New guidance on the attorney-client privilege & work product status of pay equity audits

If your college or university maintains contracts with the federal government, you are likely aware of the possibility that the Department of Labor, through its Office of Federal Contract Compliance (“OFCCP”), may assess whether your institution is meeting its affirmative action and non-discrimination obligations. This assessment may include an analysis of your institution’s compensation practices, as provided for in OFCCP Directive 2018-05. 

On March 15, 2022, the OFCCP issued a new directive on this subject, Directive 2022-01, (“the Pay Equity Directive”), which provides additional guidance to federal contractors regarding pay equity audits and anti-discrimination obligations. While agency directives like the Pay Equity Directive do not carry the force and weight of law, they provide important direction to contractors about the agency’s expectations for continuing contractual relationships with the federal government. 

The OFCCP is primarily responsible for ensuring that employers doing business with the federal government comply with the legal requirement to take affirmative action and refrain from discrimination on the basis of race, color, sex, sexual orientation, gender identity, religion, national origin, disability, or status as a protected veteran. Colleges and universities that contract with the federal government must comply with the OFCCP’s affirmative action rules and pay equity audit requirements in order to continue their contractual relationship. Federal regulations currently require that federal contractors perform “in-depth analyses of its total employment process to determine whether and where impediments to equal opportunity exist, [including, at a minimum] (3) Compensation systems(s) to determine whether there are gender-, race-, or ethnicity-based disparities.” See 41 C.F.R. § 60-2.17(b)(3).  While this particular requirement is not new, the Pay Equity Directive provides new guidance on the authority of the OFCCP to review contractor’s pay equity audits, which are often conducted to comply with this “in-depth analyses” requirement.

The Pay Equity Directive begins by noting that OFCCP may conduct “desk audits" during a compliance evaluation in order to determine whether the contractor is meeting its affirmative action and anti-discrimination obligations.  When conducting a desk audit, the federal contractor is required to provide OFCCP with data described in OFCCP’s Scheduling Letter and Itemized Listing document.  If a desk audit reveals disparities in pay or other concerns about the institution’s compensation practices, OFCCP may request additional information to investigate the contractor’s compliance. See 41 C.F.R. § 60-2.10(c). 

The Pay Equity Directive states that, if an OFCCP desk audit reveals disparities or compensation concerns, the OFCCP has the authority to review a contractor’s pay equity audit conducted pursuant to § 60-2.17(b)(3), and may request additional information from the federal contractor to ensure compliance. The OFCCP may request that the contractor provide a complete copy of its pay equity audits to show all pay groupings evaluated, variables used, and the results of the analyses.  The OFCCP may also request documentation regarding audit methodology, audit frequency, and audit results – including any disparities discovered. In other words, the OFCCP can request the pay equity audit analysis and any additional records related to employee pay in order to understand compensation practices and pay disparities. The OFCCP may also request records regarding education or prior experience and promotion data.   

Of particular importance to colleges and universities, the Pay Equity Directive states that, at times, pay equity audits prepared with the assistance of counsel may not be withheld under the attorney-client privilege or attorney-work product doctrines. However, college and university clients are not precluded from consulting with legal counsel for the purposes of obtaining a separate pay equity audit covered by the attorney-client privilege and/or work product doctrine. How do you know which audit records are privileged?  It depends on the institution’s purpose in seeking the audit. According to the Pay Equity Directive:

OFCCP has the authority under its regulations to request the analyses the contractor has conducted to comply with OFCCP regulations. The contractor may conduct a separate pay equity audit for the purpose of obtaining privileged legal advice, and not for demonstrating compliance with OFCCP regulations. Where the contractor has produced to OFCCP an acceptable pay equity audit sufficient to demonstrate compliance with 2.17(b)(3), OFCCP will not require production of these separate pay equity audits, to the extent that the contractor can verify that they were conducted under privilege. In the event a contractor conducts a dual-purpose pay equity audit or analysis of employment processes − i.e., one that implicates both legal concerns and OFCCP compliance − OFCCP may request those records in appropriate circumstances. (Emphasis added).

This means that when a college or university prepares a pay equity audit for the purpose of OFCCP compliance, records related to that audit will be subject to review by OFCCP in the event that a desk audit requires further disclosure and analysis. Relying on the fundamental theories that underscore the attorney-client privilege, the Pay Equity Directive acknowledged that, to the extent a pay equity audit is prepared for the purpose of OFCCP compliance, that audit is subject to disclosure because it was prepared for a third party reviewer and is therefore not “confidential” and cannot be protected by the attorney client privilege.

However, colleges and universities may consult with legal counsel to obtain a separate pay equity audit for the purpose of obtaining legal advice. And in situations where a pay audit is conducted for both OFCCP compliance and legal advice, the issue of disclosure will likely depend on the “primary purpose of the communication,” according to a footnote in the Pay Equity Directive, which cites In re Grand Jury, 23 F.4th 1088, 1092 (9th Cir. 2021). See Directive 2022-01, fn. 6.

The Pay Equity Directive further states that if a desk audit reveals disparities and compensation concerns, and a contractor refuses to provide the required pay equity audit information, OFCCP will consider the refusal to be “an admission of noncompliance” with regulatory requirements.  Thus, colleges and universities that maintain federal contracts must ensure that they are meeting their pre-existing “in-depth analyses” requirements, maintaining records related to those analyses, and disclosing non-privileged records to OFCCP in response to disparities and concerns arising from an OFCCP desk audit.

Colleges and universities that contract with the federal government should always consult with legal counsel to determine the best approach to navigating and preparing pay equity audits to ensure that they understand when information is – and is not – privileged and confidential. The Higher Education team at Bricker & Eckler LLP will continue to monitor this Pay Equity Directive and will provide updates when additional information becomes available.