The Office of Federal Contract Compliance Programs issued a Final Rule implementing changes to its enforcement process. The changes apply to the regulations of all three laws that the OFCCP enforces:  Executive Order 11246, Section 503 of the Rehabilitation Act, and the Vietnam Era Veterans’ Readjustment Assistance Act.

The new regulations define the agency’s evidentiary standards for discrimination claims, set forth procedures for establishing and notifying contractors of potential violations and violations, and provide an expedited process for resolving disputes.

Procedures for discrimination cases

The OFCCP must now follow specific steps when it makes a preliminary finding of discrimination. The steps vary depending on whether the theory is disparate treatment discrimination or disparate impact discrimination. 

For disparate treatment cases, the OFCCP must issue a Predetermination Notice (PDN) that explains the OFCCP has found 

• Quantitative evidence of discrimination;
• Practical significance of the unexplained disparity; and
• Qualitative evidence that shows both discriminatory intent and that such intent caused the disparate treatment.

The OFCCP can only issue a PDN that does NOT satisfy all three of these requirements if 

• The qualitative evidence is strong enough to support a finding of discriminatory treatment on its own;
• The disparity “is so extraordinarily compelling” that it supports a finding of discriminatory treatment on its own; or
• The contractor denied the OFCCP access to information that may be relevant to a finding of discriminatory intent, such as by withholding or destroying documents.

For disparate impact cases, the OFCCP must issue a PDN that explains the OFCCP has found 

• Quantitative evidence of discrimination;
• Practical significance of the unexplained disparity; and
• A specific policy or practice that caused the adverse impact (unless the elements of the contractor’s policy or practice cannot be separated.)

Significantly, the new rule requires the PDN to detail the quantitative and qualitative evidence upon which it relies “in sufficient detail to allow contractors to investigate allegations and meaningfully respond.” The OFCCP must also provide “the model and variables used in any statistical analysis and an explanation for why any variable proposed by the contractor was excluded from that analysis” when requested by the contractor.

The contractor will have 30 days to respond to the PDN, and the OFCCP may grant additional time “for good cause.” 

If the OFCCP believes that there is sufficient evidence of discrimination after reviewing the contractor's response to the PDN, it may issue a Notice of Violation (NOV). Just as with the PDN, the OFCCP must disclose sufficient information regarding the evidence on which the claim is based to allow the contractor to investigate and respond, and the OFCCP must provide its model and variables upon request.  Importantly, the NOV “must address all relevant concerns and defenses raised by the contractor in response to the [PDN].” 

New definitions

The revised regulations provide definitions for “qualitative” and “quantitative” evidence.  

 Qualitative evidence includes but is not limited to testimony, interview statements, and documents about biased statements, remarks, attitudes, or acts based upon membership in a protected class, particularly when made by a decision maker involved in the action under investigation; testimony, interview statements, and documents about individuals denied or given misleading or contradictory information about employment or compensation practices, in circumstances suggesting discriminatory treatment based on a protected characteristic; testimony, interview statements, and documents about the extent of discretion or subjectivity involved in making employment decisions, in conjunction with evidence suggesting the discretion or subjectivity has been used to discriminate based on a protected characteristic; or other anecdotal evidence relevant to determining a contractor’s discriminatory or non-discriminatory intent, the business necessity (or lack thereof) of a challenged policy or practice, or whether the contractor has otherwise complied with its non-discrimination obligations. Qualitative evidence may not be based solely on subjective inferences or the mere fact of supervisory discretion in employment decisions. OFCCP may also consider qualitative evidence in the form of a contractor’s efforts to advance equal employment opportunity beyond mere compliance with legal obligations in determining whether intentional discrimination has occurred.

 (Emphasis added.)

Quantitative evidence includes hypothesis testing, controlling for the major, measurable parameters and variables used by the contractor (including, as appropriate, preferred qualifications, other demographic variables, test scores, geographic variables, performance evaluations, years of experience, quality of experience, years of service, quality and reputation of previous employers, years of education, years of training, quality and reputation of credentialing institutions, etc.), related to the probability of outcomes occurring by chance and/or analyses reflecting statements concluding that a disparity in employment selection rates or rates of compensation is statistically significant by reference to any one of these statements: (1) the disparity is two or more times larger than its standard error (i.e., a standard deviation of two or more); (2) the Z statistic has a value greater than two; or (3) the probability value is less than 0.05. It also includes numerical analysis of similarly situated individuals, small groups, or other characteristics, demographics or outcomes where hypothesis-testing techniques are not used.  

 (Emphasis added.)

The OFCCP also modified its originally proposed definition of “statistical evidence;” it removed the strict requirement for statistical evidence, which was narrower than what it now calls “quantitative” evidence. The agency also states that it will only exclude a variable on the grounds that it is “tainted” when it determines that the “variable reflects underlying discrimination or is being used as pretext.” As an example, the OFCCP cited a situation where a contractor does not apply the variable consistently or where the variable is applied differently to members of different protected groups. 

The OFCCP declined to adopt a definition of “practical significance” in the Final Rule, but it provided guidance to contractors in the preamble. “Practical significance within the framework of equal employment opportunity enforcement refers to whether an observed disparity in employment opportunities or outcomes reflects meaningful harm to the disfavored group.” The agency notes that academia has no settled definition for practical significance and that "[t]here is no single, specific measurement of practical significance appropriate to all [employment] decisions.” However, the OFCCP states that it will typically use the impact ratio (also known as the 80 percent rule) as its measure of practical significance. Of course, the 80 percent rule is referenced in the Uniform Guidelines on Employment Selection Procedures as the test for determining adverse impact. 

Expedited conciliation process

The new regulations also set forth the option for contractors to engage in “expedited” conciliation with the agency by waiving the PND or NOV steps. This option will afford contractors the possibility of avoiding months or years of wrangling with the OFCCP and the chance to resolve issues in a more expedient fashion when appropriate.

This Final Rule adopts many of the changes initially proposed by the agency, but the OFCCP did make some substantive changes. For comparison, see our previous analysis of the proposed rule.