Marc Mandelman Quoted in “OFCCP Pay Audit Demand Could Put Employers in a Bind”

The Office of Federal Contract Compliance Programs' recently articulated stance that it can demand internal pay equity audits complicates federal contractors' efforts to get privileged advice from outside lawyers and could tempt some to water their reviews down …

But management-side lawyers say the directive potentially creates dilemmas for contractors. While they are still able to separately conduct the type of privileged, complex pay equity audits that often yield the most meaningful results, there's a chance that information from those audits could ultimately be used against them by the government. That risk may be enough to scare off some contractors from doing the sort of detailed audits they would otherwise conduct if privilege were guaranteed.

"I think that it creates a Catch-22 for companies trying to address pay disparities and comply with anti-discrimination laws," said Marc Mandelman, co-chair of Epstein Becker Green's pay equity practice, adding that he believes the directive is "extremely problematic and overreaching."

On one hand, the directive implies that a pay equity audit is "expected in terms of an employer satisfying its requirement to evaluate its pay systems," Mandelman said. However, since those audits "will not be treated as privileged [and] are subject to request and review" by regulators, the directive "discourages employers from using a privileged pay equity analysis to evaluate pay and address any disparities that might exist," he said.

Here, Law360 looks at four things employers need to know about the directive.

'Aggressive' Stance …

Mandelman said the stance outlined in the OFCCP's directive is a "very aggressive position to take," albeit one whose legal footing is questionable.

"If they do try to move to enforce, I think ultimately they will have some difficulty before the circuit courts in supporting their position that basically attorney-client privilege doesn't really mean anything," Mandelman said. …

Doubling Up Audits

One possible effect of the agency's directive is that it may prompt contractors to bifurcate their approach to compensation review — doing one ostensibly privileged audit solely for internal use and another analysis or audit summary specifically for OFCCP compliance purposes. …

Mandelman acknowledged that the agency gave employers a green light to do a separate pay equity analysis, but he said that sort of approach "increases complexity and risk" because employers have to do two complex analyses and because it would be difficult to separate them in order to assert privilege over one.

"The agency is saying, 'OK, well, if you want to do a separate, you know, privileged pay equity audit for purposes that are not related to the preparation of your affirmative action plan, or to respond to an audit, that's fine,'" Mandelman said. "But they're inherently intertwined."

What could result is an increase in legal fights with the federal government if contractors try to assert privilege over one of multiple analyses in the event the OFCCP asks for all of them.

The directive is "signaling to employers that if you try to withhold the results … of the audit that you've conducted by the claim of privilege, they will move for enforcement through the administrative process to force you to turn it over," Mandelman said. "There will be more disputes over what information is being turned over, [and] I think that these OFCCP audits are going to become more costly, time-consuming and drawn out."

Possible Test Cases …

Mandelman speculated that it may only take one case challenging the directive to blow a hole through its legal rationale or, conversely, lend credence to the agency's position.

"I think that … before OFCCP will go that route, there's going to be a lot of negotiation and a lot of discussion … over what is produced," he said.