On November 5, 2020, the Office of Federal Contract Compliance Programs (“OFCCP”) issued a final rule defining the evidentiary standards it will use for proving discrimination claims by federal contractors, revising the process for notifying contractors of potential violations, and outlining an option for contractors to participate in an “expedited” dispute resolution process. It will take effect on December 10, 2020. Notably, the rule deviates significantly from the version initially proposed by OFCCP on December 30, 2019, which relied far more heavily on statistics and came under intense scrutiny from the contractor community, including the U.S. Chamber of Commerce. According to OFCCP, the requirements laid out in the final rule will increase transparency and create clear parameters for contractor compliance with equal employment opportunity laws.
One clear benefit for contractors contained in the final rule is the requirement of a Predetermination Notice, which is a notice OFCCP sends to contractors outlining any preliminary findings of discrimination before OFCCP issues a formal Notice of Violation. Although OFCCP previously published guidance calling for the use of Predetermination Notices, the final rule now codifies the requirement. As described below, the final rule also articulates the evidence OFCCP must demonstrate before any Predetermination Notice will be approved by OFCCP’s Director.
Requirements for Preliminary Findings of Discrimination:
Disparate Treatment Theory of Liability
Under the final rule, OFCCP must satisfy three elements before seeking approval from the Director to issue a Predetermination Notice making a preliminary finding of intentional (i.e., disparate treatment) discrimination:
- Provide quantitative (i.e., statistical) evidence;
- Demonstrate that the unexplained disparity is practically significant; and
- Provide qualitative (i.e., anecdotal) evidence that, in combination with other evidence, supports both a finding of discriminatory intent by the contractor and a finding that the contractor’s discriminatory intent caused the disparate treatment.
Per OFCCP, these safeguards are calculated to focus agency attention on stronger cases and provide contractors additional clarity on the specific statistical evidence OFCCP considers. Notably, the final rule abandons a prior approach that would have allowed OFCCP claims to proceed without nonstatistical evidence if certain statistical thresholds were met. Under the final rule, all disparate treatment cases require both statistical and qualitative evidence of discrimination, subject to enumerated exceptions where:
- The qualitative evidence by itself is sufficient to support a preliminary finding of disparate treatment;
- The disparity “is so extraordinarily compelling” that it supports a finding of discriminatory treatment on its own; or
- The contractor denied OFCCP access to information that may be relevant to a finding of discriminatory intent, such as by withholding or destroying documents.
Disparate Impact Theory of Liability
With respect to disparate impact, the final rule requires OFCCP to:
- Provide quantitative evidence of discrimination;
- Demonstrate the disparity at issue is practically significant; and
- Identify the specific policy or practice causing the adverse impact, unless OFCCP can demonstrate the elements of the contractor’s selection procedures are incapable of separation for analysis.
In response to multiple comments, the final rule also requires greater transparency from OFCCP, including that OFCCP must disclose—in sufficient detail to allow contractors to investigate and meaningfully respond and subject to certain privileges—the qualitative and qualitative evidence OFCCP relied upon along with an explanation for the agency’s finding of practical significance.
Importantly, OFCCP also must 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.
In cases where OFCCP issues a Predetermination Notice, contractors have 30 days to respond, which OFCCP may extend “for good cause.” Following review of the contractor’s response, OFCCP may issue a Notice of Violation if it still believes sufficient evidence of discrimination exists. As with a Predetermination Notice, any Notice of Violation must disclose sufficient information regarding the evidence OFCCP relied upon to allow the contractor to investigate and respond. In addition, upon the contractor’s request, OFCCP also must provide the model and variables used in any statistical analysis and explain why any variable proposed by the contractor was excluded from that analysis.
The revised regulations also provide definitions for “qualitative” and “quantitative” evidence as follows:
“Quantitative evidence” is the type of evidence OFCCP needs to determine there is a statistically significant disparity, and can include “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.).” Quantitative evidence is used to confirm 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.
“Qualitative evidence” is a type of anecdotal or other evidence that is not the result of statistical analysis or other quantitative comparisons, including such things as 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. Qualitative evidence may also include information or statements regarding the conduct of persons involved in making employment decisions, particularly when it is alleged that discretion or subjectivity has been used to discriminate based on a protected characteristic.
Notably, OFCCP does not define “practical significance” in the final rule, but it does indicate it will typically use the impact ratio (also known as the 80 percent rule) as its measure of practical significance, which is the test for determining adverse impact as outlined in the Uniform Guidelines on Employment Selection Procedures.
While the final rule emphasizes it will lead to greater transparency for contractors and provide more meaningful opportunities to respond to preliminary discrimination findings, it remains to be seen how it will play out in practice. Orrick will continue to monitor developments in this area, both here and on Orrick’s Pay Equity Hub.