7C Types of Remedies

There is flexibility in designing remedies; the CO frequently develops remedies through negotiation and compromise. General guidelines for designing remedies are specified in Directive 2013-04, “Calculating Back Pay as a Part of Make-Whole Relief for Victims of Employment Discrimination.” The CO should always seek a complete remedy. A complete remedy will correct the causes of the discrimination and make the victims of discrimination whole.

Part of a complete remedy is the corrective remedy. Corrective remedies stop the violation and protect against its recurrence.364 For example, to correct hiring discrimination caused by treating applicants differently during a subjective interview, corrective remedies could include stopping the use of the discriminatory interviews, substituting legitimate objective criteria (i.e., objective criteria with no unjustified adverse impact) and establishing a monitoring system to ensure that the contractor applies the criteria in a nondiscriminatory fashion.

If an unvalidated or invalid test has an adverse impact, then corrective action would include eliminating the use of the test, continued use of the test in a manner that eliminates its adverse impact (e.g., changing the cut-off score) or validating the test in compliance with the UGESP, thereby demonstrating its job-relatedness.

a. General Principles. Make-whole relief means simply that the contractor restores the victim of discrimination to the position, both economically and in terms of status, that he or she would have occupied had the discrimination not occurred. This relief usually involves placing the person in his or her rightful place, meaning placing the person in the job the person would have occupied with the seniority he or she would have had if not for the discrimination. For example, if the contractor discriminated against women in hiring for an entry-level maintenance position, make-whole relief would include placing a certain number of class members into entry-level maintenance positions as they become available. If the discrimination resulted in termination from employment, the affected class members should be reinstated to their prior positions. In addition to rightful placement, make-whole relief includes all economic benefits the victim would have received had the discrimination not occurred. These benefits would normally include things such as back pay with interest, retirement contributions, vacation credits, sick leave credits, payment for medical expenses that would have been paid by the employer’s medical plan, missed training and any other employment benefits denied to the victim as a result of the discrimination.

b. Case Law Precedent. In construing what constitutes make-whole relief, OFCCP follows Title VII principles.365

Front pay is appropriate whenever the contractor cannot place the victim immediately into his or her rightful place, or the position the victim would have been in if not for the discrimination. Front pay is the difference between the victim’s current pay and the pay associated with his or her rightful place. There are a number of circumstances that can prevent immediate achievement of rightful place, including the absence of a vacancy, training required before beginning in the position, etc. When front pay is appropriate, the victim must start receiving the earnings associated with his or her rightful place from the date the CA is signed until a certain time in the future that is set by the CA or final order (usually when the contractor places him or her in the position at issue, or his or her position pay is equal to the rate it should be in his or her rightful place).

a. Seniority as an Element of Make-Whole Relief. Seniority is often a critical component of relief. Without seniority, an individual who the contractor hires or promotes as a remedy for past discrimination may not have the level of protection against layoff or demotion to which he or she is entitled. If the contractor had hired or promoted him or her at the time the discriminatory act occurred, he or she would have had additional years of seniority and would be less vulnerable to layoff as a result. Therefore, requiring hiring or promotion as a remedy without also requiring an adjustment of seniority does not really make the victim whole. Similarly, in many situations, employers award promotions in whole or in part based upon the bidder’s seniority. Merely placing a victim in the workforce without the seniority to which he or she is entitled will delay his or her attainment of his or her rightful place. Victims should receive all relevant seniority they have lost as a result of the discrimination, such as job seniority where relevant, in addition to company seniority.

b. Competitive and Noncompetitive Seniority. There are two types of seniority: competitive and noncompetitive. Competitive seniority may include seniority for the purposes of shift preference, vacation schedules, promotions, job bidding, layoffs, raises or training. When retroactive competitive seniority is fashioned as a form of relief, the employees who were not victims could effectively lose out in bidding for jobs or be in greater danger of layoff, etc., than those who received retroactive seniority. On the other hand, there are some types of noncompetitive seniority matters (e.g., accrued leave, retirement computation) that, when remedied for individual victims, do not create the same concerns as remedying for competitive seniority issues. COs should consider the benefits and drawbacks of both types of seniority in their particular case when fashioning a remedy.

c. Nonunion Seniority. Some nonunion contractors operate under a system in which seniority is used in both the competitive and noncompetitive context. In other words, even without a union contract, promotions and layoffs, etc., are decided on the basis of seniority. In these situations, the victim is clearly entitled to obtain retroactive competitive seniority.

d. Union Involvement. When part of the remedy includes retroactive seniority, and a union agreement governs seniority, it is important to involve the union in the conciliation discussions on seniority. Although OFCCP generally does not have jurisdiction over unions, if the union consents to retroactive seniority in the CA, the agreement will be enforceable. If the union is not involved in the conciliation efforts or does not consent, the seniority relief may not be enforceable. If the union refuses to participate in the conciliation process or agree to seniority relief, the CO and his or her supervisor, in coordination with their regional office, should consult their RSOL.

e. Procedures When Union is Involved.

1. Union Participates and Consents. OFCCP will invite the union to participate in conciliation of a violation that requires a retroactive seniority remedy. The CO will make every effort to involve the union in the conciliation process and get its consent to the award of retroactive seniority. If the union participates and agrees to the seniority remedy, then OFCCP can enforce the remedy. If the CO invites the union to participate in the conciliation of seniority issues, its role is limited to those issues. The union should not be involved in other remedy areas (e.g., in determining back pay, changing the selection process).

2. Union Refuses to Participate or Consent. If the union declines to participate in conciliation or otherwise does not consent to an award of retroactive seniority, OFCCP may not be able to enforce any retroactive seniority relief. OFCCP should seek to lay the groundwork to defend its insistence upon seniority relief. In other words, OFCCP should not agree to the usual boilerplate language that says that the contractor does not admit to violating one or more of the provisions in Executive Order 11246, Section 503 or VEVRAA. Instead, the CA should recite the factual bases for OFCCP’s findings of violation. Under these circumstances: (a) the nonadmissions clause is not included in the CA, and (b) paragraph 1 of the General Provisions of the CA will note that the union was invited to participate, but declined to do so or to otherwise consent to an award of retroactive seniority, as applicable.

3. Contractor Refuses to Sign. If a contractor refuses to sign a CA for any reason, including the fact that the CA does not contain the nonadmission language, OFCCP should inform the contractor that this failure to conciliate could result in referral for enforcement.366

f. Other Methods for Addressing Retroactive Seniority

1. Bifurcation. One method to avoid union objection is to bifurcate the competitive and noncompetitive seniority issues. Since the union most likely will not object to the award of noncompetitive seniority, this may be a viable option for resolution.

2. Cash Buyouts. To address competitive seniority issues, some contractors propose a cash buyout of employee seniority rights. In other words, the contractor offers a lump sum payment to identified victims of discrimination (i.e., those who are not hired) in exchange for a waiver of their entitlement to competitive seniority. Seniority buyouts are technically possible, but the CO must carefully craft and review such proposals’ fairness. The CO, in coordination with his or her supervisor and RSOL, must forward offers of seniority buy-outs to the national office, DPO, for review and approval.

The CO should use the procedures described in FCCM 7C04 immediately above for other remedies (besides retroactive seniority) that require a change in or otherwise affect a union agreement.

OFCCP seeks back pay as a part of a make-whole remedy resolving discrimination violations under Executive Order 11246, Section 503 and VEVRAA. Back pay serves to remedy lost earnings that the victims would have received absent discrimination. OFCCP’s Directive 2013-04, “Calculating Back Pay as a Part of Make-Whole Relief for Victims of Employment Discrimination,” provides additional guidance on calculating back-pay.

a. Back Pay Required. Back pay is normally part of any make-whole remedy. The U.S. Supreme Court stated in Albemarle Paper Co. v. Moody, 422 U.S. 405, 421 (1975) that, under Title VII, “given a finding of unlawful discrimination, back pay should be denied only for reasons which, if applied generally, would not frustrate the central statutory purposes of eradicating discrimination throughout the economy and making persons whole for injuries suffered through past discrimination.” Given this stringent standard, it would be rare for the victim not to receive back pay.

b. Elements of Back Pay. Back pay should reflect total compensation lost by the victim due to the discriminatory employment action, practice or procedure. Many elements of compensation, in addition to salary or wages, are normally part of a back-pay award (e.g., overtime and premium pay, incentive pay, raises, bonuses, sales commissions, cost-of-living increases, tips, medical and life insurance, fringe benefits, pensions, stock options and awards).

c. Benefits. For the benefits portion of the back pay, the CO should gather information about when the benefits became effective (e.g., what is the waiting period?) and the monetary value of the benefits. With sufficient information, benefits may sometimes be calculated as a monetary figure (e.g., employer paid premiums, plus employer contributions to a retirement account amount, to X per year) or as a percentage of wages or salary (e.g., 20 percent of the total compensation package). Where the employer’s cost is unknown, survey data related to the cost of benefits, such as the Employer Costs for Employee Compensation survey published by the BLS, should be used to generate an estimate of fringe benefits as a percent of wages.

d. Deductions and Offsets.

1. Interim Earnings. If a victim earned money from employment elsewhere during the interim, this amount is deductible from total back pay. Not all financial compensation received by the victim during the back pay period, however, constitutes “interim earnings.” For example, if an employee had both earnings from a full-time job and a part-time job, and could have continued in the part-time job even absent the discrimination, the earnings from the part-time job are not deemed interim earnings and are not subtracted from back pay. Additionally, payments from social safety net systems such as unemployment and workers compensation programs are considered a “collateral source” and do not constitute interim earnings.
2. Mitigation. Mitigation refers to the duty of the victim to use reasonable diligence in seeking alternative employment during the back pay period. Contractors may seek to reduce back pay awards by the amount the victims could have earned with reasonable diligence, less expenses reasonably incurred in looking for alternative employment (e.g., cost to prepare a resume, gas and parking fees incurred when going for an interview). Reasonable diligence does not mean that the person had to be successful in obtaining other employment, only that he or she must make a reasonable effort. The victim only needs to accept employment that is substantially equivalent to that sought or held with the contractor. The victim does not need to relocate to accept alternative employment.
3. Burden of Proof. The contractor bears the burden of proving the amount of interim earnings and the failure of the victim to take reasonable steps to mitigate back pay loss.

e. Periods of Unavailability. Back pay awards do not include periods when the victim would not have been employed even without discrimination (e.g., during periods of unpaid leave or incarceration).

f. Interest on Back Pay.

1. Purpose and Rate of Interest. The purpose of applying interest on back pay awards is to compensate the victim(s) for the loss of the use and purchasing power of their income. Interest on back pay is calculated at the same percentage rate as the Internal Revenue Service’s (IRS) underpayment formula. Interest on back pay must be compounded quarterly under the laws OFCCP enforces.

2. Rate Adjustments. The IRS may adjust its rate on a quarterly basis. The interest rates applicable to various periods are available on the IRS website at https://apps.irs.gov/app/picklist/list/federalRates.html.

g. Withholding of Taxes. Contractors must withhold all applicable federal, state and local income taxes; Federal Insurance Contributions Act (FICA) (social security and Medicare); and Federal Unemployment Tax Act (FUTA) (unemployment insurance) taxes from employment discrimination settlement payments. The contractor’s payments of back pay, front pay and lump sum payments made in place of lost fringe benefits are “wages” subject to such tax withholding. Contractors are increasingly asking victims to complete a W-4 form as a condition of the settlement. This is not a settlement requirement and IRS guidance currently exists that states that an employer can assume a single deduction in the absence of a W-4 form.367 The contractor must supply the victim(s) with a Form W-2 showing the wage component of the settlement and the amount of taxes withheld. Note, however:

1. FICA. FICA requires an employer, as well as an employee, contribution. The employer should not pay its FICA obligation out of a settlement; the employer share must be paid on top of the negotiated back pay.

2. FUTA. In almost all states, FUTA (unemployment insurance) taxes are an expense paid only by the employer (i.e., there is no matching employee contribution). Therefore, the employer should not take an offset or deduction for FUTA when computing back pay awards unless the particular state where the affected party was or would have been employed required employers to withhold FUTA taxes from employees’ wages or salaries during the time period for which the employer is calculating a back pay award.

3. Interest. Interest included in a settlement, if separately stated, is not subject to either FICA or FUTA. While interest is taxable as income to the recipient, just as interest on a bank savings account would be taxable, it is not subject to withholding by the employer. The contractor, however, must supply the victims with the Form 1099 stating the interest component of the settlement.

4. Benefits. Since employer contributions to most fringe benefits, such as the employer paid portion of health insurance premiums or pension funds, are not taxable (whether retroactive or not), they are not subject to withholding.

5. Tax offsets. In individual cases, a tax offset may be needed to restore the economic position of the victim. If a back pay award causes an individual to be pushed into a higher tax bracket or the cash value of tax-deductible benefits is high, it may be appropriate to include in the remedy a tax offset to make the victim whole. DPO can assist with estimating an appropriate offset amount.

a. Two-Year Limit. The victim can obtain back pay for a period beginning two years prior to the date the Scheduling Letter was sent to the contractor via return receipt mail, or two years before the victim filed the complaint. If the discriminatory acts took place less than two years before the Scheduling Letter was sent or the filing of the complaint, back pay is due from the date of violation. Back pay continues from these events until a CA or other voluntary correction stops the discriminatory actions, or until the contractor makes a bona fide offer of the position denied or rectifies the pay disparity. Total back pay can, therefore, be for more than two years.

b. Bona Fide Offer. Under appropriate circumstances, the victim’s rejection of a bona fide offer of the position previously denied by the contractor terminates the further accrual of back pay liability. However, interest continues to accrue until settlement on the back pay losses prior to the bona fide offer. A bona fide offer does not require the victim to waive any rights or remedies to which he or she is entitled. For example, the parties may disagree on whether retroactive seniority is appropriate. However, as long as the contractor offers to place the victim in the same job (including shift and location) that was previously denied by the contractor, and do so without requiring that the victim waive any right to seniority, the offer is bona fide. Under these circumstances, the parties can agree to litigate or arbitrate the seniority issue at a later date. If the victim accepts the offer, back pay is still due up to acceptance and front pay continues to accrue for losses suffered as a result of missed promotional opportunities or increased risk of layoff. If the victim rejects a bona fide offer, he or she is not disqualified from receiving back pay; back pay merely cuts off at the date of the offer.

c. Liability Continuing Beyond the Review Period. Unless the contractor produces evidence that it has stopped discrimination during the conciliation phase of a compliance evaluation, OFCCP will calculate remedies on the assumption that the discrimination persists and that the liability continues until the contractor enters into a CA or otherwise provides relief to the victims.

d. Continuing Violation. If the CO finds a continuing violation,368 the contractor should provide remedies for the entire period of the violation, but not earlier than the effective date of Executive Order 11246, Section 503 or VEVRAA, as appropriate. However, victims affected by a continuing violation can only recover back pay for the effects of the violation that occur within the period beginning two years prior to the scheduling notice, even when the specific act affecting them occurred outside the two-year period.

In some cases, it may be feasible to calculate individual back pay awards. When it is not, the formula relief method will be used as described in FCCM 7C11. When individual relief is feasible, the CO determines the amount of back pay the contractor will award to victims by calculating, as accurately as possible, the pay the victims would have received if not for the discrimination. The most common way to reconstruct pay is to identify members of the favored group for comparison with affected members of the nonfavored group (or an individual without a disability in a Section 503 case). Proper comparators are those who were hired, promoted, etc., at about the same time the victims of the discrimination should have been hired, promoted, etc. The CO then traces comparators’ pay history.

In promotion and compensation cases, the difference between the pay received by the victims and that by the comparators within the appropriate time frame constitutes the back pay due the victims. For hiring cases, the difference between the pay received by the comparators and that by the victims if they exercised reasonable diligence to find alternative employment within the appropriate time frame constitutes back pay due the victims. If there are gaps in the comparators’ employment during the back pay period (e.g., the comparators quit, had a lengthy illness), the CO should make a reasonable estimate of the amount of wages the comparators would have made without the break in service.

There are two models used to calculate remedies in systemic discrimination cases:

• Victim-specific or individual remedies for identified individual victims of discrimination (“victim-specific remedies”), explained below in FCCM 7C10; and
• Formula relief designed to remedy a class of discrimination victims whereby everyone in the class receives the same remedy (“formula relief”), explained below in FCCM 7C11.

The initial step in fashioning relief is to determine which remedy model to use. Generally, OFCCP will not interchange the elements of the two approaches when providing relief.

a. Approach. The victim-specific model, which provides make-whole relief for identified victims of the discrimination, is used infrequently by OFCCP in systemic discrimination cases. Individualized relief should be sought when it is feasible to identify individual victims, and to calculate their personal losses, interim earnings, mitigation efforts, tax implications and other relevant factors.

b. Remedy Phases. There are two stages to the remedy phase: (1) identifying the specific class members entitled to relief and (2) determining the exact remedy to which each victim is entitled.

1. Identifying Victims. The first step in the process is to identify potential victims of the discriminatory policy or practice. In other words, the CO must define the group or class of individuals for whom he or she is seeking relief. Examples include: all blacks who failed an invalidated pass-fail test; all Hispanics who were eligible for supervisory positions, but were not promoted; or all women who were denied reinstatement following maternity leave. In defining the group at this point, the CO should at least refer to what he or she has determined to be the minimum objective qualifications the contractor actually imposed. The CO should not evaluate comparative (“relative”) qualifications at the remedy phase as the class consists of all who met the minimum objective qualifications.

2. Computing Lost Earnings. The CO should gather information to compute each individual’s specific losses. The type of information gathered depends on the nature of the violation, e.g., failure to hire; wrongful termination; failure to promote, or discriminatory compensation. The information will include, but is not limited to, wages, interim raises, promotion potential, overtime and shift differentials, and any other compensation such as bonuses, stock options and benefits. The CO should also gather information supporting appropriate nonmonetary relief for the victims that may include such relief as priority promotions, and training, counseling and EEO counseling for supervisors.

c. Contractor’s Response. The CO must inform the contractor of the name of each individual for whom the CO is seeking individualized relief, and the amount of back pay and other forms of make-whole relief necessary to fully remedy each individual. All identified individuals are entitled to relief unless the contractor provides a reason that the individual is not a victim, such as the individual applied outside of the scope of the period at issue. Individuals who are not qualified should have been eliminated from the class at the liability phase. Each person the contractor cannot eliminate from the group of individuals entitled to relief is considered to be an actual, identified victim of discrimination. Even if the contractor cannot eliminate an individual from the group entitled to relief, it may raise defenses to reduce an individual’s claim to relief.

d. Individual Remedies. The CO must then determine make-whole relief for each individual victim of discrimination. The CO should tailor the precise remedy to the situation of each victim. The CO should be sure to consider all the different types of harm that the victim has suffered. For example, the passage of time since the violation may mean that victims are less interested in reinstatement or hiring because they have built new careers. On the other hand, if very little time has passed since the violation occurred and monetary damages are small, reinstatement or preferential hiring may be a viable remedy.

a. Definition. Formula relief is a mechanism by which the CO determines the compensation for the loss suffered by a particular class and then divides the financial compensation (usually, though not necessarily, pro rata) among all the members of that class. Under a formula, it is possible that some individuals will receive less than their total losses and some will receive more. This outcome is the consequence of approximating losses in a situation where it is unrealistic to precisely compute individual losses.

b. When to Use. OFCCP will pursue formula relief wherever it is impossible or impractical to determine individual relief; that is, when the number of actual victims of discrimination is large, their identities are unknown or the variables and information needed to calculate individual relief are not available. Sometimes the CO knows the identity of the victims, but it is so difficult to trace their losses and mitigation earnings that the CO can only estimate them. One common situation when the CO uses a formula to determine relief are when the number of class members exceeds the number of vacancies and when it is impossible to determine the class members who would have been selected absent discrimination because the minimum objective qualifications are easily met.

c. Measuring Losses. To determine the losses, the CO must take into consideration the components listed below.

1. Shortfall Method. When the number of class members exceeds the total number of opportunities, a “shortfall vacancies” approach is appropriate for computing the amount of back pay for the class. For example, assume a situation where there are 50 black and 50 white applicants, all of whom possess the required qualifications, seeking 20 jobs. Nineteen whites and one black were hired. The difference between the actual number of blacks hired (1) and the expected number of black hires (10) represents the shortfall (9). Shortfall vacancies do not limit the number of individuals entitled to relief. Instead, the contractor distributes the amount of money attributable to those vacancies to the whole class. In this example, the earnings attributable to the nine shortfall positions will be distributed to the 49 qualified black applicants. Shortfall vacancies are utilized as part of an approximation of class-wide loss.

2. Averaging Method. Not all formulas require the CO to look at shortfalls. There are other reasons to use a formula other than the fact that there are more victims than vacancies. For example, suppose there is a case in which the major claim is that the contractor placed the hired men and women into sex-segregated departments. In such a situation, the CO may want to compare the average salary earned by men with a given level of seniority to the average salary earned by women with the same seniority. The difference in average salary defines the measure of back pay to be awarded to each woman in that seniority group. The formula devised should be designed to address the particular violation found.

3. Computing Lost Earnings. Because the formula approach represents a compromise, it is extremely important to account fully for all the earnings attributable to a particular vacancy in computing losses such as interest, interim raises, promotion potential (i.e., the earnings associated with all of the promotions the persons would have received had they not been discriminated against in the first place), overtime and shift differential, and any other additions to wages or salary such as bonuses or benefits.

d. Contractor’s Response. The CO must inform the contractor of the name of each member of the class for whom the CO is seeking formula relief. All affected class members are entitled to relief unless the contractor provides a reason that the class member is not a victim. For example, the class member applied outside of the scope of the period at issue or occurs multiple times in the class list as a duplicate. Individuals who were not qualified should have been eliminated from the class at the liability phase. Each class member the contractor cannot eliminate from the class will receive his or her share of the formula relief. Even if the contractor cannot eliminate an individual from the group entitled to relief, it may raise defenses to reduce an individual’s claim to relief.

e. Distribution of Remedy. When using the formula approach, the agreed upon remedy is shared by all members of the class. The CO divides the amount of money that represents the group’s lost wages among the members of the class either on a pro rata basis or some other equitable basis. The CO may decide on a method of distribution based upon the facts of the case. For example, if the CO identified an incumbent class that was denied promotions or assigned to lower paying jobs, the contractor controlled their interim earnings. In that situation, a distribution based upon the number of months in the employer’s workforce might be most appropriate. With a rejected applicant class, the CO might decide that a simple per capita distribution makes more sense.

As mentioned above, nonmonetary relief includes corrective actions that stop the policy, practice or procedure that caused the discrimination. Additionally, the CO should, as appropriate, require nonmonetary remedies, such as preferential hiring or promotion goals or special training programs and EEO counseling for supervisors. With formula relief, it is difficult to provide reinstatement or retroactive promotion because, by using the formula, no individual is tied to any particular opportunity. However, the CO may create a preferential hiring or promotion list consisting of the members of the class, and from which the contractor must make all selections to fill existing vacancies until the number of class members hired is equal to the shortfall or the class member list is exhausted. The contractor must hire class members before nonclass members.