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Last month, Medtronic and the OFCCP settled pay discrimination allegations in Interventional Vascular Inc. which is a wholly-owned subsidiary of Medtronic Inc., Case No. 2013-OFC-0004. Many of you may know the basic facts: the OFCCP alleged that Medtronic discriminated against 78 Hispanic entry-level Senior Production Associates at its Danvers, Massachusetts facility, by paying them less than they paid Caucasian employees, performing the same or similar jobs. The pay disparities dated back to April 2008. Medtronic will pay $290,000 in back wages and interest to the Hispanic workers in addition to the cost of training on its equal employment opportunity programs for all who are involved in making compensation decisions at the Danvers facility. The parties entered into a Consent Decree, approved by the US Department of Labor’s Administrative Law Judge on September 2, 2013.
Those are the basic facts. What other information, beyond those basic facts, might be instructive for federal contractors? The Consent Decree notes that the salary discrepancies existed even “after adjusting for differences in legitimate pay-determining factors”. It also notes that the Senior Production Associate position is an entry-level position, that all such positions are included in the same job group, and that Medtronic managers with authority to decide pay were allowed to exercise discretion when setting the pay for senior production associates. While the OFCCP compared compensation paid to Hispanic employees with that paid to white employees, it is not clear whether its comparison focused on current pay or whether it considered starting pay, promotional increases or merit increases in accordance with Title VII of the Civil Rights Act of 1964 and US Supreme Court requirements in 518 US 618 (2007).
The OFCCP’s findings are based on statistical analysis during an investigation and not on any complaints or whistle-blowing from within the company. While President Obama has highlighted pay gaps between men and women, this case involved allegations of pay gaps between Hispanic and White Senior Production Associates. This case shows that the OFCCP will also examine pay practices that affect all groups protected under Executive Order 11246, not just women. Additionally, not all OFCCP investigations will be triggered by an employee complaint. Therefore, federal contractors/subcontractors cannot assume that just because their employees are not complaining that the OFCCP will not find fault with their compensation practices. This case involved pay decisions by hiring managers given discretion in determining salaries. Apparently there were no salary matrixes or guidelines and no tools or policies and procedures available to enable either managers or even executive to determine whether they were in compliance with Executive Order 11246 and related OFCCP regulations.
Even well-intentioned federal contractors/subcontractors, if they do not take the time to write and implement policies and procedures and train managers accordingly, can find themselves the target of OFCCP discrimination allegations. If the practices have gone unchecked for a significant time period as they did here, the amount of damages that the contractor will have to pay can –and usually will– accumulate. In this case, the alleged pay discrepancies occurred over a five-year period. While the damages were $290,000 plus interest, that does not provide the entire picture in terms of costs that a federal contractor can incur. Once the OFCCP commences an audit, and eventually a proceeding, the contractor/subcontractor will need a team of a consultant and legal counsel to identify problem areas and defend against the allegations or even just to help the contractor/subcontractor navigate through what can be a confusing if not overwhelming process. In other words, federal contractors will incur both damages and exorbitant legal fees. The longer the time period over which the discriminatory practices are alleged to have occurred, the greater the likely damages and legal fees.
What can federal contractors do to avoid having the same outcome as Medtronic? Here are some starting points:
1. Periodically and regularly train all employees making pay decisions on equal employment principles, Executive Order 11246 and Title 41 of the Code of Federal Regulations (CFR) relating to compensation.
2. Consider setting uniform base salaries or rates and using bonuses to recognize superior performance or production—especially for entry level positions that may not require experience.
3. Consider developing a formal salary structure with established range minimums and maximums so that jobs of a similar level of duties and responsibilities are in the same grade and have similar compensation opportunities.
4. Ensure that the human resources department is included in all salary and wage decisions.
5. If business requires discretion in deciding pay, then conduct periodic and regular pay analysis, in a manner protected by attorney-client privilege, to ensure the ability to defend pay differences based on legitimate, non-discriminatory reasons.
6. If you do not have uniform salaries and rates, consider implementing policies and procedures for determining compensation. Document the basis for salary decisions.
7. Train everyone with authority to determine pay on the compensation policies, implementation and how to document the basis for all such decisions.
8. Periodically and regularly review employees’ compensation and analyze and compare compensation of each group protected under Executive Order 11246.
9. Consult with a team of specialized consultant and a legal counsel familiar with Affirmative Action and OFCCP practices.
For more information, please contact Ahmed Younies at (714) 426-2918, ext. 1 or ayounies@hrunlimited inc.com.