On November 10, 2020, the U.S. Department of Labor published the final rule that codified procedures the Office of Federal Contract Compliance Programs (OFCCP) will use to resolve potential discrimination and other material violations of Executive Order 11246, Section 503 of the Rehabilitation Act of 1973, and the Vietnam Era Veterans’ Readjustment Assistance Act of 1974. The final rule also codifies new definitions for the types of evidence necessary to trigger OFCCP’s resolution procedures. The Department issues this rule to provide greater certainty and transparency to contractors as to the evidentiary standards it will use in evaluating and resolving cases. This will also allow OFCCP to focus its resources on those cases with the strongest evidence.
- Why did OFCCP issue this final rule?
- How does this rule help OFCCP increase the number of contractors reviewed and focus on stronger cases?
- What are the evidentiary standards that OFCCP uses to determine it should initiate resolution procedures?
- Are there exceptions to the general evidentiary standards provided in the final rule?
- What is quantitative evidence?
- What is qualitative evidence?
- Does the final rule define practical significance?
- What is OFCCP obligated to provide to contractors when issuing a notice to resolve potential discrimination violations?
- What is the expedited conciliation option?
- Does the final rule alter contractor obligations?
- How does OFCCP initiate resolution procedures?
Why did OFCCP issue this final rule?
The final rule will help OFCCP to increase the number of federal contractors and subcontractors that the agency evaluates and focus on resolving stronger cases through the strategic allocation of limited agency resources.
How does this rule help OFCCP increase the number of contractors reviewed and focus on stronger cases?
Increasing the clarity and transparency of OFCCP’s resolution procedures should result in quicker resolutions of cases, allowing OFCCP to increase the volume of reviews. Further, the new evidentiary standards, generally requiring significant statistical evidence, non-statistical evidence, and practical significance in order to issue a PDN, focus OFCCP efforts and resources on stronger cases. Importantly, the final rule establishes consistent parameters for findings and preliminary findings of discrimination, provides contractors with more certainty as to OFCCP’s operative standards for compliance evaluations, and establishes guardrails on the agency’s issuance of pre-enforcement notices.
What are the evidentiary standards that OFCCP uses to determine it should initiate resolution procedures?
The final rule codifies clear evidentiary standards that must be present in order to issue a Predetermination Notice (PDN), as well as subsequent notices to resolve potential discrimination. In disparate treatment cases, the rule provides that in order to issue a PDN, OFCCP generally must: (1) provide quantitative evidence, as defined in the rule; (2) demonstrate that unexplained disparities are “practically significant”; and (3) provide qualitative evidence, as defined in the rule, that in combination with other evidence supports a finding of discriminatory intent caused by the disparate treatment. In disparate impact cases, the rule provides that in order to issue a PDN, OFCCP generally must: (1) provide quantitative evidence, as defined in the rule; (2) demonstrate that the unexplained disparity is “practically significant”; and (3) identify the specific policy or practice causing the adverse impact, unless OFCCP can demonstrate that the elements of the contractor’s selection procedures are incapable of separation for analysis.
Are there exceptions to the general evidentiary standards provided in the final rule?
Yes, the final rule allows OFCCP to issue a PDN without satisfying all of the evidentiary standards discussed in the previous FAQ, but only in specific, narrow circumstances that are enumerated in the rule.
Under the disparate treatment theory, there are three exceptions to general evidentiary requirements. First, OFCCP may issue a resolution notice if the qualitative evidence by itself is sufficient to support a preliminary finding of disparate treatment. Second, OFCCP may issue a resolution notice if the disparity between a favored and disfavored group is so extraordinarily compelling that by itself it supports a preliminary finding of disparate treatment. Finally, if there is quantitative evidence that is practically significant, but the contractor has denied access to sources of evidence that may be relevant to a preliminary finding of disparate treatment, such as denying access to interview employees or failing to produce records the contractor is required to create and maintain, OFCCP may issue a pre-enforcement notice.
What is quantitative evidence?
Quantitative evidence includes statistical or numerical evidence OFCCP uses to determine whether unlawful discrimination exists. As defined in the final rule, for statistical evidence, this includes analyses that control for major, measurable parameters and variables used by the contractor and that find a disparity in selection or compensation rates that are statistically significant. To be statistically significant, such evidence must demonstrate: (1) a standard deviation of two or more; (2) a Z statistic of greater than two; or (3) a probability value of less than 0.05. The definition in the final rule also includes quantitative analyses, such as cohort analyses, which are comparisons of similarly situated individuals or small groups of applicants or employees that are numerical in nature but do not use hypothesis testing techniques. A full definition of quantitative evidence will now be codified as part of OFCCP’s regulations for Executive Order 11246, Section 503, and VEVRAA.
What is qualitative evidence?
Qualitative evidence includes but is not limited to documents, testimony, interview statements, and other anecdotal evidence that OFCCP collects during compliance evaluations relevant to a finding of discrimination. For example, testimony, interview statements, or documents about biased statements, attitudes, or acts based on membership in a protected class would be included in this definition, as would similar evidence about individuals denied or given misleading or contradictory information about employment or compensation practices in circumstances suggesting discriminatory treatment based on a protected characteristic. The final rule creates a full definition of qualitative evidence as part of OFCCP’s regulations for Executive Order 11246, Section 503, and VEVRAA.
Does the final rule define practical significance?
OFCCP declined to define practical significance in the final rule, as there is not a settled definition of the term in relevant scholarly literature related to employment discrimination. However, in the equal employment opportunity context, practical significance refers to whether an observed disparity in employment opportunities or outcomes reflects meaningful harm to the disfavored group. OFCCP uses practical significance to evaluate the strength of potential discrimination findings and to direct its resources to the most impactful cases. There is no single measure of practical significance applicable to all employment activities. Therefore, OFCCP utilizes a variety of measures dependent on the case at hand. Some of the measures of practical significance that have been used in employment selection cases include the size of the selection shortfall, the “four-fifths rule” (or “80 percent rule”), the impact ratio, and the odds ratio. For example, in the selection context, OFCCP uses the following impact ratio thresholds to assess practical significance to determine whether to issue pre-enforcement notices:
Impact Ratio of Selection Rates
> 0.9 Very unlikely to be practically significant
0.8 - 0.9 Unlikely to be practically significant
0.7 - 0.8 Likely to be practically significant
< 0.7 Very likely to be practically significant
In the compensation context, multiple measures of practical significance are also viable. Some of the most common methods are the percentage of pay disparity, the standardized difference between disfavored and favored groups, and the more technical Type II squared semi-partial correlation coefficient. The preamble to the final rule states that OFCCP’s standard measure of practical significance will be the percentage difference in compensation, which refers to the percentage difference between the mean compensation of employees within the disfavored group in proportion to the mean compensation of employees within the favored group. For this measure, OFCCP will use the following thresholds to assess the likelihood that OFCCP will find practical significance in the compensation context:
Size of Compensation Disparity
< 1% Very unlikely to be practically significant
1 - 2% Unlikely to be practically significant
2 - 5% Likely to be practically significant
> 5% Very likely to be practically significant
For more information on OFCCP’s application of practical significance and measures it considers, see the frequently asked questions addressing this topic.
What is OFCCP obligated to provide to contractors when issuing a notice to resolve potential discrimination violations?
Generally, when issuing a PDN or Notice of Violation (NOV), OFCCP must provide the contractor with the qualitative and quantitative evidence it relied on and demonstrate that the unexplained disparity is statistically and practically significant to warrant the determination of potential discrimination. OFCCP must include sufficient detail to allow the contractor to investigate and meaningfully respond to the allegations. In addition, upon the contractor’s request, 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.
What is the expedited conciliation option?
The expedited conciliation option provides contractors a way to bypass the PDN or NOV by entering directly into a conciliation agreement when there are preliminary findings of material violations, regardless of whether those violations involve discrimination. This process is voluntary and only the contractor may initiate it, though OFCCP may make contractors aware of the option. The final rule codifies the expedited resolution procedures to improve efficiency and prioritize early resolution of cases. For example, OFCCP has sought to promote the efficient resolution of material violations for multi-establishment contractors through early resolution procedures (ERP) program.
Does the final rule alter contractor obligations?
This final rule informs contractors of the procedures and standards OFCCP will use in evaluating cases and issuing resolution notices, but not does change contractor compliance requirements. It provides certainty for federal contractors that OFCCP will follow a consistent and transparent approach to resolving potential discrimination. Additionally, the final rule also provides contractors with 30 days to respond to a PDN with the option of extension upon request.
How does OFCCP initiate resolution procedures?
A more complete description of OFCCP’s resolution procedures is in the Federal Contract Compliance Manual, in Chapter 8 “Resolution Procedures” but below is a summary of the procedures that OFCCP confided in this final rule.
- Predetermination Notice
OFCCP issues a PDN when a compliance evaluation results in sufficient evidence, as specified in this final rule, to support a preliminary finding of disparate treatment and/or disparate impact discrimination. A PDN provides OFCCP and the contractor an opportunity to engage in discussions to resolve the potential discrimination identified in the PDN. OFCCP is required by the final rule to provide evidence in the PDN with sufficient detail to allow the contractor to meaningfully respond.
- Notice of Violation
If a case does not resolve after a PDN is issued, and the evidence available continues to support OFCCP’s findings, OFCCP will issue an NOV. This document sets forth the problem areas OFCCP has identified which the contractor did not sufficiently resolve. Similar to the PDN stage, OFCCP must provide the contractor with sufficient evidence to meaningfully respond to the violations. OFCCP must address in the NOV all relevant concerns and defenses raised by the contractor in response to the PDN. Additionally, the NOV provides corrective actions for the contractor to take in order to come into compliance.
- Conciliation Agreement
A conciliation agreement is a written agreement that formalizes the remedial actions necessary to correct material violations cited in the NOV when OFCCP determines that settlement (instead of referral to enforcement) is appropriate. As with the NOV, the conciliation agreement lays out the violations and remedial actions necessary for the contractor to take in order to come into compliance.
- Expedited Conciliation Option
If a contractor wishes to bypass the above-mentioned resolution procedures, it can voluntarily opt to enter directly into a conciliation agreement prior to the issuance of a PDN or NOV. OFCCP may inform a contractor of this option but cannot require or insist the contractor select the expedited conciliation option.
The contents of this document do not have the force and effect of law and are not meant to bind the public in any way. This document is intended only to provide clarity to the public regarding existing requirements under the law or agency policies.