the particular case. controlled for in the regression model is The determination of whether In addition to similarity in work categories or groupings of jobs that are employees are similarly situated must performed, skills and qualifications, and similarly situated based on the analysis be based on the actual facts about the responsibility levels, systemic of job similarity noted above (i.e., work performed, the responsibility level compensation discrimination under similarity in the content of the work of the employees, and whether the Executive Order 11246 requires that the employees perform, and similarity in positions involve similar skills and comparison take into account legitimate the skills, qualifications, and qualifications. The employer’s factors that affect compensation. In responsibility levels of the positions the preexisting groupings developed and order to account for the influence of employees occupy, and additional maintained for other purposes, such as such legitimate factors on factors as discussed above). This will job families or affirmative action compensation, a statistical analysis ensure that the analysis compares the program job groups, may provide some known as ‘‘multiple regression’’ must be treatment of employees who are in fact indication of similarity in work, used. Multiple regression is explained similarly situated. responsibility level, and skills and as follows: In addition, OFCCP will investigate qualifications. However, these Multiple regression analysis is a statistical the facts of each particular case to preexisting groupings are not tool for understanding the relationship ensure that factors included in the between two or more variables. Multiple regression are legitimate and are not 37 Federal courts disagree on whether the Equal regression involves a variable to be themselves influenced by unlawful Pay Act’s standard of ‘‘substantial equality’’ applies explained—called the dependent variable— discrimination, which is often discussed to gender-based pay discrimination claims under and additional explanatory variables that are in case law as a factor ‘‘tainted’’ by Title VII, absent direct evidence of discrimination. thought to produce or be associated with See, e.g., Conti v. Universal Enter., Inc., 50 Fed. changes in the dependent variable. For discrimination. However, OFCCP will Appx. 690, 2002 WL 31108827, at *7 (6th Cir. Sept. example, a multiple regression analysis not automatically presume that a factor 20, 2002); Clark v. Johnson & Higgins, 181 F.3d 100, is tainted without initially investigating 1999 WL 357804, at *3–*4 (6th Cir. May 28, 1999) might estimate the effect of the number of (Text in Westlaw); Loyd v. Phillips Bros., Inc., 25 years of work on salary. Salary would be the the facts of the particular case. OFCCP F.3d 518, 525 (7th Cir. 1994); EEOC v. Sears, dependent variable to be explained; years of will determine whether a factor is Roebuck & Co., 839 F.2d 302, 243–53 (7th Cir. experience would be the explanatory tainted by evaluating proof of 1988); Merrill v. S. Methodist Univ., 806 F.2d 600, variable. Multiple regression analysis is discrimination with respect to that 606 (5th Cir. 1986); McKee v. Bi-State Dev. Agency, sometimes well suited to the analysis of data factor, but not based on the fact that the 801 F.2d 1014, 1019 (8th Cir. 1986); Plemer v. about competing theories in which there are Parsons-Gilbane, 713 F.2d 1127, 1133–34 (5th Cir. factor has an influence on the outcome several possible explanations for the 1983); see also CMCD, at 10–6 n.18. Because an of a regression model that includes the OFCCP enforcement action may be subject to APA review in a federal court that does not adopt the 38 In this respect, OFCCP will not rely on the factor. See, e.g., Morgan v. United Parcel ‘‘similarly situated’’ standard, the Department will grade theory assumptions discussed supra., at Service of America, Inc., 380 F.3d 459, address this issue on a case by case basis. Sections IIIC and IIID. 470 (8th Cir. 2004) (‘‘Plaintiffs’’ only

VerDate Aug<31>2005 18:50 Jun 15, 2006 Jkt 208001 PO 00000 Frm 00016 Fmt 4701 Sfmt 4703 E:\FR\FM\16JNN4.SGM 16JNN4 wwhite on PROD1PC61 with NOTICES4 Federal Register / Vol. 71, No. 116 / Friday, June 16, 2006 / Notices 35139

evidence of discrimination in past pay workforce. For example, performance significant under these final standards if is the apparent correlation between race may have a more significant influence it is significant at a level of two or more and center-manager base pay during the on compensation for a high-level standard deviations, based on measures class period. But that correlation is what executive, than for technicians or of statistical significance that are Plaintiffs have evidence of only by service workers. This issue must be generally accepted in the statistics omitting past pay. They have no addressed through either of two profession. evidence, statistical or otherwise, that methods. One method is to perform OFCCP will seldom make a finding of past pay disparities were racially separate regressions for each category of systemic discrimination based on discriminatory. This sort of jobs in which the relationship between statistical analysis alone, but will obtain bootstrapping cannot create an inference the factors and compensation is similar anecdotal evidence to support the of discrimination with regard to either (while including category factors in statistical evidence. See, e.g., Teamsters, class-period base pay or past pay.’’); each regression that control for 431 U.S. at 338–39 (‘‘The Government Smith v. Xerox Corp., 196 F.3d 358, 371 groupings of employees who are bolstered its statistical evidence with n. 11 (2d Cir. 1999) (‘‘Absent evidence similarly situated based on work the testimony of individuals who tending to show that the CAF scores performed, responsibility level, and recounted over 40 specific instances of were tainted they should have been skills and qualifications). If separate discrimination * * *. The individuals included in a multiple regression regressions by categories of jobs would who testified about their personal analysis in an effort to eliminate a not permit OFCCP to assess the way the experiences with the company brought relatively poor performance compared contractor’s compensation practices the cold numbers convincingly to life.’’); to coworkers as a cause of each impact on a significant number of Bazemore, 478 U.S. at 473 (noting that plaintiff’s termination. Certainly, employees, OFCCP may perform a statistics were supported by ‘‘evidence performance is a factor Xerox was ‘‘pooled’’ regression, which combines consisting of individual comparisons permitted to consider in deciding whom these categories of jobs into a single between salaries of blacks and whites to retain.’’); Ottaviani v. State Univ. of regression (while including an OFCCP- similarly situated’’); Morgan, 380 F.3d at New York, 875 F.2d 365, 375 (2d Cir. developed category factor in the 471 (‘‘One of the most important flaws 1988) (‘‘The question to be resolved, ‘‘pooled’’ regression that controls for in Plaintiffs’ case is that they adduced then, in cases involving the use of groupings of employees who are no individual testimony regarding academic rank factors, is whether rank similarly situated based on work intentional discrimination. As is tainted by discrimination at the performed, responsibility level, and mentioned above, Plaintiffs’ purported particular institution charged with skills and qualifications). However, if a anecdotal evidence was insufficient for violating Title VII. Although appellants pooled regression is used, the regression the working-conditions claim, and we reiterate on appeal their claim that rank must include appropriate ‘‘interaction see none with regard to pay. Although at New Paltz was tainted, it is clear that terms’’ 39 in the pooled regression to such evidence is not required, the the district judge accepted and account for differences in the effects of failure to adduce it ‘reinforces the doubt considered evidence from the parties on certain factors by job category. OFCCP arising from the questions about validity both sides of this issue, and that she will run statistical tests generally of the statistical evidence.’ EEOC v. rejected the plaintiffs’ contentions on accepted in the statistics profession Sears, Roebuck & Co., 839 F.2d 302, 311 this point. At trial, the plaintiffs failed (e.g., the ‘‘Chow test’’), to determine (7th Cir.1988) (quoting Griffin v. Board to adduce any significant statistical which interaction terms should be of Regents, 795 F.2d 1281, 1292 (7th evidence of discrimination as to rank. included in the pooled regression Cir.1986))’’); Dukes v. Wal-Mart Stores, As the district court stated in its analysis. Inc., 22 F.R.D. 137, 165–66 (N.D. Cal. opinion, the plaintiffs’ studies of rank, Systemic compensation 2004) (‘‘[P]laintiffs have submitted rank at hire, and waiting time for discrimination under Executive Order * * * 114 declarations from class promotion ‘were mere compilations of 11246 must be based on disparities that members around the country * * *. data’ which neither accounted for are ‘‘statistically significant,’’ i.e., those [who will] testify to being paid less than important factors relevant to assignment that could not be expected to have similarly situated men, * * *, and of rank and promotion, ‘nor occurred by chance. ‘‘While not being subjected to various individual demonstrated that observed differences intending to suggest that ‘precise sexist acts.’’); Bakewell v. Stephen F. were statistically significant.’ Ottaviani, calculations of statistical significance Austin Univ., 975 F. Supp. 858, 905–06 679 F.Supp. at 306. The defendants, on are necessary in employing statistical (E.D. Tex. 1996) (‘‘The paucity of the other hand, offered persuasive proof,’ the Supreme Court has stated anecdotal evidence of discrimination objective evidence to demonstrate that that ‘a fluctuation of more than two or severely diminishes plaintiffs’ there was no discrimination in either three standard deviations would contention that a pattern or practice of placement into initial rank or promotion undercut the hypothesis that decisions salary discrimination against female at New Paltz between 1973 and 1984, were being made randomly with respect faculty members prevails at SFA.’’); see and the district court chose to credit the to [a protected trait].’ Hazelwood Sch. also CMCD, at 10–13 n.30 (‘‘A cause defendants’ evidence. Upon review of Dist. v. United States, 433 U.S. 299, 311 finding of systemic discrimination the record, we cannot state that the n.17 (1977).’’ CMCD, at 10–14 n.32. To should rarely be based on statistics court’s rulings in this regard were ensure uniformity and predictability, alone.’’). OFCCP will conclude that a clearly erroneous.’’); CMCD, at 10–18 IV. Standards (discussing use of performance rating in compensation disparity is statistically multiple regression analysis for Standards for Systemic Compensation 39 An ‘‘interaction term’’ is a factor used in the Discrimination Under Executive Order assessing systemic compensation regression model whose value is the result of a discrimination). combination of subfactors, which allows the factor 11246 The factors that influence pay to vary based on the combined effect of the 1. As used herein, ‘‘systemic subfactors. For example, a performance by job level decisions may not bear the same interaction term would allow performance to have compensation discrimination’’ is relationship to compensation for all a different impact on compensation depending on discrimination under a pattern or categories of jobs in the employer’s the job level. practice theory of disparate treatment.

VerDate Aug<31>2005 18:50 Jun 15, 2006 Jkt 208001 PO 00000 Frm 00017 Fmt 4701 Sfmt 4703 E:\FR\FM\16JNN4.SGM 16JNN4 wwhite on PROD1PC61 with NOTICES4 35140 Federal Register / Vol. 71, No. 116 / Friday, June 16, 2006 / Notices

2. Employees are similarly situated legitimate factors that influence and qualifications involved in their under these standards if they are similar compensation may be qualitative or positions. In determining whether with respect to the work they perform, otherwise unquantifiable, in which case employees are similarly situated under their responsibility level, and the skills non-statistical methods must be used to these standards, OFCCP will collect and and qualifications involved in their explain the multiple regression rely on actual facts regarding positions. In determining whether analyses. employees’ work activities, employees are similarly situated under 4. A compensation disparity is responsibility, and skills and these standards, actual facts regarding statistically significant under these qualifications. In addition, OFCCP will employees’ work activities, standards if it is significant at a level of investigate whether preexisting responsibility, and skills and two or more standard deviations, based groupings, such as pay grades or AAP qualifications are determinative. on measures of statistical significance job groups, do in fact group employees Preexisting groupings, such as pay that are generally accepted in the with similar work, skills and grades or Affirmative Action Program statistics profession. qualifications and responsibility levels, (AAP) job groups, are not controlling; 5. If a pooled regression model is by evaluating and comparing rather, such groupings may be relevant used, this must be accompanied by information obtained from job only to the extent that they do in fact statistical tests generally accepted in the descriptions and from employee group employees with similar work, statistics profession (e.g., the ‘‘Chow interviews. OFCCP will not base its skills and qualifications and test’’), to determine which interaction determination that employees are responsibility levels. To determine terms should be included in the pooled similarly situated on the fact that the whether such preexisting groups are regression model. Any pooled contractor or subcontractor has grouped relevant one must evaluate and compare regression model must contain category employees into a particular grouping, information obtained from job factors defined in such a way as to such as a pay grade or pay range, or that descriptions and from employee group only similarly situated employees employees’ pay can progress to the top interviews. The determination that (as defined in Paragraph 2, above). of the pay grade or range based on employees are similarly situated may Standards for OFCCP Evaluation of performance or without changing jobs. not be based on the fact that the Contractors’ Compensation Practices Rather, OFCCP will investigate whether contractor or subcontractor has grouped such preexisting groupings do in fact 1. OFCCP will investigate contractors’ group employees who perform similar employees into a particular grouping, and subcontractors’ compensation such as a pay grade or pay range, or that work, and who occupy positions practices to determine whether the involving similar skills, qualifications, employees’ pay can progress to the top contractor or subcontractor has engaged of the pay grade or range based on and responsibility levels, by looking at in systemic compensation job descriptions and conducting performance or without changing jobs. discrimination under these standards. Rather, such preexisting groupings may employee interviews. In addition to OFCCP will issue a Notice of Violations work performed, responsibility level, only be used if employees within the alleging systemic discrimination with group perform similar work, and occupy and skills/qualifications involved in the respect to compensation practices based positions, other factors may have a positions involving similar skills, only on these standards. qualifications, and responsibility levels, significant bearing on whether 2. OFCCP will make a finding of employees are similarly situated. Such which may be determined only by systemic compensation discrimination understanding employees’ actual work additional factors may include, for in those cases where there is anecdotal example, department or other functional activities. In addition to work evidence of discrimination (as discussed performed, responsibility level, and unit of the employer, employment status in Paragraph 6, below, which notes that, (e.g., full-time versus part-time), skills/qualifications involved in the except in unusual cases, OFCCP will not positions, other factors may have a compensation status (e.g., union versus issue a Notice of Violation (NOV) non-union, hourly versus salaried significant bearing on whether alleging systemic compensation employees are similarly situated. Such versus commissions), etc. OFCCP will discrimination without providing consider the applicability of these additional factors may include, for anecdotal evidence to support OFCCP’s additional factors in each case and make example, department or other functional statistical analysis) and where there a determination based on the facts of the unit of the employer, employment status exists a statistically significant (as particular case. (e.g., full-time versus part-time), defined in Paragraph 4, below) 4. A compensation disparity is compensation status (e.g., union versus compensation disparity based on a statistically significant under these non-union, hourly versus salaried multiple regression analysis that standards if it is significant at a level of versus commissions), etc. compares similarly situated employees two or more standard deviations, based 3. Systemic compensation (as defined in Paragraph 3, below) and on measures of statistical significance discrimination exists where there are controls for factors that OFCCP’s that are generally accepted in the statistically significant compensation investigation reveals influenced statistics profession. disparities between similarly situated employees’ compensation. OFCCP may 5. OFCCP will determine whether a employees (as defined in Paragraph 2, reject inclusion of such a factor upon pooled regression model is appropriate above), after taking into account proof that the factor was actually tainted based on two factors: (a) the objective to legitimate factors which influence by the employer’s discrimination. include at least 80% of the employees compensation. Such legitimate factors OFCCP will attach the regression (in the workforce subject to OFCCP’s may include education, experience, analyses and results to, and summarize compliance review) in some regression performance, productivity, location, etc. the anecdotal evidence in, the Notice of analysis; and (b) whether there are The determination of whether there are Violations issued to the contractor or enough incumbent employees in a statistically significant compensation subcontractor. particular regression to produce disparities between similarly situated 3. Employees are similarly situated statistically meaningful results. If a employees after taking into account under these standards if they are similar pooled regression is required, OFCCP such legitimate factors must be based on with respect to the work they perform, will conduct statistical tests generally a multiple regression analysis. However, their responsibility level, and the skills accepted in the statistics profession

VerDate Aug<31>2005 18:50 Jun 15, 2006 Jkt 208001 PO 00000 Frm 00018 Fmt 4701 Sfmt 4703 E:\FR\FM\16JNN4.SGM 16JNN4 wwhite on PROD1PC61 with NOTICES4 Federal Register / Vol. 71, No. 116 / Friday, June 16, 2006 / Notices 35141

(e.g., the ‘‘Chow test’’), to determine established for jobs occupied 8. OFCCP will treat compensation and which interaction terms should be predominantly by men or non- other personnel information provided included in the pooled regression minorities, where the evidence by the contractor to OFCCP during a model. In any pooled regression model, establishes that the contractor made the systemic compensation investigation as OFCCP will include category factors job wage-rate decisions based on the confidential to the maximum extent the defined in such a way as to group only sex, race or ethnicity of the incumbent information is exempt from public similarly situated employees (as defined employees that predominate in each job. disclosure under the Freedom of in Paragraph 3, above). Such evidence of discriminatory intent Information Act, 5 U.S.C. 552. It is the 6. In determining whether a violation may consist of the fact that the practice of OFCCP not to release data has occurred, OFCCP will consider contractor adopted a market survey to where the contractor is still in business, whether there is anecdotal evidence of determine the wage rate for the jobs, but and the contractor indicates, and compensation discrimination, in established the wage rate for the through the Department of Labor review addition to statistically significant predominantly female or minority job process it is determined, that the data compensation disparities. Except in lower than what that market survey are confidential and sensitive and that unusual cases, OFCCP will not issue a specified for that job, while establishing the release of data would subject the Notice of Violation (NOV) alleging for the predominantly male or non- contractor to commercial harm. systemic compensation discrimination minority job the full market rate without providing anecdotal evidence to Signed at Washington, DC, this 12th day of specified under the same market June, 2006. support OFCCP’s statistical analysis. In survey.40 unusual cases, OFCCP may assert a Victoria A. Lipnic, systemic discrimination violation based 40 See County of Washington v. Gunther, 452 U.S. Assistant Secretary for the Employment only on anecdotal evidence, if such 161, 166, 180–81 (1981) (‘‘We emphasize at the Standards, evidence presents a pattern or practice outset the narrowness of the question before us in Charles E. James, Sr., of compensation discrimination. this case. Respondents’ claim is not based on the controversial concept of ‘‘comparable worth,’’ Deputy Assistant Secretary for Federal 7. OFCCP will also assert a under which plaintiffs might claim increased Contract Compliance. compensation discrimination violation compensation on the basis of a comparison of the [FR Doc. 06–5458 Filed 6–15–06; 8:45 am] if the contractor establishes intrinsic worth or difficulty of their job with that BILLING CODE 4510–CM–P compensation rates for jobs (not for of other jobs in the same organization or community. Rather, respondents seek to prove, by particular employees) that are occupied direct evidence, that their wages were depressed guards, but not for male guards, at a level lower predominantly by women or minorities because of intentional sex discrimination, than its own survey of outside markets and the that are significantly lower than rates consisting of setting the wage scale for female worth of the jobs warranted.’’).

VerDate Aug<31>2005 18:50 Jun 15, 2006 Jkt 208001 PO 00000 Frm 00019 Fmt 4701 Sfmt 4703 E:\FR\FM\16JNN4.SGM 16JNN4 wwhite on PROD1PC61 with NOTICES4