[Federal Register: June 16, 2006 (Volume 71, Number 116)] [Notices] [Page 35123-35141] From the Federal Register Online via GPO Access [wais.access.gpo.gov] [DOCID:fr16jn06-180] [[Page 35123]] ----------------------------------------------------------------------- Part VI Department of Labor ----------------------------------------------------------------------- Employment Standards Administration ----------------------------------------------------------------------- Office of Federal Contract Compliance Programs; Interpreting Nondiscrimination Requirements of Executive Order 11246 With Respect to Systemic Compensation Discrimination; Notice [[Page 35124]] ----------------------------------------------------------------------- DEPARTMENT OF LABOR Employment Standards Administration Office of Federal Contract Compliance Programs; Interpreting Nondiscrimination Requirements of Executive Order 11246 With Respect to Systemic Compensation Discrimination; Notice AGENCY: Office of Federal Contract Compliance Programs, Employment Standards Administration, Department of Labor. ACTION: Notice of final interpretive standards for systemic compensation discrimination under Executive Order 11246. ----------------------------------------------------------------------- SUMMARY: The Office of Federal Contract Compliance Programs is publishing final interpretive standards for systemic compensation discrimination under Executive Order 11246, as amended. This document sets forth the final interpretive standards and discusses comments that OFCCP received in response to proposed interpretive standards published in the Federal Register on November 16, 2004. EFFECTIVE DATE: June 16, 2006. FOR FURTHER INFORMATION CONTACT: Director, Division of Policy, Planning, and Program Development, Office of Federal Contract Compliance Programs, 200 Constitution Avenue, NW., Room N3422, Washington, DC 20210. Telephone: (202) 693-0102 (voice) or (202) 693- 1337 (TTY). SUPPLEMENTARY INFORMATION: In this preamble, OFCCP summarizes the proposed interpretive standards, discusses the comments received in response to its publication of the proposed standards, and provides a substantive discussion of the final interpretive standards. The substantive discussion of the final interpretive standards substantially restates the preamble of the proposed standards, except that modifications or clarifications were added in response to the comments. I. Summary of the Proposed Interpretive Standards On November 16, 2004, OFCCP published a Notice in the Federal Register [hereinafter ``Notice''] in which the agency proposed standards interpreting Executive Order 11246 with respect to systemic compensation discrimination. 69 FR 67246 (Nov. 16, 2004). Systemic compensation discrimination was defined in the Federal Register Notice as discrimination under a pattern or practice, disparate treatment theory of discrimination. 69 FR 67246 n. 2. The Notice explained that OFCCP historically has relied on interpretations of Title VII as a basis for interpreting the nondiscrimination requirements of Executive Order 11246, but that OFCCP had not issued any definitive interpretation of Executive Order 11246 with respect to systemic compensation discrimination. 69 FR 67246-47. The Notice also explained that, in the late-1990s, OFCCP informally used a controversial ``pay grade theory'' of analyzing compensation practices for systemic discrimination. 69 FR 67247-48. Under the pay grade theory, OFCCP compared the compensation of employees who were in the same pay grade or range, based on the assertion that by creating the pay grade, the employer either ``has recognized that certain jobs are essentially similar in terms of skill, effort and responsibility'' or ``has already identified certain jobs as having similar value to the organization.'' 69 FR 67247-48. The Notice provided a detailed discussion of OFCCP's reasons for rejecting the grade theory, primarily because the assumptions underlying the grade theory are inconsistent with administrative and judicial interpretations of Title VII and because use of the pay grade theory proved to be a highly ineffective enforcement tool. 69 FR 67248-49. The proposed interpretive standards had three principal components. The first component of the proposed interpretive standards was adoption of the ``similarly situated'' standard for comparisons of employees' compensation. 69 FR 67249-67252. Under the proposed standards, employees are similarly situated if they perform similar work and occupy positions involving similar responsibility levels, skills, and qualifications. Id. OFCCP interpreted Executive Order 11246 \1\ with respect to systemic compensation discrimination as involving disparate treatment of individuals who are similarly situated under this standard. 69 FR 67251. In adopting the similarly situated standard, OFCCP relied on judicial and administrative interpretations of Title VII. 69 FR 67248-67249. OFCCP stressed that those interpretations were inconsistent with OFCCP's prior ``pay grade'' method. 69 FR 67248. --------------------------------------------------------------------------- \1\ Executive Order 11246 has been amended several times since its original promulgation. For ease of reference, ``Executive Order 11246'' as used hereinafter refers to Executive Order 11246, as amended. --------------------------------------------------------------------------- The second component of the proposed interpretive standards was adoption of a statistical technique for assessing the combined effects of the multiple, legitimate factors that influence employers' compensation decisions. 69 FR 67250. This statistical technique is called multiple regression analysis. Id. Under the multiple regression analysis, OFCCP would compare the compensation of similarly situated employees, while controlling for legitimate factors that influenced the employers' pay decisions, such as education, experience, performance, productivity, etc. Id. OFCCP explained that it would investigate whether any such factors were actually ``tainted'' by discrimination, and, if so, OFCCP would not include such factors in the multiple regression analysis. Id. OFCCP also explained that in a particular case it might use a ``pooled'' regression, in which different groups of similarly-situated employees were combined in a regression while controlling for their membership in their particular similarly-situated group. 69 FR 67250-67251. When using a pooled regression, OFCCP explained, it would test for whether ``interaction terms'' were required. 69 FR 67251. The third component of the proposed interpretive standards was its emphasis on the importance of anecdotal evidence of discrimination for a determination of whether systemic compensation discrimination exists. 69 FR 67251. OFCCP noted that it would rarely issue a Notice of Violations alleging systemic compensation discrimination without anecdotal evidence of discrimination to support the statistical evidence of discrimination. Id. II. Discussion of the Comments Received OFCCP received 28 comments on the Notice of proposed standards interpreting Executive Order 11246 with respect to systemic compensation discrimination. In response to the comments, OFCCP made several modifications to the proposed interpretive standards, discussed below. In addition, many of the commenters asked for clarification of OFCCP's intent with respect to various aspects of the interpretive standards, which OFCCP provides as appropriate below. For the following discussion, OFCCP has grouped the comments around the following major subjects: (A) Systemic Compensation Discrimination; (B) The Pay Grade Theory; (C) Similarly Situated Employees; (D) Multiple Regression Analysis; (E) Factors Included in the Regression Analysis; (F) Anecdotal Evidence; and (G) Confidentiality of Compensation and Personnel Information. [[Page 35125]] A. Systemic Compensation Discrimination Several commenters, such as the U.S. Chamber of Commerce and HR Analytical Services, Inc., argued that OFCCP should not focus its efforts on investigating systemic employment discrimination, but should instead spend more agency resources on monitoring compliance with OFCCP's affirmative action regulations. OFCCP does not agree with these commenters. OFCCP believes that elimination of systemic workplace discrimination is an important component of its historical mission. Indeed, affirmative action programs are designed to be tools to prevent workplace discrimination. See 41 CFR 60-2.10(a)(3) (``OFCCP has found that when an affirmative action program is approached from this perspective, as a powerful management tool, there is a positive correlation between the presence of affirmative action and the absence of discrimination.''). Further, the commenters' suggestion disregards OFCCP's historical enforcement of Executive Order 11246 by requiring payment of back pay and other make whole relief to victims of discrimination. See 41 CFR 60-1.26(a)(2) (``OFCCP may seek back pay and other make whole relief for victims of discrimination identified during a complaint investigation or compliance evaluation.''). OFCCP's focus on finding and remedying systemic workplace discrimination has provided tangible incentives for contractors to implement affirmative action programs to prevent workplace discrimination. B. The Pay Grade Theory Almost all of the commenters addressed the subject of OFCCP's prior ``pay grade'' method as discussed in the preamble of the proposed standards. Many commenters agreed with OFCCP that the pay grade theory was inconsistent with Title VII standards.\2\ --------------------------------------------------------------------------- \2\ See, e.g., Association of Corporate Counsel, Equal Employment Advisory Council, Gayle B. Ashton, Gaucher Associates, National Industry Liaison Group, ORC Worldwide, Society for Human Resource Management, Sonalysts, TOC Management Services, U.S. Chamber of Commerce, and World at Work. As discussed below, some of these commenters argued that OFCCP should adopt the Equal Pay Act's ``substantial equality'' standard. --------------------------------------------------------------------------- A few commenters, such as Jude Sotherlund, argued that OFCCP should rely on employer-created classifications such as pay grades because these classifications were designed by compensation professionals for the particular employer. OFCCP does not agree with these comments. Unlike compensation professionals, who design compensation systems to meet a variety of business interests, OFCCP's purpose when investigating an employer's compensation practices is to determine whether the employer has engaged in systemic compensation discrimination prohibited by Executive Order 11246. As noted below, EEOC and courts interpreting Title VII have cautioned against reliance on employer classifications in favor of evidence of actual work activities, responsibility level, and skills and qualifications involved in the job. A few other commenters, including the Employment Task Force of the Leadership Conference on Civil Rights (ETF), argued against OFCCP's conclusion that the pay grade theory should be rejected because it is inconsistent with Title VII. ETF, for example, generally offered two sets of arguments against OFCCP's rejection of the grade theory. In the first set of arguments, ETF argued that pay grade information can be an effective indicator of potential pay discrimination. ETF noted that ``the pay grade approach serves as a unique investigatory tool'' and ``provided a suitable starting point for investigators to determine which jobs to compare and analyze.'' ETF questioned, ``[i]f the pay grade approach is to be abandoned, it is unclear from these proposed standards how OFCCP intends to utilize its limited resources to identify the appropriate cases for further investigation and enforcement.'' Several other commenters also expressed concerns about the burden to employers and to the agency if OFCCP conducts the investigation and analysis required by the proposed standards in each compliance review.\3\ OFCCP agrees with ETF that pay grade information has some value as an indicator of potential discrimination. OFCCP also agrees with ETF and the other referenced commenters that the agency does not desire to conduct a full-scale compensation investigation in every compliance review. Thus, the interpretive standards are not intended to restrict OFCCP's use of pay grade information or any other information as an indicator of potential discrimination. Rather, the interpretive standards only foreclose the use of the pay grade theory as the basis upon which OFCCP will allege and establish systemic compensation discrimination in violation of Executive Order 11246 and OFCCP regulations. Indeed, OFCCP has historically used a tiered-review approach in its evaluation of contractors that relies on both pay grade information and individual employee information to determine whether to conduct a comprehensive investigation into the contractor's pay practices. Under the tiered- review approach, OFCCP uses pay grade (or other aggregated compensation) information submitted in response to Item 11 of OFCCP's Scheduling Letter.\4\ Once it receives the Item 11 data, OFCCP conducts a simple comparison of group average compensation by pay grade or other aggregation unit by which the employer has provided the data. If this comparison indicates a significant disparity, OFCCP will ask the contractor for employee-specific compensation and personnel information.\5\ OFCCP intends to continue this tiered-review approach \6\ and, in fact, recently implemented additional components to further focus compensation investigations on workplaces where there are significant indicators of potential discrimination. In particular, OFCCP now conducts a ``cluster regression'' using the employee-specific information requested following the desk audit.\7\ If the cluster regression indicates significant disparities, OFCCP conducts a comprehensive evaluation of the pertinent compensation practices, at which point these final interpretive standards govern OFCCP's investigation activity and determinations. OFCCP will afford the contractor an opportunity to [[Page 35126]] provide any additional information and/or analyses that the contractor believes to be pertinent to OFCCP's decision about whether to conduct further investigation of the contractor's compensation practices. OFCCP will consider such information as well as the results of the cluster regression in making a determination of whether further investigation is warranted. Of course, OFCCP will also consider any evidence of discrimination in determining whether to proceed. --------------------------------------------------------------------------- \3\ See, e.g., American Society of Employers, Berkshire Associates, Maly Consulting LLC, National Industry Liaison Group, Sonalysts, and the U.S. Chamber of Commerce. \4\ Item 11 of the Scheduling Letter currently requests ``annualized compensation data (wages, salaries, commissions, and bonuses) by either salary range, grade, or level showing total number of employees by race and gender and total compensation by race and gender.'' \5\ OFCCP is studying potential alternatives to use of pay grade information so that the agency can better target its investigative resources. \6\ OFCCP may modify the investigation process leading up to the application of these final interpretive standards, so as to maximize agency resources and efficiency. \7\ The ``cluster regression'' creates comparison groups by relying on job titles and, where a particular job title does not contain at least 30 employees and at least 5 from each comparator group (females/males, minorities/non-minorities), groups job titles based on the average compensation within each job title. In particular, the cluster regression groups job titles with the closest average compensation values until the 30/5 size requirements are reached. The cluster model uses only two or three explanatory factors in the regression, including age as a proxy for experience, and education level. As noted below, the cluster regression does not comport with Title VII standards for grouping similarly-situated employees, nor does the cluster regression include factors that were determined from an investigation of the employer's pay practices. For these reasons, the cluster regression will be used only as an indicator of potential systemic compensation discrimination; it is not a sufficient basis to issue a Notice of Violation. --------------------------------------------------------------------------- Accordingly, OFCCP intends to continue using analysis of pay grade information, supplemented by the cluster regression, as indicators of potential compensation discrimination. However, the pay grade analysis, the cluster regression analysis, and other generalized approaches are only indicators of potential compensation discrimination. These techniques fall far short of the type of fact-intensive investigation and tailored analysis required to make and sustain an allegation of systemic compensation discrimination under Executive Order 11246 and OFCCP regulations. These final interpretive standards fit into the latter part of the OFCCP compliance review process: They serve as the substantive standards interpreting Executive Order 11246 and OFCCP regulations with respect to systemic compensation discrimination. In practical terms, this means that OFCCP must allege and prove facts which meet the interpretive standards in order to establish systemic compensation discrimination in violation of Executive Order 11246 and OFCCP's regulations. ETF also objected to the provisions of the proposed interpretive standards which mandated prerequisites to issuing a Notice of Violation (NOV). ETF argued that OFCCP should not subject itself to a standard during the ``investigatory stage'' that is the same standard that OFCCP would be subject to when it pursued enforcement litigation.\8\ OFCCP agrees that its investigations need not adhere to the precise requirements of enforcement litigation in order to issue an NOV. For example, OFCCP need not base its decision to issue an NOV on information that has been obtained in a format which would be admissible in court, e.g., OFCCP can rely on notes of an employee interview during an investigation which may not be admissible in litigation. However, OFCCP disagrees that the substantive standards for whether an employment practice constitutes a violation of Executive Order 11246 can depend on whether the matter is in the ``investigation stage'' or in litigation. If the pay grade theory assumptions (discussed in the preamble of the proposed interpretive standards and below) do not adhere to legal standards, OFCCP has no authority to rely on such assumptions to allege a violation even during the investigation stage. Because the pay grade assumptions are contrary to legal standards, to base a violation on the pay grade theory during the investigation stage is tantamount to changing the substantive requirements of Executive Order 11246. --------------------------------------------------------------------------- \8\ This is one of the arguments presented in the publication circulated in support of the pay grade theory. See ``Update on Systemic Compensation Analysis,'' at 1 (``It is not OFCCP's policy or practice to `litigate' the merits of investigation findings at the investigatory stage of a review.''). However, the ``Update on Systemic Compensation Analysis'' also noted that ``OFCCP has always applied Title VII principles to its methods of investigation.''Id. --------------------------------------------------------------------------- ETF offered additional arguments against OFCCP's rejection of the pay grade theory. These arguments were premised on a correct understanding that the interpretive standards ruled out the pay grade theory as a basis for alleging and establishing systemic compensation discrimination under Executive Order 11246 and OFCCP regulations. First, ETF argued that OFCCP should continue to use the pay grade theory, suggesting that it is consistent with interpretations of Title VII. Second, ETF argued that the Title VII cases OFCCP cited do not require rejection of the pay grade theory because the plaintiffs failed in the cited cases when they were unable ``to provide additional evidence where employers have put forward a legitimate nondiscriminatory reason.'' In this regard, ETF noted that, ``[w]hile pay grade information may not have been enough to win these particular cases, such information was clearly instrumental in establishing possible discrimination in the first place.'' Finally, ETF argued that the rejection of the pay grade theory could harm or curtail future enforcement efforts or developments in the law. OFCCP does not find ETF's comments to be persuasive reasons for retaining the pay grade theory as a basis for alleging and establishing systemic compensation discrimination under Executive Order 11246 and OFCCP regulations. As to ETF's argument that OFCCP should continue to rely on the pay grade theory to establish systemic compensation discrimination, OFCCP believes that the pay grade theory was inconsistent with Title VII standards and that there are compelling reasons for ensuring that the nondiscrimination provisions of Executive Order 11246 are interpreted consistently with Title VII. First, this has been OFCCP's historical practice, as well as the practice of the Department of Labor in rendering final agency decisions in cases arising under Executive Order 11246. See note 29, below; see also OFCCP Federal Contract Compliance Manual, at Section 3K00(c) (``It is OFCCP policy, in conducting analyses of potential discrimination under the Executive Order, to follow Title VII principles.'').\9\ Second, OFCCP expects that the federal courts will look to Title VII interpretations when interpreting the nondiscrimination requirements of Executive Order 11246. This is a significant consideration in light of the fact that Department of Labor determinations under Executive Order 11246 are subject to review in federal court under the Administrative Procedure Act. Thus, federal courts are likely to defer to these final interpretive standards because they accord with the weight of authority under Title VII, in addition to deference under traditional deference doctrines. See Barnhart v. Walton, 535 U.S. 212, 217 (2002) (``Courts grant an agency's interpretation of its own regulations considerable legal leeway''); Auer v. Robbins, 519 U.S. 452, 461 (1997) (agency's interpretation of its own regulation is ``controlling unless `plainly erroneous or inconsistent with the regulation,' '' quoting Bowles v. Seminole Rock Co., 385 U.S. 410, 413-14 (1945)); Udall v. Tallman, 380 U.S. 1, 16-17 (1965) (agency interpretations of Executive Orders they are charged with enforcing are afforded deference under Bowles v. Seminole Rock Co., 385 U.S. 410, 413-14 (1945)); Reynolds v. Rumsfeld, 564 F.2d 663, 668 (4th Cir. 1977) (OFCCP interpretation of Executive Order 11246 entitled to Seminole Rock deference). --------------------------------------------------------------------------- \9\ Section 3R(a) of OFCCP's Federal Contract Compliance Manual (FCCM) provides that ``compensation discrimination'' encompasses ``[d]isparate treatment in pay in relationship to the established range for a job, whether at entry or later; e.g., Blacks with similar backgrounds to Whites on the legitimate factors considered for initial salary are hired at less money, etc. * * *.'' To the extend that this reference, or any other reference in the FCCM, implies the pay grade theory or any other theory of compensation discrimination that permits comparison of compensation of individuals who are not similarly situated under these final interpretive standards, or otherwise conficts with these interpretive standards, these interpretive standards supercede the FCCM in that regard. --------------------------------------------------------------------------- Third, this policy ensures uniformity and consistency with the principal congressional enactment on equal employment opportunity, and with EEOC enforcement standards. OFCCP relied expressly and extensively on the EEOC Compliance Manual chapter on compensation discrimination in developing the interpretive standards. In addition, the EEOC provided written comments for the public record in [[Page 35127]] which EEOC stated, ``we are pleased that your approach to addressing compensation discrimination is consistent with EEOC's own view.'' OFCCP also does not agree with ETF's characterization of the authority cited in the preamble of the proposed interpretive standards. First, ETF's comments conflict with the EEOC compensation guidelines, which expressly adopt the ``similarly situated'' standard. EEOC Compliance Manual on ``Compensation Discrimination,'' EEOC Directive No. 915.003 (Dec. 5, 2000)[hereinafter, ``CMCD''], at 10-5 to 10-8 (``The investigator should determine the similarity of jobs by ascertaining whether the jobs generally involve similar tasks, require similar skill, effort, and responsibility, working conditions, and are similarly complex or difficult.''). Second, OFCCP does not agree that the plaintiffs in ``virtually all'' of the cases cited in the preamble of the proposed interpretive standards were able to establish a prima facie case by comparing themselves to individuals who did not perform similar work and whose positions were not similar in the responsibility level, skills, and qualifications involved. It has long been established that plaintiffs must demonstrate that similarly situated employees were treated differently as part of their own prima facie case. See Texas Dep't of Community Affairs v. Burdine, 450 U.S. 248, 258 (1981) (``McDonnell Douglas teaches that it is the plaintiff's task to demonstrate that similarly situated employees were not treated equally.''); see also Quarless v. Bronx Lebanon Hosp. Ctr., 228 F. Supp.2d 377, 383 (S.D.N.Y. 2002) (``In order to establish a prima facie case of discriminatory disparate pay under Title VII, a plaintiff must show * * * that he was paid less than similarly situated non-members of his protected class; * * *'') aff'd, 75 Fed. Appx. 846, 848 (2d Cir. 2003); Lewis v. Smith, 255 F. Supp.2d 1054, 1060-61 (D. Ariz. 2003) (``Plaintiff can establish a prima facie case under Title VII because he can show that * * * he was given greater or similar responsibilities but paid less than [a coworker] who occupied a similar, if not substantially equal, position.''). Indeed, in many of the cited cases, the plaintiffs were unable to establish a prima facie case precisely because they attempted to compare themselves to individuals whose work, responsibility level, and skills and qualifications were not similar to their own. See, e.g., Block v. Kwal-Howells, Inc., No. 03-1101, 2004 WL 296976, at *2-*4 (10th Cir. Feb. 17, 2004) (``The district court concluded Ms. Block failed to establish a prima facie case of discrimination because she failed to prove she occupied a substantially similar position to Mr. Dennis. Aplt. Br., Att. A. at 26. Upon a thorough review of the evidence, we agree. Ms. Block and Mr. Dennis were not similarly situated.''); Williams v. Galveston Ind. Sch. Dist., No. 03-40436, 78 Fed. Appx. 946, 949-50, 2003 WL 22426852 (5th Cir. Oct. 23, 2003) (``Appellants attempt to found their prima facie case on a comparison between their positions and the positions held by Mr. McLarty and Ms. Garcia. However, each employee's responsibilities are plainly dissimilar from the responsibilities of the other three grade 8 employees * * *. The fact that GISD lists all four employees at grade 8 is not significant. Pay grades represent a range of possible salaries, and Appellants concede that salaries can differ within a pay grade.'') \10\; Verwey v. Illinois Coll. of Optometry, 43 Fed. Appx. 996, 2002 WL 1836507, at *4 (7th Cir. Aug. 9, 2002) (``Verwey also argues that the district court erred in granting summary judgment to the College on her wage discrimination claim. She asserts that she raised an inference of discrimination by showing that the three maintenance men in her department received raises after voting against unionizing, but that she, the lone female employee, did not. Verwey's claim fails for several reasons. First, she did not establish that the maintenance men were similarly situated to her. Although they worked in the same department, they had different job titles and responsibilities and therefore did not hold equivalent positions; Verwey was an administrative assistant, not a maintenance worker.''); Rodriguez v. SmithKline Beecham, 224 F.3d 1, 8 (1st Cir. 2000) (``As we set forth above, the uncontested facts before the district court indicate that appellant's job functions and responsibilities were not substantially similar or comparable to those of Document Manager Llivina or Records Management Leader Feo, nor to those of Edwin L[oacute]pez. Absent such a showing, plaintiff's Title VII claim fails as a matter of law for lack of a prima facie case.''); Sprague v. Thorn Americas, Inc., 129 F.3d 1355, 1362 (10th Cir. 1997) (``It is apparent from the record that Sprague failed to present genuine issues of material fact which would support her equal pay claim under Title VII. As the district court observed, Sprague contrasts her functions and pay in the jewelry department to those of the assistant product manager of electronics and the assistant product manager of furniture/appliances, both of whom are males. `However, the Electronics, Furniture/Appliances, and Jewelry Departments do not contribute equally to [Thorn's] revenues.' See district court's Memorandum and Order at 5. While the electronics department comprises approximately 50% of revenues and the furniture/ appliance department accounts for approximately 45% of revenues, the jewelry department only produces approximately 4% of revenues. Id. * * * Given the evidence presented to the district court, we find that Sprague failed to present a prima facie case of intentional gender discrimination.''); EEOC v. Sears, Roebuck & Co., 839 F.2d 302, 347 (7th Cir. 1988) (``As it turns out, the EEOC's failure to introduce any evidence of actual job content or job performance is fatal to its sex discrimination in wages claim in light of Sears' evidence regarding differences in [[Page 35128]] job content. The EEOC appears to suggest that Sears had the burden of showing the inequality of job content. This line of argument is similar to that which we recognized in Epstein, 739 F.2d at 278: `Plaintiff would, it seems, have us infer equal work from the defendants' failure to prove otherwise.' We responded that this argument ignores the elementary fact that the burden for proving the prima facie case is on the plaintiff.''); Eastland v. Tennessee Valley Auth., 704 F.2d 613, 624-25 (11th Cir. 1983) (``In the present case Eastland's analyses account for many objective qualifications, but the failure to control for job category casts doubt on whether the regressions are comparing appropriate groups. Given the weakness of the theoretical foundation and the failure to control for job category, the district court did not err in determining that Eastland's regressions were insufficient to establish a prima facie case.''); Lawton v. Sunoco, Inc., No. 01-2784, 2002 WL 1585582, at *7 (E.D. Pa. Jul 17, 2002) (``In order to establish a prima facie case of wage discrimination under Title VII * * * the plaintiffs `must demonstrate that they were performing work substantially equal to that of white employees who were compensated at higher rates than they were,' '' quoting Aman v. Cort Furniture Rental Corp., 85 F.3d 1074 (3d Cir. 1996), but also citing Watson v. Eastman Kodak Co., 235 F.3d 851 (3d Cir. 2000), for ``similarly situated'' standard).\11\ --------------------------------------------------------------------------- \10\ ETF argues that the fact that Williams was unpublished and, under Fifth Circuit rules, cannot be cited as precedent, ``undermines the case's significance.'' However, under Rule 47.5.4 of the Local Rules of Appellate Procedure for the United States Court of Appeals for the Fifth Circuit, ``[a]n unpublished opinion may, however, be persuasive. An unpublished opinion may be cited, but if cited in any document being submitted to the court, a copy of the unpublished opinion must be attached to each document. The first page of each unpublished opinion bears the following legend: Pursuant to Loc. R. 47.5, the court has determined that this opinion should not be published and is not precedent except under the limited circumstances set forth in Loc. R. 47.5.4.'' A district court in the Fifth Circuit has found the reasoning in Williams to be persuasive. See Dean v. Kimberly-Clark Corp., No. 3:02-CV-1682-K, 2005 WL 309509, at *2 (N.D. Tex. Feb. 8, 2005) (``Plaintiff claims that Kimberly-Clark discriminated against him by failing to compensate him at the same rate it compensated its Process Specialists, although he admits he was a Production Officer, not a Process Specialist. ``If a plaintiff's job responsibilities are significantly different from the responsibilities of employees [he] cites as a point of comparison, then the plaintiff has not made out a prima facie case.'' Williams 78 Fed. Appx. at 949.''). In addition to Williams, the district court in Woodward v. United Parcel Serv., Inc., 306 F. Supp. 2d 567, 574-75 (D. S.C. 2004), expressly rejected the pay grade theory as a basis for establishing a prima facie case of compensation discrimination: ``In order to establish a prima facie case of pay discrimination, Woodward must show that he * * * was paid less than similarly situated employees who were outside his protected class * * *. Woodward has not identified any relevant group of similarly situated comparators to support his claim of pay discrimination * * *. In 1998, Woodward transferred to the District Assessor position in the South Carolina District--a job in which he had no comparators because the other six Grade 16 managers in the IE department during 1998 and 1999 (while Woodward was the Assessor) all held positions with significantly different duties * * *. In summary, Woodward has failed to identify any comparators who are similarly situated with respect to pay. Woodward has made no effort to demonstrate that any of the alleged comparators that he has identified held positions whose duties were the same as or substantially similar to his own. Instead, Woodward relies solely on his unsupported assertion that all Grade 16 level employees are similarly situated with respect to pay.'' \11\ By contrast, plaintiffs were successful in their claims when they offered evidence that they were similarly situated based on the work they performed, and the responsibility level, skills, and qualifications involved in their positions. See, e.g., Brinkley- Ubo v. Hughes Training Inc., 36 F.3d 336, 343 (4th Cir. 1994) (``The plaintiff may establish a prima facie case by demonstrating * * * that the job she occupied was similar to higher paying jobs occupied by males.''); Miranda v. B&B Cash Grocery Store, Inc., 975 F.2d 1518, 1526-31 (11th Cir. 1992) (``We agree with the trial court that Miranda carried her burden of proof and established that B & B discriminated against her because of her gender. The plaintiff establishes a prima facie case of sex discrimination under Title VII by demonstrating that she is female and that the job she occupied was similar to higher paying jobs occupied by males. The trial court found that Miranda's description of the type of duties she performed as a buyer, as well as testimony from defendant's witnesses established that she shared the same type of tasks as the other buyers.''). --------------------------------------------------------------------------- ETF's arguments also do not address the fundamental point for which OFCCP cited these cases. OFCCP relied on these cases to identify the factors that courts use to determine whether employees are similarly situated in compensation discrimination claims under Title VII. Under the pay grade theory, OFCCP took the position that employees included in the same pay grade were necessarily similarly situated, without regard to their actual job duties, responsibility levels, and skills and qualifications, and OFCCP persisted in that position, even threatening enforcement action, regardless of the evidence the employer submitted about differences in job duties, responsibility levels and skills and qualifications. Indeed, the defining feature of the pay grade theory was its assumption that employees were similarly situated based solely on the fact that they were included in the same pay grade (or that they were in the same pay grade and their pay could progress to the top of the pay grade without changing jobs). OFCCP has rejected the pay grade theory because it conflicts with courts' interpretations of Title VII. As noted earlier, ETF expressed concern regarding the stage of the case in which the similarly situated issue arises. However, ETF did not expressly endorse the pay grade assumptions that individuals are similarly situated because they are in the same pay grade. Thus, there are not substantial differences between the final interpretive standards and ETF's position. As noted below, in a particular case the pay grade could coincidentally group employees who in fact performed similar work, and occupied positions involving similar responsibility levels, skills, and qualifications. However, what would make such employees similarly situated is the fact that that they perform similar work and occupy positions involving similar responsibility levels, skills and qualifications, not the fact that they are in the same pay grade. Moreover, ETF apparently accepts that an employer could always justify pay differentials between employees who occupy the same pay grade through evidence that the employees are not similar with respect to the work they perform, their responsibility levels, or the skills and qualifications involved in their positions.\12\ --------------------------------------------------------------------------- \12\ Of course, if OFCCP used pay grade as the initial grouping, subject to the employer's rebuttal that the jobs were dissimilar, employers typically would argue that the pay grade grouped positions that were dissimilar, as they did throughout the period that OFCCP used the pay grade theory. However, in the past, OFCCP generally did not investigate the employer's contention that the jobs were dissimilar because the pay grade theory assumed that employees were similarly situated if they were in the same pay grade, regardless of whether they were similar or dissimilar in the work they performed, their responsibility levels, or the skills and qualifications involved in their positions. However, if OFCCP used grade as the initial grouping subject to the employer's rebuttal that the jobs were dissimilar, OFCCP could not simply accept the employer's contention that jobs were dissimilar, but would have to investigate whether the facts supported the employer's contention. This would require OFCCP to conduct the same type of factual investigation specified in these final interpretive standards. --------------------------------------------------------------------------- OFCCP disagrees with ETF's last argument, that the agency should not promulgate the final interpretive standards because they could harm or curtail future enforcement efforts and development of the law. In fact, OFCCP's experience demonstrates that just the opposite is true. OFCCP believes that it is important for the agency to promulgate a definitive interpretation of Executive Order 11246 and OFCCP regulations with respect to systemic compensation discrimination. Most significantly, these final interpretive standards will promote compliance with Executive Order 11246 by helping agency personnel and covered contractors and subcontractors understand the meaning of Executive Order 11246 and OFCCP regulations with respect to systemic compensation discrimination. OFCCP personnel will be guided by written standards which will promote uniformity in OFCCP's enforcement of Executive Order 11246. Together with the Voluntary Self-Evaluation Guidelines, these interpretive standards will help contractors with developing programs for monitoring their own compensation practices. OFCCP also believes these interpretive standards will ensure that OFCCP's enforcement efforts are effective, by providing standards that are consistent with administrative and judicial interpretations of Title VII. In fact, OFCCP has been successful in pursuing systemic compensation discrimination cases under standards quite similar to the standards articulated in these final interpretive standards. In the last three years, OFCCP pursued enforcement litigation in two cases using multiple regression analyses that did not rely on the grade theory. These were the first two compensation cases OFCCP has filed in twenty-five years, and both cases resulted in significant settlements, including a near record $5.5 million settlement. By contrast, OFCCP did not pursue even one case through enforcement litigation during the period in which the agency relied on the grade theory. OFCCP does not believe that it will be effective in establishing and remedying systemic compensation discrimination unless contractors perceive that OFCCP's methods will support a credible threat of successful enforcement litigation. In sum, OFCCP agrees with ETF that grade information can be useful as an indicator of potential compensation discrimination, and OFCCP intends to [[Page 35129]] continue to use grade information to target agency resources on workplaces where further investigation is warranted. However, OFCCP disagrees with ETF that the grade theory is consistent with Title VII standards or that the grade theory is an efficient and effective method for OFCCP to accomplish its important mission. C. Similarly Situated Employees Many commenters approved of OFCCP's proposed interpretive standards for defining similarly-situated employees.\13\ However, several commenters, such as Ellen Shong & Associates, Gaucher Associates, and Society for Human Resource Management (SHRM), argued that OFCCP should adopt the Equal Pay Act standard of ``substantial equality'' instead of the ``similarly situated'' standard. OFCCP does not agree with these commenters. As noted, OFCCP has historically relied on interpretations of Title VII to interpret the nondiscrimination requirements of Executive Order 11246. Many courts and the EEOC have interpreted Title VII to allow comparisons of individuals who are ``similarly situated'' as defined in these final interpretive standards.\14\ --------------------------------------------------------------------------- \13\ See, e.g., Association of Corporate Counsel, Equal Employment Advisory Council, HR Analytical Services, National Industry Liaison Group, ORC Worldwide, TOC Management Services, U.S. Chamber of Commerce, and World at Work. \14\ See, e.g., Sprague v. Thorn Americas, Inc., 129 F.3d 1355 (10th Cir. 1997); Mulhall v. Advance Sec., Inc., 19 F.3d 586 (11th Cir. 1994); Brinkley-Obu v. Hughes Training, Inc., 36 F.3d 336 (4th Cir. 1994); Miranda v. B & B Cash Grocery Store, Inc., 975 F.2d 1518 (11th Cir. 1992); Crockwell v. Blackmon-Mooring Steamatic, Inc., 627 F. Supp. 800 (W.D. Tenn. 1985). --------------------------------------------------------------------------- Several commenters, such as TOC Management Services, questioned whether the proposed paragraph 7 of the Standards for OFCCP Evaluation of Contractors' Compensation Practices conflicted with OFCCP's adoption of the similarly situated standard. Proposed paragraph 7 stated that ``OFCCP will also assert a compensation discrimination violation if the contractor establishes compensation rates for jobs (not for particular employees) that are occupied predominantly by women or minorities that are significantly lower than rates established for jobs occupied predominantly by men or non-minorities, where the evidence establishes that the contractor made the job wage-rate decisions based on the sex, race or ethnicity of the incumbent employees that predominate in each job.'' In response to the comments, OFCCP added a footnote to paragraph 7 of the ``Standards for OFCCP Evaluation of Contractors' Compensation Practices'' in the final interpretive guidelines to make clear that the intent of paragraph 7 was not to permit a systemic compensation discrimination theory based on comparison of employees who were not similarly situated. Rather, the intent is simply to permit the type of unique compensation discrimination claim approved of in County of Washington v. Gunther, 452 U.S. 161, 166 (1981) (``[R]espondents seek to prove, by direct evidence, that their wages were depressed because of intentional sex discrimination, consisting of setting the wage scale for female guards, but not for male guards, at a level lower than its own survey of outside markets and the worth of the jobs warranted.''). Unlike the systemic compensation discrimination standards set forth in the final interpretive standards, which involve comparisons of the compensation of similarly-situated employees using multiple regression to control for the joint contributions of the various legitimate factors that influence compensation, the Gunther-type claim ``does not attempt by statistical technique or other method to quantify the effect of sex discrimination on the wage rates.'' 452 U.S. at 181 & n. 20 (citing Franklin M. Fisher, Multiple Regression in Legal Proceedings, 80 Colum.L.Rev. 702, 721-725 (1980)).\15\ --------------------------------------------------------------------------- \15\ Because Gunther-type claims are unique, OFCCP has not included a paragraph regarding such claims in the ``Standards for Systemic Compensation Discrimination Under Executive Order 11246.'' --------------------------------------------------------------------------- Several of the commenters who agreed that similarity in job duties, responsibility level, and skills/qualifications is a necessary condition for employees to be similarly situated,\16\ also argued that similarity in these factors is not a sufficient condition for employees to be similarly situated in all cases. These commenters argued that there may be other factors in particular cases that may make individuals dissimilar who would otherwise meet the proposed standard for similarly situated. For example, these commenters noted that otherwise similarly-situated employees may be paid differently for a variety of reasons: They work in different departments or other functional divisions of the organization with different budgets or different levels of importance to the business; they fall under different pay plans, such as team-based pay plans or incentive pay plans; they are paid on a different basis, such as hourly, salary or through sales commissions; some are covered by wage scales set through collective bargaining, while others are not; they have different employment statuses, such as full-time or part-time; etc. OFCCP agrees with these commenters that such factors may be important to whether employees are similarly situated in a particular case. See, e.g., CMCD, at 10-6 (``[T]he fact that employees work in different departments or other organizational units may be relevant, but is not controlling.''); see also Cooper v. Southern Co., 390 F.3d 695, 717 (11th Cir. 2004) (noting that plaintiffs' expert ``did not tailor her analysis to the specific positions, job locations, or departmental or organizational structures in question; however, the wide-ranging and highly diversified nature of the defendants' operations requires that employee comparisons take these distinctions into account in order to ensure that the black and white employees being compared are similarly situated''); Goodwin v. General Motors Corp., 275 F.3d 1005, 1012 n.8 (10th Cir. 2002) (holding employees similarly situated for compensation discrimination claim under Title VII because ``[a]ll four representatives had the same supervisor, performed identical job duties and were subject to the same company standards and policies''); Webb v. Merck & Co., Inc., 206 F.R.D. 399, 408 (E.D. Pa. 2002) (``We agree with defendant that [the plaintiffs'' expert's] analysis of hourly (union) workers is unreliable and irrelevant because it fails to control for the mandated wage rate set by collective bargaining agreements for an employee's position * * *''). OFCCP has added provisions (Paragraph 2 of the ``Standards for Systemic Compensation Discrimination Under Executive Order 11246'' and Paragraph 3 of the ``Standards for OFCCP Evaluation of Contractors' Compensation Practices'') to the final standards to make clear that the agency will consider the applicability of such additional factors in each case and make a determination based on the facts of the particular case. --------------------------------------------------------------------------- \16\ See, e.g., Equal Employment Advisory Council, Morgan, Lewis & Bockius LLP, Northeast Region Corporate Industry Liaison Group, ORC Worldwide, and Picha & Salisbury, Society for Human Resource Management. --------------------------------------------------------------------------- Several commenters, including ETF and National Industry Liaison Group (NILG), noted that the proposed interpretive standards were ambiguous about whether similarity of qualifications involves similarity in qualifications required for the position or similarity of qualifications possessed by the individual employees who hold the position. ETF noted that the EEOC [[Page 35130]] Compliance Manual chapter on compensation discrimination relies on the qualifications for the position, not the qualifications of the particular employees. OFCCP agrees with ETF that it is the qualifications involved in the position, not the qualifications of the individuals who occupy the position, that determine whether employees are similarly situated under these final interpretive standards. See CMCD, at 10-7. However, OFCCP generally will consider qualifications of the individuals as an explanatory factor in a regression model because superior qualifications are a legitimate reason for pay differences between similarly-situated employees. Id.; see also Goodwin v. General Motors Corp., 275 F.3d 1005, 1012 n.8 (10th Cir. 2002) (noting in context of disparate treatment compensation discrimination claim under Title VII that plaintiff had superior qualifications to similarly situated male employees: ``And Goodwin was one of just two who had master's degrees.''); Klindt v. Honeywell Int'l Inc., 303 F. Supp.2d. 1206, 1223 (D. Kan. 2004) (employer not precluded from considering superior educational qualifications in determining employees' salaries). Several commenters, such as SHRM and HR Analytical Services, requested that OFCCP provide more guidance on how the agency intends to determine whether employees are similarly situated. OFCCP agrees that further clarification of this issue will be helpful to interested parties. OFCCP intends to gather information on employees' job duties, responsibility levels, and skills and qualifications, and other pertinent factors (as discussed above) through review of job descriptions and interviews of employees, managers, and HR and compensation personnel. Once OFCCP has gathered such information, it will determine which individuals are similarly situated by assessing the information under the standard for similarly situated set forth in these final interpretive standards. Since the final interpretive standards rely on federal court interpretations of Title VII, OFCCP will review applicable caselaw as an aid to making such determinations in particular cases. This review of caselaw typically will involve research for cases that discuss positions that are factually similar to the positions at issue in OFCCP's investigation.\17\ OFCCP will review the reasoning and determinations of the courts in such factually- similar cases for guidance in making a determination on the facts before OFCCP. --------------------------------------------------------------------------- \17\ OFCCP has cited cases in this preamble that discuss whether specific positions are similarly situated. There are hundreds of other federal court pay discrimination cases that discuss whether other positions are similarly situated based on facts about the specific positions involved in each of those cases. --------------------------------------------------------------------------- Several commenters expressed concern that OFCCP would be forced to group dissimilar employees in order to create groupings of sufficient size for statistical analysis, especially in light of OFCCP's stated desire to cover ``most'' or ``a significant number of'' employees.\18\ Several of these commenters also requested that OFCCP explicitly acknowledge that certain employees, such as high-level executives, are unique and are not similarly situated to any other employees. OFCCP agrees with these commenters that it may be expected that certain employees are not similarly situated to any other employee in the organization, workplace, or AAP. Under no circumstances will OFCCP attempt to combine, group, or compare employees who are not similarly situated under these final interpretive standards. If employees are not similarly situated under these final interpretive standards, they will not be included in the statistical analysis, regardless of statistical size requirements or of OFCCP's general objective to include a significant majority of employees in the regression analyses.\19\ --------------------------------------------------------------------------- \18\ See, e.g., Equal Employment Advisory Council, Gaucher Associates, and World at Work. \19\ OFCCP reserves the right, in rare cases, to perform non- statistical analyses on the wages of those employees who are not similarly situated to any other employee, such as high-level executives. --------------------------------------------------------------------------- Several commenters, including Equal Employment Advisory Council (EEAC) and ORC Worldwide (ORC), expressed concern with OFCCP's stated intent to review job descriptions and conduct employee interviews to determine whether employees are similarly situated. These commenters noted that job descriptions are often outdated and inaccurate. Several commenters requested that OFCCP also interview managers or supervisors to determine which employees are similarly situated. OFCCP agrees with these commenters that it will be important for agency staff to interview supervisors, managers, and HR and compensation personnel to obtain information needed to determine whether employees are similarly situated, as well as to obtain other pertinent information about the employer's compensation practices. D. Multiple Regression Analysis Many commenters agreed that multiple regression analysis is a legally and statistically valid method for evaluating systemic compensation discrimination.\20\ However, several commenters, such as Ellen Shong & Associates, Peopleclick Research Institute (PRI), and David W. Peterson, argued that OFCCP's proposed regression analysis is inaccurate because it does not evaluate pay and personnel decisions directly (or indirectly through a ``pay progression study''), but compares employees' compensation at a particular point in time. OFCCP does not agree with these commenters that multiple regression analysis of current compensation is legally or statistically deficient. Indeed, the Supreme Court has approved of such analysis. See Bazemore v. Friday, 478 U.S. 385, 400 (1986). Without expressing any view as to whether the types of analysis that these commenters suggest may also be legally and statistically acceptable,\21\ OFCCP does not believe that such analysis is preferable to the approach outlined in the final interpretive standards, for two reasons. First, the analysis suggested by the commenters would require OFCCP to gather far more information than required by the regression analysis outlined in these final interpretive standards. For example, under the commenters' approach, OFCCP would have to identify the variety of personnel decisions that influenced employees' compensation over a significant period of time and, as to each decision, evaluate whether the employer treated the employee similarly to other employees who were similarly situated with respect to that particular decision. This would impose significant burdens both on OFCCP and on contractors during OFCCP's investigation to obtain the information needed for the suggested analysis. Second, the commenters' suggested analysis would combine pay, promotion, and perhaps other personnel decisions in the same analysis, making it difficult to define the nature of the alleged discrimination or to determine an appropriate remedy. --------------------------------------------------------------------------- \20\ See, e.g., Berkshire Associates, Equal Employment Advisory Council, HR Analytical Service, Society for Human Resource Management, U.S. Chamber of Commerce, and World at Work. \21\ Unfortunately, these commenters did not cite any cases in which the court accepted these types of analysis to prove systemic compensation discrimination. OFCCP currently is studying methods for evaluating promotion practices for systemic discrimination and does not intend this discussion to foreclose exploration of such analysis for that purpose. --------------------------------------------------------------------------- Many commenters expressed concern about the complexity of multiple regression analysis and the burden of collecting the data required for such analysis.\22\ Others were concerned that [[Page 35131]] they would need to hire statisticians or other experts.\23\ OFCCP understands that multiple regression analysis is complicated and requires significant compensation and personnel information. However, because OFCCP will use the analysis as a basis for alleging and establishing systemic compensation discrimination, the agency believes that it must conduct an analysis that meets legal and statistical standards. Indeed, the pay grade method undoubtedly was simple, but OFCCP could not prove systemic compensation discrimination by using that method because it did not adhere to legal and statistical standards and it was widely criticized by contractors for those reasons. Thus, there is a natural tension between the accuracy of the analysis and the complexity and burden associated with it. As discussed above, OFCCP has attempted to balance these competing factors by using a tiered-review approach, in which a multiple regression analysis is conducted only after less complex and less intrusive analyses reveal indicators of potential discrimination. Moreover, OFCCP, not the contractor, has the burden of gathering data and conducting the multiple regression analyses. Contractors need not convert their data to electronic format for purposes of a compliance evaluation. If the data is already in electronic format, OFCCP will use it, but if not, OFCCP has the responsibility of taking the raw data and converting it into an electronic format which can be used in the regression analyses. Similarly, contractors are not required to hire experts to conduct the multiple regression analyses, OFCCP will conduct the multiple regression analyses. --------------------------------------------------------------------------- \22\ See, e.g., American Society of Employers, Gaucher Associates, Glenn Barlett Consulting Services, HR Analytical Services, National Industry Liaison Group, and Picha & Salisbury. \23\ See, e.g., Berkshire Associates Inc., HR Analytical Services, and Northeast Region Corporate Industry Liaison Group. --------------------------------------------------------------------------- Several commenters, such as EEAC and SHRM, requested that OFCCP provide more guidance about how the agency will determine whether to use a pooled regression model.\24\ OFCCP's determination will be based on the general objectives of attempting to cover as many employees as possible--in light of prohibitions on combining or comparing employees who are not similarly situated--and statistical requirements about the size of employee groupings necessary to conduct a meaningful regression analysis. As noted above, OFCCP will not compare employees who are not similarly situated as defined in these final interpretive standards. OFCCP added text to provisions (Paragraph 5 of ``Standards for Systemic Compensation Discrimination Under Executive Order 11246'' and Paragraph 5 of ``Standards for OFCCP Evaluation of Contractors' Compensation Practices'') of the final standards which make clear that pooled regressions must contain category factors that are defined to group only similarly-situated employees as defined in these standards. The pooled regression model affords OFCCP flexibility to conduct an analysis controlling for groupings of similarly-situated employees. However, OFCCP does not intend to use the pooled regression model on a widespread basis as a preferred approach. --------------------------------------------------------------------------- \24\ As noted in the preamble of the proposed interpretive standards and restated below, if separate regressions by categories of jobs would not permit OFCCP to assess the way the contractor's compensation practices impact on a significant number of employees, OFCCP may perform a ``pooled'' regression, which combines these categories of jobs into a single regression (while including an OFCCP-developed category factor in the ``pooled'' regression that controls for groupings of employees who are similarly situated based on work performed, responsibility level, and skills and qualifications). --------------------------------------------------------------------------- Several commenters, including Northeast Region Corporate Industry Liaison Group (NRCILG) and Association of Corporate Counsel (ACC), argued that OFCCP should provide the contractor with the regression model, not just the results of the regression model, in support of any NOV containing an allegation of systemic compensation discrimination. OFCCP agrees that providing such information to contractors will permit the agency to conciliate alleged violations effectively and expeditiously. OFCCP will provide the contractor with enough information about OFCCP's regression model for the contractor to understand the basis for OFCCP's determinations and for the contractor to replicate OFCCP's regression model. OFCCP has revised the interpretive standards (at Paragraph 2 of ``Standards for OFCCP Evaluation of Contractors' Compensation Practices'') to provide that OFCCP will attach such information to NOVs which contain an allegation of systemic compensation discrimination. With such information, contractors have an opportunity to discuss settlement with OFCCP or to attempt to rebut OFCCP's determination. Several commenters raised technical statistical issues regarding OFCCP's discussion of multiple regression analysis. PRI and David W. Peterson argued that OFCCP should include all interaction terms when using a pooled regression model, not just interaction terms that are statistically significant. These comments raise a statistical controversy regarding factor reduction techniques in regression analysis. While some statisticians disagree on the use of automated stepwise regression techniques to eliminate insignificant factors, most agree that some form of variable reduction is appropriate. As PRI noted, factors which are individually insignificant may in combination have a significant impact on the regression results. However, OFCCP considers there to be greater risks with full-factor modeling procedures. In particular, especially in the analyses of smaller workforces, the statistical precision in the measured disparities decreases as more factors are added to the analysis. As such, if several inconsequential factors are added to the analysis, they will lessen the ability to measure any gender or racial disparities. Furthermore, as the number of factors increases so does the possibility of a statistical problem called ``multicollinearity,'' which can produce inaccurate results. See Daniel L. Rubenfeld, Reference Guide on Multiple Regression, in Federal Judicial Center, Reference Manual on Scientific Evidence, at 197 (2d ed. 2000) (``When two or more variables are highly, but not perfectly, correlated--that is, when there is multicollinearity--the regression can be estimated, but some concerns remain. The greater the multicollinearity between two variables, the less precise are the estimates of individual regression parameters (even though there is no problem in estimating the joint influence of the two variables and all other regression parameters).''). Several commenters questioned OFCCP's adoption of a two standard deviation threshold for assessing statistical significance. Some commenters, including ACC, noted that the caselaw is more nuanced and does not support a bright-line rule. OFCCP recognizes that the courts have not announced an exact threshold for statistical significance. However, OFCCP has determined that it is helpful to adopt a bright-line rule of two standard deviations as an enforcement standard based on the need for uniformity and predictability in this area. Several commenters, including NILG, noted that statistical significance is dependent on sample size and questioned whether OFCCP would take that fact into consideration. OFCCP notes that standard tests for statistical significance already take sample size into account. Since smaller samples have a higher degree of variation, they require a larger observed disparity to achieve statistical significance. OFCCP recognizes when sample sizes become [[Page 35132]] very large, small and potentially non-meaningful disparities may be found to be statistically significant at the two or higher standard deviation threshold. See Daniel L. Rubenfeld, Reference Guide on Multiple Regression, in Federal Judicial Center, Reference Manual on Scientific Evidence, at 181 (2d ed. 2000) (``Other things being equal, the statistical significance of a regression coefficient increases as the sample size increases. Thus, a $1 per hour wage differential between men and women that was determined to be insignificantly different from zero with a sample of 20 men and women could be highly significant if the sample were increased to 200. Often, results that are practically signifi