Financial Services and Technology Companies Beware: The U.S. Office of Federal Contract Compliance Has A Target on Your Back

The President released his 2017 budget this week. Budgets are aspirational documents that Congress rarely implements in full. The current acrimony between Congress and the Administration ensures that the President’s 2017 budget will likely remain aspirational. However, Presidential budgets and their accompanying justifications can shed light on an agency’s priorities.

The Department of Labor’s Office of Federal Contract Compliance (“OFCCP”) is the federal agency that investigates and enforces the nondiscrimination and affirmative action requirements for federal contractors. The Agency has been on front line of the Administration’s equal pay and other equal opportunity initiatives. OFCCP’s budget makes clear that one central priority would be complex investigations of federal contractors in the financial services and technology sectors. Its budget justification states:

Finally, OFCCP will establish two Skilled Regional Centers. These centers, which would be located in the Pacific (San Francisco) and Northeast (New York) regions, would have highly skilled and specialized compliance officers capable of handling various large, complex compliance evaluations in specific industries, such as financial services or information technology. Compliance evaluations conducted by highly skilled compliance officers greatly increase case evaluation quality and timeliness as well as the more efficient use of limited resources. OFCCP must continually improve its enforcement capability to identify discrimination in those economic sectors that are increasingly complex.

The Agency has made it plain that it intends to conduct more complex investigations to aggressively investigate pay and other employment practices like hiring and promotion. In addition, the Agency this year is eliminating its case closure targets and will measure how its staff implements “its enforcement priorities of complex systemic compensation. . .” The upshot is bigger, longer and deeper audits.  Until now, though, the Agency has not made it clear that it intends to focus on particular sectors to push forward its pay initiative.

At bottom, as proposed in the budget, audits of financial services and technology firms are likely to become a significant priority. These sectors would expect greater scrutiny in these respects:

  • Broad compensation data requests under Item 19 of the Scheduling Letter;
  • Extensive questioning of compensation and other company officials related to pay factors;
  • Extensive follow-up requests for compensation data regardless of whether indicators exists; and
  • Attempts to create broad groupings of employees into pay analysis groups under OFCCP’s Directive 307

At the same time, OFCCP has stated publically that, during its investigation, it does not have to advise a contractor in what areas the Agency has found indicators of discrimination. Nor does the Agency have to advise the contractor what factors it is using to analyze pay.

Notably, these investigations would be occurring in very complex financial services and technology workplaces, where compensation decisions are frequently multi-factored and highly individualized. OFCCP’s intent to staff these investigations with highly skilled compliance officers is laudable. However, we noted in another context that OFCCP’s sister agency, the Wage and Hour Division, just issued guidance related to whether employers may be considered joint employers that failed to recognize today’s complex employment environments. As such, the Agency and perhaps the Department of Labor overall will have a learning curve as it seeks to make sense of how complex financial services and technology companies operate especially with regard to pay practices.

Companies in financial services and technology looking to be proactive and ready for an audit by OFCCP should conduct a privileged investigation with experienced counsel to assure compliance with the law and develop a strategy for responding to government audits.