RIN 1250-AA10, 71553-71575 [2020-24858]

Agencies

• DEPARTMENT OF LABOR
• Office of Federal Contract Compliance Programs

[Federal Register Volume 85, Number 218 (Tuesday, November 10, 2020)]
[Rules and Regulations]
[Pages 71553-71575]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-24858]


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DEPARTMENT OF LABOR

Office of Federal Contract Compliance Programs

41 CFR Parts 60-1, 60-2, 60-300, and 60-741

[OFCCP-2019-0007-0001]


RIN 1250-AA10

Nondiscrimination Obligations of Federal Contractors and 
Subcontractors: Procedures To Resolve Potential Employment 
Discrimination

AGENCY: Office of Federal Contract Compliance Programs, Labor.

ACTION: Final rule.

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SUMMARY: The U.S. Department of Labor (``the Department'') publishes 
this final rule to codify procedures that the Office of Federal 
Contract Compliance Programs (``OFCCP'' or ``the agency'') uses to 
resolve potential discrimination and other material violations of the 
laws and regulations administered by OFCCP applicable to Federal 
contractors and subcontractors, add clarifying definitions to specify 
the types of evidence OFCCP uses to support its discrimination 
findings, and correct the title of OFCCP's agency head.

DATES: These regulations are effective December 10, 2020.

FOR FURTHER INFORMATION CONTACT: Tina Williams, Director, Division of 
Policy and Program Development, Office of Federal Contract Compliance 
Programs, 200 Constitution Avenue NW, Room C-3325, Washington, DC 
20210. Telephone: (202) 693-0103 (voice) or (202) 693-1337 (TTY).

SUPPLEMENTARY INFORMATION:

Background

A. Legal Authority

    OFCCP administers and enforces Executive Order 11246, as amended

[[Page 71554]]

(E.O. 11246); section 503 of the Rehabilitation Act of 1973, as 
amended, 29 U.S.C. 793 (section 503); and the Vietnam Era Veterans' 
Readjustment Assistance Act of 1974, as amended, 38 U.S.C. 4212 
(VEVRAA); and their implementing regulations.\1\ Collectively, these 
laws require Federal contractors and subcontractors \2\ to take 
affirmative action to ensure equal employment opportunity, and not 
discriminate on the basis of race, color, religion, sex, sexual 
orientation, gender identity, national origin, disability, or status as 
a protected veteran. Additionally, E.O. 11246 prohibits a contractor 
from discharging or otherwise discriminating against applicants or 
employees who inquire about, discuss, or disclose their compensation or 
that of others, subject to certain limitations.
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    \1\ OFCCP will also begin enforcing Section 4 of Executive Order 
13950, ``Combating Race and Sex Stereotyping'' for Federal contracts 
or subcontracts entered on or after November 21, 2020. OFCCP is 
currently implementing this Executive order.
    \2\ Hereinafter, the terms ``contractor'' and ``Federal 
contractor'' are used to refer collectively to contractors and 
subcontractors that fall under OFCCP's authority, unless otherwise 
expressly stated.
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    Issued in 1965, and amended several times in the intervening years, 
E.O. 11246 has two principal purposes. First, it prohibits covered 
Federal contractors and subcontractors from discriminating against 
employees and applicants because of race, color, religion, sex, sexual 
orientation, gender identity, national origin, or because they inquire 
about, discuss, or disclose their compensation or that of others, 
subject to certain limitations. Second, it requires covered Federal 
contractors and subcontractors to take affirmative action to ensure 
equal employment opportunity.
    The requirements in E.O. 11246 generally apply to any business or 
organization that (1) holds a single Federal contract, subcontract, or 
federally assisted construction contract in excess of $10,000; (2) has 
Federal contracts or subcontracts that combined total in excess of 
$10,000 in any 12-month period; or (3) holds Government bills of 
lading, serves as a depository of Federal funds, or is an issuing and 
paying agency for U.S. savings bonds and notes in any amount. Supply 
and service contractors with 50 or more employees and a single Federal 
contract or subcontract of $50,000 or more also must develop and 
maintain an affirmative action program that complies with 41 CFR part 
60-2. Construction contractors have different affirmative action 
requirements under E.O. 11246 at 41 CFR part 60-4.
    Enacted in 1973, and amended since, the purpose of section 503 is 
twofold. First, section 503 prohibits employment discrimination on the 
basis of disability by Federal contractors. Second, it requires each 
covered Federal contractor to take affirmative action to employ and 
advance in employment qualified individuals with disabilities. The 
requirements in section 503 generally apply to any business or 
organization that holds a single Federal contract or subcontract in 
excess of $15,000.\3\ Contractors with 50 or more employees and a 
single Federal contract or subcontract of $50,000 or more also must 
develop and maintain an affirmative action program that complies with 
41 CFR part 60-741, subpart C.
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    \3\ Effective October 1, 2010, the coverage threshold under 
section 503 increased from $10,000 to $15,000, in accordance with 
the inflationary adjustment requirements in 41 U.S.C. 1908. See 
Federal Acquisition Regulation; Inflation Adjustment of Acquisition-
Related Thresholds, 75 FR 53129 (Aug. 30, 2010).
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    Enacted in 1974 and amended in the intervening years, VEVRAA 
prohibits Federal contractors and subcontractors from discriminating 
against employees and applicants because of status as a protected 
veteran (defined by the statute to include disabled veterans, recently 
separated veterans, Armed Forces Service Medal Veterans, and active 
duty wartime or campaign badge veterans). It also requires each covered 
Federal contractor and subcontractor to take affirmative action to 
employ and advance in employment these veterans. The requirements in 
VEVRAA generally apply to any business or organization that holds a 
single Federal contract or subcontract in excess of $150,000.\4\ 
Contractors with 50 or more employees and a single Federal contract or 
subcontract of $150,000 or more also must develop and maintain an 
affirmative action program that complies with 41 CFR part 60-300, 
subpart C.
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    \4\ Effective October 1, 2015, the coverage threshold under 
VEVRAA increased from $100,000 to $150,000, in accordance with the 
inflationary adjustment requirements in 41 U.S.C. 1908. See Federal 
Acquisition Regulation; Inflation Adjustment of Acquisition-Related 
Thresholds, 80 FR 38293 (July 2, 2015).
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    Pursuant to these laws, receiving a Federal contract comes with a 
number of responsibilities. Contractors are required to comply with all 
provisions of these laws as well as the rules, regulations, and 
relevant orders of the Secretary of Labor. Where OFCCP finds 
noncompliance under any of the three laws or their implementing 
regulations, it utilizes established procedures to either facilitate 
resolution \5\ or proceed to administrative enforcement as necessary to 
secure compliance.\6\ A contractor found in violation who fails to 
correct violations of OFCCP's regulations may, after the opportunity 
for a hearing, have its contracts canceled, terminated, or suspended 
and/or may be subject to debarment.\7\
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    \5\ 41 CFR 60-1.28, 60-1.33, 60-300.62, 60-300.64, 60-741.62, 
and 60-741.64; Federal Contract Compliance Manual Chapter 8 (Dec. 
2019); Directive 2019-02, ``Early Resolution Procedures'' (Nov. 30, 
2018); Directive 2018-01, ``Use of Predetermination Notices (PDN)'' 
(Feb. 27, 2018).
    \6\ 41 CFR 60-1.26, 60-300.65, and 60-741.65.
    \7\ 41 CFR 60-1.27, 60-300.66, and 60-741.66.
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B. Overview of Rule

    The Department publishes this final rule to increase clarity and 
transparency for Federal contractors, establish clear parameters for 
OFCCP resolution procedures, and enhance the efficient enforcement of 
equal employment opportunity laws. The rule will help OFCCP to increase 
the number of contractors that the agency evaluates and focus on 
resolving stronger cases through the strategic allocation of limited 
agency resources. The procedures codified in the final rule aim to 
achieve that end by increasing the transparency of OFCCP's operations 
so that contractors and OFCCP can resolve potential violations through 
a clear, mutual understanding of the issues. The final rule also 
enables OFCCP to pursue resolution of stronger cases efficiently and as 
early in the compliance evaluation process as possible, through the 
Predetermination Notice (PDN) procedures and the early resolution 
conciliation option. Critically, the final rule establishes consistent 
parameters for findings and preliminary findings of discrimination, and 
provides contractors with more certainty as to OFCCP's operative 
standards for compliance evaluations, and provides guardrails on the 
agency's issuance of pre-enforcement notices. The Department issues 
this rule as an exercise of its enforcement discretion to focus OFCCP's 
resources on those cases with the strongest evidence. This approach is 
neither compelled nor prohibited by Title VII and OFCCP case law.
    On December 30, 2019 (84 FR 71875), the Department published a 
notice of proposed rulemaking (NPRM) to codify provisions that provide 
contractors with greater certainty about the procedures that OFCCP 
follows during compliance evaluations to resolve employment 
discrimination and other material violations of the laws it enforces. 
Specifically, the Department proposed

[[Page 71555]]

to codify two formal notices that the agency uses when it finds 
potential violations: The PDN and the Notice of Violation (NOV). Since 
1988, these procedures have been embedded in the Federal Contract 
Compliance Manual (FCCM), the primary document used by agency staff as 
the procedural framework for the execution of quality and timely 
compliance evaluations and complaint investigations. The Department 
proposed to clarify the different types of evidence that it uses to 
support a PDN or NOV through the addition of definitions for 
``statistical evidence'' and ``nonstatistical evidence.'' To increase 
efficiency, the Department also proposed to codify an option that 
allows contractors to expedite the conclusion of a compliance 
evaluation by entering directly into a conciliation agreement prior to 
issuance of a PDN or NOV. Finally, the Department proposed to update 
outdated references to the official title of OFCCP's agency head from 
``Deputy Assistant Secretary'' to ``Director.''
    After careful consideration of the comments received in response to 
its proposal, the Department has decided to finalize the rule with 
several key changes. First, the final rule clarifies that the 
evidentiary standards OFCCP must meet in order to issue a PDN in a 
discrimination case must also be met before issuing NOVs. Second, OFCCP 
changed the terms that the final rule defines from ``statistical 
evidence'' and ``nonstatistical evidence'' to ``quantitative evidence'' 
and ``qualitative evidence,'' to provide greater clarity as to the 
types of evidence that OFCCP collects and how it uses the different 
types of evidence to support the issuance of pre-enforcement notices. 
Third, the final rule differentiates the procedures followed for 
disparate treatment and disparate impact theories of discrimination, 
which have separate, although similar, elements, and provides clarity 
on the evidentiary standards OFCCP will have to meet to issue pre-
enforcement notices under each legal theory. Fourth, the final rule 
requires OFCCP to provide qualitative evidence supporting a finding of 
discriminatory intent for all cases proceeding under a disparate 
treatment theory, subject to certain enumerated exceptions. Fifth, in 
order to issue a PDN or NOV in cases involving a disparate impact 
theory of discrimination, the final rule requires OFCCP to identify the 
policy or practice of the contractor causing the adverse impact with 
factual support demonstrating why such policy or practice has a 
discriminatory effect. Sixth, the final rule clarifies that OFCCP must 
explain in detail the basis for its findings in pre-enforcement 
notices, obtain approval from the OFCCP Director or acting agency head, 
and, upon the contractor's request, provide the model and variables 
used in the agency's statistical analysis and an explanation for any 
variable that was excluded from the statistical analysis. Seventh, in 
the final rule OFCCP extends the amount of time contractors have to 
respond to a PDN to 30 days with the possibility of extension, as 
opposed to the 15 days proposed in the NPRM, in response to comments 
requesting more time to respond. These changes are fully explained 
below. In addition, in response to several commenters, OFCCP provides 
additional guidance in this preamble on how it will measure practical 
significance.
    This final rule is an Executive Order (E.O.) 13771 regulatory 
action. Pursuant to the Congressional Review Act (5 U.S.C. 801 et 
seq.), OIRA designated that this rule is not a ``major rule,'' as 
defined by 5 U.S.C. 804(2). Details on the estimated costs of this rule 
can be found in the economic analysis below.

C. Need for Rulemaking

    As stated above, the Department believes this rule is needed to 
increase clarity and transparency for Federal contractors, establish 
clear parameters for OFCCP resolution procedures, and enhances the 
efficient enforcement of equal employment opportunity laws, but one 
commenter, a compliance consulting firm, specifically questioned the 
need for rulemaking. The commenter objected to codification of OFCCP's 
resolution procedures, asserting that it would be better for OFCCP to 
update the FCCM or the agency's directives system. OFCCP is guided by 
four central principles: Certainty, efficiency, recognition, and 
transparency. This focus is informed at least in part by criticisms the 
agency received in previous years that OFCCP has at times lacked 
sufficient transparency, clarity, certainty, and timeliness in its 
dealings with contractors, and criticisms stating that the agency has 
brought cases without an adequate evidentiary foundation.\8\ While many 
of these criticisms have been addressed by directives and other 
guidance in the intervening years, this final rule further addresses 
such concerns by codifying procedures that already exist in the FCCM 
and agency guidance with some additional modifications to improve 
clarity and transparency. The FCCM and agency directives are not 
legally binding and have not gone through formal notice and public 
comment. Therefore, they do not provide the same level of certainty 
that this final rule does. See, e.g., Promoting Regulatory Openness 
Through Good Guidance (PRO Good Guidance), 85 FR 53163 (Aug. 28, 2020); 
see also E.O. 13924, Sec. 6(e), 85 FR 31353, 31355 (May 22, 2020) 
(``All rules of evidence and procedure should be public, clear, and 
effective.''); id. Sec. 6(i) (``Administrative enforcement should be 
free of unfair surprise.'').\9\ A notice-and-comment rulemaking process 
also ensures that the public's views are heard and that the agency 
gains the benefit of public input that can improve the content of the 
final rule. Codifying the use of PDNs, NOVs, and an early conciliation 
option promotes predictability, efficiency, and timeliness. 
Additionally, the final rule establishes guardrails on the agency's 
issuance of pre-enforcement notices and the allocation of agency 
resources by providing clear evidentiary standards that OFCCP must meet 
to pursue preliminary findings and findings. The Department will 
continue to examine means of furthering both these goals through other 
rulemakings and guidance documents, as appropriate.
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    \8\ See, e.g., U.S. Chamber of Commerce, OFCCP: Right Mission, 
Wrong Tactics--Recommendations for Reform (Sept. 21, 2017), 
www.uschamber.com/report/ofccp-right-mission-wrong-tactics-recommendations-reform.
    \9\ OFCCP will update the FCCM in light of this final rule and 
revise or repeal any directives as needed.
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Section by Section Analysis

A. Definitions

    To provide greater clarity and certainty to Federal contractors, 
the rule defines ``qualitative evidence'' and ``quantitative 
evidence,'' which OFCCP uses to support a finding or preliminary 
finding of discrimination in a PDN or NOV. In the NPRM, OFCCP proposed 
to add definitions for ``nonstatistical evidence'' and ``statistical 
evidence.'' In response to comments on the proposed definitions, the 
Department revises the terms to ``qualitative evidence'' and 
``quantitative evidence,'' respectively, and provides additional 
clarifying language in the final rule to address issues raised by 
commenters.
    The term ``qualitative evidence'' is defined in the final rule to 
include the various types of documents, testimony, and interview 
statements that OFCCP collects during its compliance evaluations 
relevant to a finding of discrimination, and clarifies the purposes for 
which it will be used.

[[Page 71556]]

    The term ``quantitative evidence'' is included to clarify the 
support needed for OFCCP to determine that there is a statistically 
significant disparity in a contractor's employment selection or 
compensation outcomes affecting a group protected under OFCCP's laws. 
The definition of ``quantitative evidence'' in the final rule also 
includes quantitative analyses, such as cohort analyses, which are 
comparisons of similarly situated individuals or small groups of 
applicants or employees that are numerical in nature but do not use 
hypothesis testing techniques. Both terms are germane to the resolution 
procedures that this rule codifies.
    The change in terminology helps better capture the distinction 
between these types of evidence. The term ``qualitative evidence'' 
gives an affirmative, descriptive label to the types of evidence that 
fall into that category. The term ``quantitative evidence'' better 
encapsulates OFCCP's analytical evidence given the agency's use of 
descriptive statistics and non-parametric and cohort analyses, in 
addition to a variety of statistical tests based on hypothesis testing. 
Quantitative analysis involves numerical comparisons, but it is not 
limited to the sort of hypothesis testing that OFCCP typically performs 
in systemic assessments of pay or selection outcomes, which might be 
more clearly thought of as ``statistical evidence.'' By contrast, the 
term ``quantitative evidence'' comfortably describes all these types of 
numerical analyses.
    The change in terminology also allows a clear delineation of the 
rules governing the sufficiency of the evidence required for OFCCP to 
issue a PDN or NOV. As explained more fully below, the Department has 
decided that, subject to certain exceptions, OFCCP will issue a PDN or 
NOV only if there is quantitative (i.e., statistical or other 
numerical) evidence, practical significance, and qualitative evidence. 
The broader definition of quantitative evidence means that OFCCP does 
not necessarily need statistical evidence; and the Department similarly 
changed the title of nonstatistical evidence to qualitative evidence. 
The exceptions to the general rule also use these modified definitions, 
as discussed below.
1. Qualitative Evidence
    The definition of ``qualitative evidence'' provides a nonexhaustive 
list of types of anecdotal and other evidence that OFCCP considers 
before and relies upon in issuing a PDN. Such evidence is not the 
result of statistical analysis or other quantitative comparisons, and 
may be probative of a contractor's discriminatory or non-discriminatory 
intent. In response to comments received, and in order to provide 
greater clarity, the definition in the final rule has been revised to 
further clarify the meaning of qualitative evidence, and to provide 
additional explanation regarding how OFCCP uses it during its 
compliance evaluations.
    Before issuing a PDN, OFCCP assesses qualitative evidence obtained 
during the course of its compliance evaluations. In order to proceed 
under a disparate treatment theory of liability, OFCCP must generally 
provide qualitative evidence that justifies a finding of discriminatory 
intent, whether on its own or in combination with quantitative 
evidence. Qualitative evidence in such cases may include factual 
testimony, interview statements, written communications, documentation, 
internal company policies, or other evidence that supports an inference 
of intentional discrimination towards members of a protected class, 
particularly when made by a decision maker involved in the action under 
investigation, or evidence that weighs against such an inference. 
Importantly, OFCCP may proceed with issuing a PDN where the qualitative 
evidence is particularly strong, such as when the agency encounters a 
facially discriminatory policy or a contractor has admitted to 
discriminatory conduct.
    Examples of qualitative evidence from previous OFCCP compliance 
reviews help illustrate the meaning of the term. For example, consider 
a company president who sent an email to managers stating his concern 
that women were unable to lift heavy objects and that, if women were 
hired for stockroom positions, there would be a higher risk of on-the-
job injuries, which would impact the company's profitability. If this 
rationale was used to exclude women from stockroom positions due to 
their sex, rather than basing selection on applicants' physical ability 
to perform the required tasks, the president's email would be an 
example of qualitative evidence supporting an inference of 
discriminatory intent. Often the evidence is less direct: In a hiring 
case involving management trainee positions for which prior sales and 
customer service experience were stated criteria, OFCCP gathered 
qualitative evidence regarding individual rejected applicants who had 
much stronger experience in those areas than certain hires.
    Qualitative evidence may include information obtained through 
testimony or other documentation of individuals who were denied 
information or who were provided misleading or contradictory 
information about the contractor's employment or compensation practices 
in circumstances that suggest discriminatory treatment based on a 
protected characteristic. OFCCP may also consider interview statements 
or other documentary evidence concerning a contractor using broad 
discretion or subjectivity in hiring, promotion, or compensation 
decisions in conjunction with evidence suggesting the discretion or 
subjectivity has been used to discriminate based on a protected 
characteristic, although the final rule clarifies that the mere fact 
broad discretion or subjectivity exists does not, in and of itself, 
demonstrate that an employment action is discriminatory.\10\ Testimony 
or interview statements that OFCCP relies upon in issuing a PDN may not 
consist wholly of mere assumptions or purely speculative reasoning 
about the contractor's actions, but must include some objective factual 
basis from which to infer discriminatory intent. For example, a 
witness's statement merely conveying his or her subjective belief that 
the contractor discriminated would not be sufficient. However, a 
witness's statement that a particular manager discriminated against him 
or her that was backed by specific examples of problematic or unequal 
treatment would be evidence of discriminatory intent.
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    \10\ See, e.g., OFCCP v. Analogic Corp., 2017-OFC-00001, at 41 
n.60 (Rec. Dec. & Order Mar. 22, 2019) (``[t]he fact that hiring 
criteria or practices are subjective, and are thus susceptible to 
discriminatory application, is only marginally relevant to the 
question of discriminatory intent in the absence of proof that the 
criteria were, in fact, applied in a discriminatory manner.'') 
(quoting Gay v. Waiters' & Dairy Lunchmen's Union, Local No. 30, 694 
F.2d 531, 554 (9th Cir. 1982)); see generally Wal-Mart Stores Inc. 
v. Dukes, 564 U.S. 338, 355 (2011) (holding policy of allowing 
supervisory discretion over employment matters showed ``the opposite 
of a uniform employment practice that would provide commonality 
needed for a class action'' claiming disparate treatment of female 
workers); cf. White v. Rice, 46 F.3d 1130 (4th Cir. 1995) (``such a 
subjective belief [of gender discrimination] cannot serve as the 
basis for judicial relief'').
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    OFCCP may also use qualitative evidence to rebut a contractor's 
explanation for statistical disparities or its critique of OFCCP's 
statistical analysis. For example, in one recent case a contractor 
argued that OFCCP should have included in its statistical analysis a 
variable to account for applicants who held an asbestos removal 
license, which was a requirement for employment. OFCCP presented 
qualitative evidence consisting of a hiring official's testimony that 
he hired workers without an asbestos removal license, testimony from an 
individual who attended a

[[Page 71557]]

recruiting session where the contractor stated that it provided a 4-day 
training course for new hires on asbestos removal, and testimony from 
the owner who started the asbestos training school onsite.\11\
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    \11\ See OFCCP v. WMS Solutions, Inc., 2015-OFC-09, (Rec. Dec. & 
Order May 12, 2020).
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    One comment requested that the final rule require anecdotal 
evidence as a condition of issuing a PDN, and that anecdotal evidence 
should be defined consistent with established authority as evidence 
that leads to an inference of disparate treatment. OFCCP has amended 
the final rule to require qualitative evidence, along with sufficient 
quantitative evidence and practical significance (as specified below), 
for all PDNs issued under a disparate treatment theory of liability, 
with clearly delineated exceptions. OFCCP has also revised the 
definition of qualitative evidence as described in the preceding 
paragraphs to clarify that anecdotal evidence includes facts that are 
relevant to determining a contractor's discriminatory or non-
discriminatory intent, the business necessity (or lack thereof) of a 
challenged policy or practice, or whether the contractor has otherwise 
complied with its non-discrimination obligations.\12\
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    \12\ To be clear, evidence demonstrating that the challenged 
selection procedure is consistent with business necessity does not 
need to be provided by OFCCP, but rather by the contractor. Once 
provided, however, such evidence may be relevant when the agency is 
determining whether to issue an NOV or SCN.
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    Other comments on OFCCP's proposed definition of ``nonstatistical 
evidence'' (now ``qualitative evidence'' in this final rule) sought to 
have testimony on the extent of ``subjectivity involved in making 
employment decisions'' removed as an example, or to provide further 
explanation as to how and when subjectivity could be used to support 
findings of discrimination. OFCCP declines to remove this example 
altogether because first-hand testimony about the level of subjectivity 
involved in a decision may, in certain cases, bolster other evidence of 
disparity.\13\ For example, in one case,\14\ OFCCP gathered qualitative 
evidence to investigate a hiring issue where African-American 
applicants were disproportionately screened out based on two 
disposition codes, one of which related to a subjectively applied 
credit check. In that case, OFCCP gathered statements from rejected 
applicants in the disfavored group who met all qualification 
requirements but, according to the contractor's disposition codes, were 
rejected because of a ``bad'' credit check without being given the 
opportunity to address the results. Additionally, OFCCP determined 
based on evidence obtained from the recruiters who evaluated the credit 
checks that the recruiters were unable to provide any objective 
standards that were used to screen out applicants. Such evidence 
demonstrating the level of subjectivity involved in employment 
decisions, in connection with other evidence, may be helpful to OFCCP 
in making a preliminary finding that the contractor then has an 
opportunity to rebut. However, as stated above, the Department agrees 
that the mere fact that a contractor has supervisory discretion in its 
employment decisions is not by itself probative of discriminatory 
intent. OFCCP has qualified the appropriate use of such evidence in the 
final rule, explaining in the regulatory text that documents about the 
extent of discretion or subjectivity involved in making employment 
decisions may be used as qualitative evidence, but only in conjunction 
with evidence suggesting the discretion or subjectivity has been used 
to discriminate based on a protected characteristic.
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    \13\ Watson v. Fort Worth Bank & Trust, 487 U.S. 977, 990-91 
(1988) (``If an employer's undisciplined system of subjective 
decision-making has precisely the same effect as a system pervaded 
by impermissible intentional discrimination, it is difficult to see 
why Title VII's proscription against discriminatory actions should 
not apply in both. . . . We conclude, accordingly, that subjective 
or discretionary employment practices may be analyzed under the 
disparate impact approach. . . .'').
    \14\ OFCCP v. Bank of America, 1997-OFC-16, at 14 (Final Dec. & 
Order Apr. 21, 2016).
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    The Department notes that qualitative evidence may also weigh 
against a finding of discrimination, depending on the surrounding facts 
and circumstances. Although mere compliance with basic legal 
obligations will not be considered by the agency as dispositive 
evidence weighing against a finding of discrimination, OFCCP may 
consider testimony and other documentation that includes indicia that a 
contractor has made good faith efforts to comply with its equal 
employment opportunity obligations. For instance, a contractor may 
provide evidence that it has taken specific actions to advance equal 
employment opportunity as evidence that it did not discriminate 
intentionally. A contractor may also show evidence of actions taken to 
correct discrimination issues that a contractor may have identified 
during annual reviews of its selection and compensation systems. For 
disparate treatment cases, OFCCP will consider such evidence in 
conjunction with other qualitative and quantitative evidence to inform 
a decision on whether to issue a PDN alleging a pattern and practice of 
intentional discrimination.
2. Quantitative Evidence
    As discussed above, the final rule uses a definition of 
quantitative evidence rather than statistical evidence as in the 
proposed rule. The most important difference is that the definition of 
quantitative evidence is broader than statistical evidence. OFCCP uses 
a number of quantitative measures to determine whether a particular 
disparity in employment selection or compensation is sufficiently 
robust to support a finding of discrimination. The final rule thus 
clarifies that quantitative comparisons, such as ``cohort analyses,'' 
and summary data that reflect a contractor's differential selections 
and/or compensation between similarly situated individuals are included 
within the definition of ``quantitative evidence.'' OFCCP did not 
receive any comments suggesting that OFCCP reclassify this type of 
evidence, likely because the proposed definition of statistical 
evidence was specific to hypothesis-testing techniques. However, OFCCP 
believes the more exacting distinction in the final rule between 
quantitatively driven evidence and anecdotal evidence provides greater 
clarity to stakeholders. Comparative analyses, such as cohort analysis, 
while quantitative in nature, are distinct from hypothesis-based 
statistical measures. In some cases, statistical regression analysis 
cannot be reliably performed due to small sample sizes or the lack of 
meaningful, quantifiable variables by which to conduct the analysis. 
OFCCP may use numerical cohort analysis or small group assessment 
techniques in possible combination with a global test for these cases. 
The relevant employee group used for the small group analyses will 
generally align with how the contractor establishes specific positions 
and job groups, provided the job functions and responsibilities of 
particular positions are similar. In other circumstances, a general 
comparison of outcomes shown through simple numeric ratios may 
demonstrate disparities between the number of individuals hired in 
comparison to the available pool of qualified applicants in a protected 
membership class. For example, OFCCP can generally infer hiring 
discrimination when a contractor's workforce for a particular position 
is comprised of 95% from one racial group and 5% from all other racial 
groups combined, yet qualified applicants for that position comprised

[[Page 71558]]

50% for the first racial group and 50% for the other racial groups.
    OFCCP also uses statistical measures.\15\ As described in the NPRM, 
the most familiar statistical measure is the standard deviation, which 
represents a standardized measure of the difference between selection 
rates or compensation between groups. The U.S. Supreme Court has 
described a disparity as ``suspect to a social scientist'' when a 
statistic from ``large samples'' falls more than ``two or three 
standard deviations'' from its expected value under a null 
hypothesis.\16\ In general, the null hypothesis employed by OFCCP for 
purposes of its regression analyses assumes that the contractor's 
employment decisions are non-discriminatory and that there are no 
relevant differences between racial groups or genders in the relevant 
employee or applicant population after the agency controls for the 
major, measurable variables used by the contractor in its decision-
making.\17\ The greater the number of standard deviations, the less 
likely such a statistical disparity would be produced by chance were 
the null hypothesis correct, and the more likely the null hypothesis 
may reasonably be rejected.\18\
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    \15\ Some examples of the statistical measures that OFCCP may 
use are the Chi square, Fisher's exact, Z-test, and regression 
analyses that measure disparities in terms of standard deviations. 
As discussed further below, OFCCP considers statistical evidence in 
combination with qualitative evidence and the practical significance 
of a disparity as part of a comprehensive approach to decision-
making about the issuance of pre-enforcement notices.
    \16\ See Castaneda v. Partida, 430 U.S. 482, 496 n.17 (1977) 
(``As a general rule for large samples, if the difference between 
the expected value and the observed number is greater than two or 
three standard deviations, then the hypothesis that the jury drawing 
was random would be suspect to a social scientist.''); see also 
Hazelwood Sch. Dist. v. United States, 433 U.S. 299, 311 n.17 (1977) 
(providing that ``a fluctuation of more than two or three standard 
deviations would undercut the hypothesis that decisions were being 
made randomly with respect to race'').
    \17\ To be more precise, the null hypothesis for the statistical 
regression analyses that OFCCP conducts during its compliance 
reviews comprises the following three assumptions: (1) The 
contractor's decisions were made using non-biased criteria, (2) the 
skills and competencies evaluated by the contractor's non-biased 
criteria are normally distributed throughout the relevant employee 
or applicant population without regard to race or gender, and (3) 
the agency's statistical modeling is able to accurately capture the 
non-biased criteria used by the contractor in its selection and/or 
compensation decisions.
    \18\ See David H. Kaye & David A. Freedman, ``Reference Guide on 
Statistics,'' National Academy of Sciences (2011), www.fjc.gov/sites/default/files/2012/SciMan3D07.pdf, at 250-51.
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    To estimate the probability of selection and compensation 
disparities occurring by chance, OFCCP has historically conducted 
regression analyses of selection and compensation outcomes, which seek 
to control for the major, measurable variables used by the contractor 
in its decision-making. The final rule provides, as did the NPRM, that 
a disparity in employment selection rates or rates of compensation is 
statistically significant by reference to any one of these statements: 
(1) The disparity is two or more times larger than its standard error 
(i.e., a standard deviation of two or more); (2) the Z statistic has a 
value greater than two; or (3) the probability value is less than 0.05.
    OFCCP requests information from the contractor regarding the 
qualifications it seeks in hiring after identifying an initial 
disparity in selections. Likewise it requests additional information 
from contractors regarding pay variables after identifying initial 
indicators. OFCCP uses the information provided by the contractor to 
perform its regression analyses in an effort to tailor the analyses to 
each contractor's specific compensation or personnel practices 
pertaining to groupings of similarly situated individuals. In 
circumstances where the contractor does not provide such variables, 
OFCCP will utilize measurable variables generally used by employers in 
selection and compensation decisions in conducting the regression 
analysis.
    OFCCP may exclude a variable as tainted only when OFCCP determines 
that the variable reflects underlying discrimination or is being used 
as pretext. For example, if a contractor's compensation system depends 
heavily on the amount of revenue an employee brings in, but there is 
evidence that the contractor directs more lucrative sales prospects to 
men because they are men, it may be appropriate to exclude a revenue-
generation variable in the regression analysis to that extent. Another 
example may be where there is evidence that a contractor does not apply 
the variable in a uniform fashion, such as considering or weighing the 
variable differently for individuals belonging to different demographic 
groups. OFCCP will disclose any exclusions to the contractor at the 
time it provides its quantitative analysis and provide the contractor 
with an opportunity to rebut exclusion of the variable at issue.
    For OFCCP to consider the major, measurable parameters and 
variables that the contractor uses in its selection or compensation 
practices, the contractor must provide the preferred qualifications 
that it uses along with sufficient data for OFCCP to include such 
variables in its regression analysis. OFCCP will assess all of the 
variables that a contractor provides, including preferred 
qualifications. If OFCCP concludes that a variable should not be 
included in its analysis, it will explain why and allow the contractor 
an opportunity to rebut, as provided in the previous paragraph.
    The Department received a few comments specific to the proposed 
definition of ``statistical evidence'' (now ``quantitative evidence'' 
in the final rule). The comments suggest that OFCCP should ensure that 
the definition accounts for all factors impacting an employment or 
compensation decision, allows OFCCP to tailor models to contractor 
practices, and groups only similarly situated employees. OFCCP's 
definition of quantitative evidence provides a list of parameters and 
variables generally used by employers that OFCCP will use in its 
hypothesis testing. It does not list every conceivable variable, nor is 
that necessary.\19\ With that said, the list included in the definition 
is not exhaustive, and OFCCP has left the final definition flexible 
enough to include variables used by contractors in their employment 
practices. The definition will allow OFCCP to tailor statistical models 
based on contractor practices and form groups that meet the relevant 
``similarly situated'' standard in the context of a potential systemic 
discrimination case.
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    \19\ OFCCP need not account for every conceivable variable, See, 
e.g., Bazemore v. Friday, 478 U.S. 385, 400 (1986) (``[I]t is clear 
that a regression analysis that includes less than `all measurable 
variables' may serve to prove a plaintiff's case.''); McClain v. 
Lufkin Indus., Inc., 519 F.3d 264, 280 (5th Cir. 2008) (``However, 
in selecting an appropriate pool and performing regression analysis 
in Title VII cases, the Supreme Court has taught that a plaintiff's 
regression analysis need not include `all measurable variables.''') 
(citing Bazemore, 478 U.S. at 400); Mozee v. Am. Commercial Marine 
Serv. Co., 940 F.2d 1036, 1045 (7th Cir. 1991) (same).
---------------------------------------------------------------------------

    Another commenter requested clarification as to whether OFCCP's 
treatment of statistical evidence applies to only claims of disparate 
treatment, or also to disparate impact claims. OFCCP applies 
quantitative evidence, as defined in the final rule, in the same manner 
for disparate treatment and disparate impact class claims, as both 
claims require evidence of a disparity between favored and disfavored 
groups. In addition, for disparate treatment claims, quantitative 
evidence may support an inference of intentional discrimination, while 
for disparate impact claims, quantitative evidence may support an 
inference that a specific policy or practice is causing a disparate 
impact.

[[Page 71559]]

    The Department is aware that its statistical methods have been 
criticized, including by commenters in this rulemaking.\20\ OFCCP uses 
established statistical methods in its analyses, but nonetheless the 
Department is considering whether to further examine, either in a 
rulemaking or in subregulatory guidance, the agency's methodologies, 
including issues such as variables used, as it did in a 2018 directive 
on analyzing compensation.\21\ However, such a project is outside the 
scope of this rulemaking.
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    \20\ See supra note 8.
    \21\ Directive 2018-05, ``Analysis of Contractor Compensation 
Practices During a Compliance Evaluation'' (Aug. 24, 2018).
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3. Practical Significance
    Practical significance within the framework of equal employment 
opportunity enforcement refers to whether an observed disparity in 
employment opportunities or outcomes reflects meaningful harm to the 
disfavored group.\22\ The concept focuses on the contextual impact or 
importance of the disparity, rather than its likelihood of occurring by 
chance as in measures of statistical significance. OFCCP uses measures 
of practical significance as a tool of enforcement discretion to ensure 
it is targeting the strongest cases in its compliance reviews with the 
most compelling evidence, as well as a safeguard against the 
limitations of statistical modeling when attempting to explain complex 
human phenomena. Modeling need not and cannot capture every facet of 
human interaction in the workplace, or of contractors' evaluations of 
employees and applicants; but when outcomes among what appear to be 
similarly situated individuals differ greatly, OFCCP can be more 
confident that discrimination at work. Given OFCCP's limited resources, 
considering practical significance helps the agency ensure that it is 
directing its efforts effectively. Weighing practical significance as 
one of the thresholds for issuing pre-enforcement notices is thus an 
important part of OFCCP's comprehensive approach to compliance 
evaluations.
---------------------------------------------------------------------------

    \22\ See Practical Significance in EEO Analysis Frequently Asked 
Questions, Question #5, www.dol.gov/agencies/ofccp/faqs/practical-significance.
---------------------------------------------------------------------------

    Five comments addressed the issue of ``practical significance'' in 
OFCCP's compliance reviews. One comment recommended against such a 
definition due to variance among the measures of practical significance 
used in different employment scenarios, while another comment 
recommended against requiring practical significance prior to issuing a 
PDN as it would create an unnecessary barrier to investigating 
discrimination. Three commenters asked the Department to add a 
definition to the final rule. Two commenters sought clarity and greater 
certainty so that contractors would know how the term, as used in the 
regulation, would be applied. One comment added that a significant 
shortcoming of the proposed regulation was that it did not require an 
assessment of practical significance before issuing adverse findings. 
Another comment specifically requested a definition with express 
standards that OFCCP would apply in assessing practical significance so 
that OFCCP's use of practical significance could be part of 
negotiations with the contractor.
    The Department declines to add a specific definition for the term 
in the final rule because there is not a settled definition in the 
relevant academic literature and a variety of measures may be 
appropriate to use in any given case. The Department will continue to 
evaluate that position and propose a new rulemaking if it determines 
that such thresholds should be codified. However, in order to provide 
more clarity for contractors, the Department describes below common 
types of practical-significance measures and explains the metrics that 
OFCCP will customarily use moving forward. The Department believes that 
providing these guidelines for both its compliance officers and 
contractors will help make OFCCP's compliance reviews more transparent 
and efficient. These guidelines are particularly useful given that the 
final rule generally requires that OFCCP find any disparity that forms 
the basis for an allegation of discrimination to be practically 
significant before issuing a PDN or NOV.
    There is no single, specific measurement of practical significance 
appropriate to all compensation, hiring, promotion, and termination 
decisions. There are several common measures of practical significance 
discussed in scholarly literature from the labor economics field.\23\ 
Some of the measures of practical significance that have been used by 
OFCCP include size-of-selection shortfall; ``four-fifths rule'' (or 
``80 percent rule''); odds ratio; percentage of pay disparity; and the 
Type II squared semi-partial correlation coefficient. For example, with 
regard to using the size of shortfall, one practical significance 
threshold is a shortfall of at least two \24\ in a hiring analysis 
where, based on the number of applicants and hires, the expectation 
would be for a contractor to have hired at least two additional members 
of the disfavored group in a neutral selection process. The ``four-
fifths rule'' or ``80 percent rule'' is a measure of practical 
significance that relies on the ``impact ratio''--if the selection rate 
for a disfavored group is less than 80 percent of the selection rate 
for the favored group, it is generally considered evidence of adverse 
impact.\25\ Odds ratios can also be used, which refer to the ratio of 
the odds of one group being selected compared to the odds of another 
group. Odds ratio takes into account both the selection and rejection 
rates of the disfavored group and can bolster the statistically 
significant findings.\26\
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    \23\ For an overview of the most common measures of practical 
significance, see Frederick Oswald, Eric Dunleavy & Amy Shaw, 
``Measuring Practical Significance in Adverse Impact Analysis'' in 
Adverse Impact Analysis: Understanding Data, Statistics, and Risk, 
Scott B. Morris & Eric Dunleavy (Eds.) (2017), www.researchgate.net/publication/314245607_Measuring_practical_significance_in_adverse_impact_analysis
; and Joseph Gastwirth, ``Some Recurrent Problems in Interpreting 
Statistical Evidence in Equal Employment Cases,'' Law, Probability & 
Risk (2017).
    \24\ OFCCP v. TNT Crust, 2004-OFC-3, at 21 (Order on Liability 
Sept. 10, 2007) (``Generally, it is inappropriate to require 
validity evidence or to take enforcement action where the number of 
persons and the difference in selection rates are so small that the 
selection of one different person for one job would shift the result 
from adverse impact against one group to a situation in which that 
group has a higher selection rate than the other group.'').
    \25\ 41 CFR 60-3.4(D).
    \26\ But see Kaye & Freedman, supra note 18 at 235 (observing 
that ``[a]lthough the odds ratio has desirable mathematical 
properties, its meaning may be less clear than that of the selection 
ratio or the simple difference'').
---------------------------------------------------------------------------

    In the employment selection context, OFCCP will ordinarily use the 
impact ratio as its measure of practical significance, which is the 
ratio of employee selection rates between the disfavored and favored 
group. The impact ratio is a common measurement of practical 
significance that has been used since the 1970s.\27\ This statistical 
measure has the advantages of simplicity and clarity.
---------------------------------------------------------------------------

    \27\ See 41 CFR 60-3.4(D).
---------------------------------------------------------------------------

    OFCCP utilizes a sliding scale to assess whether the impact ratio 
in a particular matter indicates that a disparity is practically 
significant. OFCCP's determination to issue a pre-enforcement notice 
depends on the strength of the relevant qualitative and quantitative 
evidence, as well as whether the disparity is practically significant. 
OFCCP uses the following thresholds to assess practical significance in 
the selection context to determine whether to issue pre-enforcement 
notices:

[[Page 71560]]

Impact Ratio of Selection Rates
> 0.9 Very Unlikely
0.8-0.9 Unlikely
0.7-0.8 Likely
< 0.7 Very Likely

    An impact ratio of 0.8 is a frequently cited benchmark in the equal 
employment opportunity literature for determining whether the impact 
ratio of a selection disparity is practically significant, as described 
above, which is why OFCCP adopts it as the hinge point between a likely 
and unlikely finding of practical significance for selection 
decisions.\28\ For impact ratios below 0.9, OFCCP will apply its 
discretion in determining whether to issue a pre-enforcement notice 
according to the strength or weakness of the evidence in particular 
cases, but the agency will require strong additional supporting 
evidence when the impact ratio is between 0.8 and 0.9. In addition, 
because the impact ratio is a less effective statistical measure when 
selection rates are very small, OFCCP utilizes a 3% disparity between 
the selection rates of disfavored and favored groups as a general 
minimum threshold for a finding of practical significance, although 
there may be situations with very low selection rates, such as a 4% 
selection rate for the favored group and a 1% selection rate for the 
disfavored group, where the odds ratio and other evidence would still 
support a finding of practical significance.\29\
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    \28\ See 41 CFR 60-3.4; Uniform Guidelines on Employee Selection 
Procedures Section 4D (``A selection rate for any race, sex, or 
ethnic group which is less than four-fifths (\4/5\) (or eighty 
percent) of the rate for the group with the highest rate will 
generally be regarded by the Federal enforcement agencies as 
evidence of adverse impact, while a greater than four-fifths rate 
will generally not be regarded by Federal enforcement agencies as 
evidence of adverse impact.'').
    \29\ For example, if the selection rate of a favored group is 
10%, OFCCP will generally not find practical significance unless the 
selection rate for the disfavored group is 7% or less, even though 
the impact ratio would be 0.7 (or less). See, e.g., Oswald, 
Dunleavy, & Shaw, ``Measuring Practical Significance in Adverse 
Impact Analysis,'' supra note 23, at 104 (``The spirit of the [4/
5ths] rule [i.e. that a selection disparity is not practically 
significant unless the impact ratio is less than 0.8] can . . . be 
violated when very small disparities do not satisfy the 4/5ths rule 
[and thus would be found practically significant]. For example, 
hiring 3.5% of disadvantaged applicants versus 5% of advantaged 
applicants is a mere 1.5% difference in selection rates, but is an 
impact ratio of [0.7] . . . .'').
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    In the compensation context, OFCCP's standard measure of practical 
significance will be the percentage difference in compensation, which 
refers to the percentage difference between the mean compensation of 
employees within the disfavored group in proportion to the mean 
compensation of employees within the favored group. As with selection 
rates, OFCCP's determination of whether to issue a pre-enforcement 
notice depends on the practical significance of the compensation 
disparity in combination with the strength of the relevant qualitative 
and quantitative evidence. OFCCP will use the following thresholds to 
assess practical significance in the compensation context:
Size of Compensation Disparity
< 1% Very Unlikely
1-2% Unlikely
2-5% Likely
> 5% Very Likely

    OFCCP has used a 1% compensation disparity as a threshold in some 
previous interactions with contractors, such that the agency did not 
proceed with issuing pre-enforcement notices if compensation 
disparities were below that level. This guidance formalizes that 
threshold as a clear benchmark for the issuance of pre-enforcement 
notices. For compensation disparities above 1%, the agency has 
discretion in determining whether to issue a pre-enforcement notice 
according to the facts and circumstances of individual cases, but OFCCP 
will be unlikely to determine that a compensation disparity below 2% is 
practically significant unless there is additional strong supporting 
evidence. When compensation disparities are greater than 5%, OFCCP will 
nearly always find that a compensation disparity is practically 
significant if the agency also determines that its statistical model is 
sound. In rare cases, OFCCP may also apply more rigorous practical 
significance tests to measure the import of compensation disparities, 
such as the standardized difference between disfavored and favored 
groups or the Type II squared semi-partial correlation, which help 
ensure the agency is applying its practical significance standard 
relatively uniformly across administrative cases.
    OFCCP will use the measures above to make an informed decision on 
the potential strength of the case and whether, in light of the 
quantitative and qualitative evidence, the size of an observed 
disparity justifies moving forward with enforcement procedures.

B. Resolution Procedures

    This final rule codifies many of OFCCP's currently used procedures 
with adjustments to provide greater clarity, certainty, and 
transparency to contractors, to ensure that OFCCP appropriately 
allocates its resources by proceeding with cases that have solid 
evidentiary support and meaningful impact, to establish guidelines and 
guardrails on the agency's issuance of pre-enforcement notices, and to 
encourage appropriate early resolution with contractors.
OFCCP's Existing Compliance Evaluation and Resolution Procedures
    OFCCP determines whether a Federal contractor has met the legal 
obligations of E.O. 11246, section 503, VEVRAA, and their implementing 
regulations during a compliance evaluation.\30\ The agency uses a 
neutral selection process to schedule contractors for compliance 
evaluations.\31\ A compliance evaluation consists of one or any 
combination of the following investigative procedures, as set forth in 
OFCCP's implementing regulations: A compliance review, an offsite 
review of records, a compliance check, or a focused review.\32\ With 
the exception of the compliance check, the purpose of which is to 
determine whether the contractor maintains required records and to 
provide related compliance assistance, the other types of compliance 
evaluations that OFCCP undertakes may result in the agency making a 
preliminary determination, through its collection and analysis of 
information provided by the contractor, that the information reviewed 
indicates the contractor has discriminated against members of a 
protected class in hiring, promotion, termination, compensation, or 
other employment practices. Because OFCCP evaluates all of a contractor 
establishment's employment processes, the agency has focused on 
identifying and resolving systemic discrimination. Findings often are 
supported by

[[Page 71561]]

statistical evidence, particularly in compliance reviews.
---------------------------------------------------------------------------

    \30\ OFCCP also ensures compliance with these laws by 
investigating complaints filed by applicants and employees who 
believe that a Federal contractor discriminated against them. 
However, the resolution procedures for complaints differ from 
compliance evaluations and would not be altered by this rule. For 
complaint resolution procedures, see FCCM Chapter 6 and 41 CFR 60-
1.24, 60-300.61, and 60-741.61. The FCCM is available at 
www.dol.gov/agencies/ofccp/manual/fccm.
    \31\ The majority of OFCCP's compliance evaluations are for 
supply and service contractors. OFCCP increased the number of 
contractors on its supply and service scheduling list over the past 
three fiscal years, from 801 in FY 2017 to 3,500 in FY 2019. The FY 
2020 scheduling list is comprised of 2,250 establishments. A 
description of OFCCP's current scheduling methodology for supply and 
service contractors is available on the agency's website at 
www.dol.gov/sites/dolgov/files/ofccp/scheduling/files/SL20R1_SupplyService_Methodology_FinalFEDQA508c.pdf. The 2020 
scheduling list for construction consists of 200 establishments. A 
description of OFCCP's current scheduling methodology for 
construction contractors is available at www.dol.gov/sites/dolgov/files/ofccp/scheduling/files/SL20R1_Construction_Methodology_FinalFEDQA508c.pdf.
    \32\ See 41 CFR 60-1.20(a), 60-300.60(a), and 60-741.60(a). The 
resolution procedures described in this rule do not apply to 
compliance checks.
---------------------------------------------------------------------------

    Preliminary findings of discrimination in a compliance evaluation 
trigger OFCCP's resolution procedures. At the beginning of this 
process, the agency discusses its preliminary findings with the 
contractor. This discussion also serves to familiarize the contractor 
with OFCCP's resolution procedures, including the agency's current 
options for early resolution.\33\ If the preliminary findings are not 
resolved at that stage, OFCCP formalizes the preliminary findings in a 
PDN, a letter that is sent to the contractor following review and 
approval by the Director or acting agency head.\34\ To determine 
whether the evidence of discrimination is sufficient to warrant a PDN, 
OFCCP considers whether a disparity identified during the compliance 
evaluation is practically significant and whether quantitative evidence 
and qualitative evidence supports the preliminary finding. OFCCP will 
always seek out qualitative evidence during compliance evaluations, 
regardless of the strength of the quantitative evidence. As discussed 
more fully below, there may be factors applicable in a particular case 
that explain why OFCCP could not obtain either quantitative or 
qualitative evidence during its evaluation.
---------------------------------------------------------------------------

    \33\ OFCCP prioritizes the early and efficient resolution of 
potential discrimination. See Directive 2019-02, ``Early Resolution 
Procedures'' (Nov. 30, 2018), www.dol.gov/agencies/ofccp/directives/2019-02. The rule does not codify OFCCP's early resolution 
procedures themselves. It does, however, provide a framework for 
OFCCP and contractors to explore expedited conciliation options, 
such as the early resolution procedures set forth in Directive 2019-
02.
    \34\ See Directive 2018-01, ``Use of Predetermination Notices 
(PDN)'' (Feb. 27, 2018). OFCCP issued this directive to ensure that 
PDNs be used in all compliance evaluations with preliminary 
discrimination findings, both individual and systemic. Directive 
2018-01 is available at www.dol.gov/agencies/ofccp/directives/2018-01. Prior to the directive, use of PDNs was discretionary and 
reserved for systemic discrimination findings. See FCCM, Chapter 8 
(detailing the procedures that OFCCP follows for issuing PDNs).
---------------------------------------------------------------------------

    OFCCP issues the PDN to encourage communication with contractors 
and provide them an opportunity to respond to preliminary findings 
prior to the issuance of a more formal NOV. If a contractor does not 
sufficiently rebut the preliminary findings identified in the PDN that 
evidence of unlawful discrimination exists, OFCCP issues the NOV 
following approval by the Director or acting agency head to notify the 
contractor that the agency found discrimination violations of one or 
more of the laws it enforces. Under this final rule, the PDN will 
explain the basis for the agency's preliminary findings, i.e., by 
identifying the statistically significant disparity or other 
quantitative evidence, describing the practical significance of that 
disparity, and describing how the relevant qualitative evidence 
supports the particular theory of discrimination. Upon request, OFCCP 
will also provide contractors with information sufficient to recreate 
the agency's quantitative findings and in some cases may be able to do 
so even before the PDN has been issued. Contractors are invited to 
respond to the PDN, and the agency must consider the response in 
determining whether to issue an NOV.
    The NOV lists the corrective actions that are required to resolve 
those violations, and invites conciliation. OFCCP responds in the NOV 
(or in a simultaneously provided reply) to any new arguments or 
information raised by the contractor in its PDN response.\35\ After 
issuing the NOV, OFCCP generally pursues a written conciliation 
agreement with any contractor willing to correct the violation or 
deficiency identified in the NOV.\36\ A conciliation agreement is a 
binding written agreement between a contractor and OFCCP that details 
specific contractor commitments, actions, or both that it will 
undertake in order to resolve the violations set forth in the 
agreement. Conciliation agreements were codified in OFCCP's regulations 
in 1979. OFCCP is committed to active engagement with the contractor to 
conciliate a matter, and has issued directives detailing how the agency 
will prioritize the efficient resolution of violations it finds in its 
compliance evaluations.\37\ If the contractor is unwilling to enter 
into a conciliation agreement to correct the violations, OFCCP issues a 
Show Cause Notice (SCN) requiring the contractor to provide reasons 
demonstrating why formal enforcement proceedings by the Solicitor of 
Labor or other appropriate action should not be instituted.
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    \35\ See FCCM, Chapter 8; see also FCCM, Key Terms and Phrases.
    \36\ In rare circumstances, OFCCP may determine that settlement 
is not appropriate and refer a matter at this stage directly to the 
Office of the Solicitor of Labor to pursue formal enforcement 
proceedings rather than pursuing a conciliation agreement. See 41 
CFR 60-1.26(b), 60-300.62, 60-300.65(a), 60- 741.62(a), 60-
741.65(a). OFCCP strongly disfavors this route.
    \37\ See Directive 2020-02, ``Efficiency in Compliance 
Evaluations'' (Apr. 17, 2020), www.dol.gov/agencies/ofccp/directives/2020-02; Directive 2020-03, ``Pre-Referral Mediation 
Program'' (Apr. 17, 2020), www.dol.gov/agencies/ofccp/directives/2020-03.
---------------------------------------------------------------------------

    Material violations that are not discriminatory in nature also 
trigger OFCCP's resolution procedures for compliance evaluations. 
Rather than initiating resolution with a PDN for violations that do not 
involve discrimination, OFCCP generally begins the process with an NOV 
before proceeding to a conciliation agreement,\38\ or the SCN as a last 
resort. For cases in which the contractor either denies access or 
otherwise fails to submit information requested in OFCCP's OMB-approved 
scheduling letters, OFCCP issues the SCN without first issuing an NOV 
for material violations that are non-discriminatory in nature; as 
discussed more fully later in this preamble, this practice will 
continue under this final rule.\39\
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    \38\ FCCM, Chapter 8F00; FCCM, Chapter 8H00. For example, OFCCP 
may issue an NOV and enter into a conciliation agreement for failure 
to maintain records in accordance with 41 CFR 60-1.12, 60-300.80, 
and 60-741.80, or for failure to maintain affirmative action 
programs as required by 41 CFR part 60-2, 41 CFR part 60-300, 
subpart C, and 41 CFR part 60-741, subpart C.
    \39\ See FCCM, Chapter 8D01 (explaining that OFCCP issues the 
SCN without first issuing an NOV when a contractor fails to provide 
the records, information, or data requested in the scheduling letter 
and when the contractor refuses to provide access to its premises 
for an onsite review).
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    Recently, OFCCP has promoted the efficient resolution of material 
violations for multi-establishment Federal contractors with early 
resolution procedures laid out in an agency directive.\40\ These 
procedures allow OFCCP and contractors to work together to resolve 
violations or indications of violations without resorting to formal 
process, including litigation before an administrative law judge.
---------------------------------------------------------------------------

    \40\ See Directive 2019-02, ``Early Resolution Procedures'' 
(Nov. 30, 2018), www.dol.gov/ofccp/regs/compliance/directives/dirindex.htm.
---------------------------------------------------------------------------

    In addition, OFCCP has recently prioritized alternative dispute 
resolution to help resolve cases at the conciliation or pre-litigation 
phase, which ensures prompt remedies and avoids the delay, expense, and 
uncertainty of litigation. OFCCP has established an Ombuds Service that 
can help facilitate settlement discussions at the conciliation stage, 
as well as a Pre-Referral Mediation Program that provides for a full 
pre-litigation administrative mediation following an SCN and prior to 
referral to the Solicitor of Labor. Although the rule text does not 
directly address the Ombuds Service or Pre-Referral Mediation Program, 
these programs are compatible and consistent with the goals and 
procedures established by the rule, and the agency intends to continue 
providing both programs in conjunction with these procedures.

[[Page 71562]]

Resolution Procedures Provisions of the Final Rule
    The Department proposed in the NPRM to codify many of OFCCP's 
resolution procedures in its E.O. 11246, section 503, and VEVRAA 
regulations at 41 CFR parts 60-1, 60-300, and 60-741, respectively. The 
proposed regulatory text was the same in each part, except that one 
subparagraph of the section 503 regulations, at 41 CFR 60-741.62(b), 
retains an existing provision concerning remedial benchmarks specific 
to the section 503 regulatory scheme that is not present in the other 
parts.
    Specifically, the Department proposed to codify the procedures that 
OFCCP follows when determining whether to issue a PDN or NOV for 
discrimination and other material violations. As a matter of 
enforcement discretion and prioritization of resources, the Department 
proposed issuing a PDN only after considering statistical evidence, 
practical significance, and nonstatistical evidence. Additionally, 
under the proposed rule, OFCCP would have only issued a PDN without 
nonstatistical evidence when OFCCP's statistical evidence indicates a 
confidence level of 99% or higher, which equates to three or more 
standard deviations or a p value of 0.01 or less. Furthermore, the 
Department proposed to codify the availability of an expedited 
conciliation option.\41\
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    \41\ The Department did not propose to codify OFCCP's early 
resolution procedures per se. Rather, the NPRM acknowledged the 
early resolution option, which is governed by agency directives.
---------------------------------------------------------------------------

    The Department has decided to finalize the early conciliation 
option and the codification of its PDN and NOV procedures with changes 
from the proposed rule, as noted above. To repeat, the significant 
changes are that the final rule clarifies that issuance of NOVs is 
governed by the same evidentiary standards as issuance of PDNs; 
clarifies the standards OFCCP uses when determining whether to issue a 
pre-enforcement notice under a disparate treatment and/or disparate 
impact theory of discrimination; requires OFCCP to provide qualitative 
evidence supporting a finding of discriminatory intent to proceed under 
a disparate treatment theory, subject to certain enumerated exceptions; 
requires OFCCP to identify the policy or practice of the contractor 
causing the adverse impact with factual support demonstrating why such 
policy or practice has a discriminatory effect to issue a PDN or NOV 
under a disparate impact theory; explains that OFCCP must explain in 
detail the basis for its finding (including, if applicable and as 
described further below, the reasons for any lack of qualitative 
evidence) and obtain the Director's (or acting agency head's) approval 
to issue a PDN or NOV; and provides that, upon the contractor's 
request, OFCCP will provide the model and variables used in its 
statistical analysis and an explanation for any variable that was 
excluded from the statistical analysis.
    In the rest of this section, the Department describes the final 
rule's resolution procedures, including the changes from the NPRM, and 
responds to relevant comments. The Department refers to the section and 
paragraph numbers in 41 CFR 60-1.33, which concerns E.O. 11246. As 
described below, the Department adopts the same provisions in the 
regulations for VEVRAA (41 CFR part 60-300) and section 503 (41 CFR 
part 60-741).
1. Predetermination Notice
    Section 60-1.33(a) of the final rule allows OFCCP to issue a PDN if 
a compliance evaluation indicates evidence sufficient to support a 
preliminary finding of disparate treatment or disparate impact,\42\ 
subject to certain parameters, which are discussed below.\43\ Multiple 
commenters sought clarity on what thresholds OFCCP would use in 
evaluating evidence supporting an allegation of disparate impact 
discrimination. The final rule provides clarity by providing distinct 
provisions for disparate treatment and disparate impact claims. It also 
requires the OFCCP Director or acting agency head to approve issuance 
of a PDN.
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    \42\ Here and elsewhere in this final rule, references to 
evidence sufficient to support a preliminary finding or finding of 
disparate treatment or disparate impact refer to the amount of 
evidence OFCCP requires to continue forward with its review. Whether 
the evidence is sufficient to pursue formal enforcement proceedings 
is a separate and later determination made by the Solicitor of 
Labor.
    \43\ One commenter recommended that OFCCP make PDNs mandatory 
rather than discretionary in cases involving discrimination. OFCCP 
made this policy change in 2018 with Directive 2018-01, the stated 
purpose of which is to ``establish the consistent use of PDNs for 
discrimination cases, both individual and systemic.'' Directive 
2018-01, ``Use of Predetermination Notices (PDN)'' (Feb. 27, 2018), 
www.dol.gov/agencies/ofccp/directives/2018-01. Since then, the 
change has been embedded in the FCCM and now this final rule.
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(a) Disparate Treatment Theory of Liability
    Subject to certain exceptions discussed below, paragraph (a)(1) 
provides that OFCCP may issue a PDN under a disparate treatment theory 
of liability if the agency (i) provides quantitative evidence; (ii) 
demonstrates that the unexplained disparity is practically significant; 
and (iii) provides qualitative 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.
    The NPRM would have required nonstatistical evidence if OFCCP's 
statistical evidence indicated a disparity of less than three standard 
deviations and, conversely, would have allowed claims to proceed 
without nonstatistical evidence if OFCCP's statistical evidence 
indicated a disparity of three standard deviations or greater. The 
Department has decided to require qualitative evidence in all disparate 
treatment cases as the general default. Qualitative evidence is very 
important to support a preliminary finding of intentional 
discrimination, which is a fundamental element of disparate treatment 
claims. Indeed, in some instances qualitative evidence is direct, 
powerful, and on its own can prove disparate treatment. Quantitative 
evidence of statistical significance alone, by contrast, can only 
provide an inference of intent because at base it is able to prove only 
that, if the null hypothesis is correct, then the observed outcome is 
highly unlikely to have occurred by chance. It thus remains possible 
that the observed statistical disparities were the result of something 
other than unlawful discrimination.\44\ Nevertheless, statistical 
evidence can be important evidence because it assesses actions taken by 
the company over a course of time and across multiple employees, which 
may be indicative of discriminatory intent.\45\ The final rule thus 
clarifies that there is no set quantum of qualitative evidence; rather,

[[Page 71563]]

the required strength of the qualitative evidence depends on the 
strength of the quantitative evidence and the extent of the practical 
significance.
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    \44\ See supra note 16. It is important to remember that a 
rejection of the null hypothesis due to the magnitude of a 
statistical disparity does not by itself mean that an alternative 
hypothesis--for example, that a contractor discriminated against its 
applicants or employees--is true. Instead, other assumptions 
underlying the null hypothesis (see supra note 17) could be flawed, 
and/or there may be alternative hypotheses that explain the data. 
See, e.g., Kaye & Freedman, supra note 18, at 257; see also Coleman 
v. Quaker Oats Co., 232 F.3d 1271, 1283 (9th Cir. 2000) (finding a 
disparity with a p-value of ``3 in 100 billion'' did not demonstrate 
age discrimination because the defendant ``never contend[ed] that 
the disparity occurred by chance, just that it did not occur for 
discriminatory reasons. When other pertinent variables were factored 
in, the statistical disparity diminished and finally disappeared''). 
Nevertheless, if there is a plausible alternative explanation, the 
factual basis for such explanation should be identified by the 
contractor during its audit so that the alternative may be included 
in OFCCP's model.
    \45\ Of course, in cases where there have been findings of 
discrimination, quantitative evidence may also demonstrate the harm 
suffered by the affected class.
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    As discussed above, the Department's definition of quantitative 
evidence includes nonstatistical, but quantitative, analysis such as 
cohort analyses. Subject to the enumerated exceptions in the final 
rule, qualitative evidence must also be present for OFCCP to issue a 
pre-enforcement notice in cases where OFCCP is relying on 
nonstatistical quantitative evidence for the same reason that 
qualitative evidence is required where OFCCP is relying on statistical 
evidence. Nonstatistical quantitative comparisons can also be used by 
OFCCP to support other statistical evidence that shows statistically 
significant disparities; however, OFCCP must also have qualitative 
evidence to proceed with the issuance of pre-enforcement notices in 
such cases unless one of the final rule's enumerated exceptions 
applies.
    Paragraph (a)(2) provides three exceptions to paragraph (a)(1)'s 
general criteria that OFCCP must satisfy when it alleges findings or 
preliminary findings of disparate treatment discrimination. The three 
exceptions encompass situations where the Department believes it is a 
worthwhile use of OFCCP's resources to proceed with a case despite not 
satisfying all three requirements of paragraph (a)(1). For the reasons 
stated above relating to the importance of qualitative evidence, the 
Department has not adopted the NPRM's proposal to allow PDNs to be 
issued on the basis of statistical evidence alone when the disparity 
shown was three standard deviations or more. However, as discussed more 
fully below, one of the exceptions allows OFCCP to proceed with a case 
if the agency finds an extraordinarily compelling disparity. In that 
situation, the reasons for requiring qualitative evidence have less 
force, and OFCCP deems it appropriate to continue without qualitative 
evidence.
    Paragraph (a)(2)(i) ensures that OFCCP can move forward with 
issuing a PDN when the qualitative evidence by itself is sufficient to 
support a preliminary finding of disparate treatment, regardless of 
quantitative evidence.\46\ For example, during a compliance review or 
focused review OFCCP could uncover direct evidence that a contractor 
took adverse employment action against a protected group of employees, 
or circumstantial evidence that, e.g., members of a protected group 
with superior qualifications were denied selections that were awarded 
to similarly situated members of another group with inferior 
qualifications. If this evidence were sufficiently strong, OFCCP should 
be able to move forward with a PDN without findings of statistical and 
practical significance, and paragraph (a)(2)(i) makes sure the agency 
has that flexibility.
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    \46\ See supra note 42. This is how individual discrimination 
cases are traditionally proven. See McDonnell Douglas Corp. v. 
Green, 411 U.S. 792, 802 (1973) (describing traditional burden-
shifting analysis under Title VII); see also Desert Palace Inc. v. 
Costa, 539 U.S. 90 (2003) (describing the burden of proof in mixed-
motive cases under Title VII).
---------------------------------------------------------------------------

    Paragraph (a)(2)(ii) is designed to capture the ``inexorable zero'' 
concept from Title VII case law and other rare situations where the 
numerical disparities are so overwhelming that, in OFCCP's judgment, 
additional evidence of discriminatory intent is unnecessary to support 
a preliminary finding.\47\ In the context of an OFCCP compliance 
evaluation, this could occur, e.g., when the disparity in selections 
for a given job between a favored and disfavored group is so 
extraordinarily compelling that by itself the evidence strongly 
supports a preliminary finding of disparate treatment. For example, a 
court in a famous Title VII case found the ``inexorable zero'' standard 
satisfied by a trucking company that had hired 57 white truckers in 
Atlanta but no black truckers--even though at the time Atlanta was 22% 
African-American--and in Los Angeles had hired 372 white truckers but 
only two black truckers.\48\
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    \47\ Cf. Int'l Bhd. of Teamsters v. United States, 431 U.S. 324, 
342 n.23 (1977) (``[The] fine tuning of the statistics could not 
have obscured the glaring absence of minority line drivers. As the 
Court of Appeals remarked, the company's inability to rebut the 
inference of discrimination came not from a misuse of statistics but 
from `the inexorable zero.' '') (citing United States v. T.I.M.E.-
D.C. Inc., 517 F.2d 299, 315 (5th Cir. 1975)); Valentino v. U.S. 
Postal Serv., 674 F.2d 56, 72-73 (D.C. Cir. 1982) (``small numbers 
are not per se useless, especially if the disparity shown is 
egregious. The `inexorable zero' can raise an inference of 
discrimination even if the subgroup analyzed is relatively 
small.''); cf. also Hazelwood Sch. Dist., 433 U.S. at 307-08 
(``Where gross statistical disparities can be shown, they alone may 
in a proper case constitute prima facie proof of a pattern or 
practice of discrimination.'') (citing Int'l Bhd. of Teamsters, 431 
U.S. at 339)); Analogic Corp., 2017-OFC-00001, at 39 (``Courts have 
held evidence of gross statistical disparity alone may be sufficient 
to establish a pattern and practice case of intentional 
discrimination.'').
    \48\ See T.I.M.E.-D.C., Inc., 517 F.2d at 315 n.29, vacated on 
other grounds, 431 U.S. 324 (1977) (vacating judgment with respect 
to individual relief but otherwise upholding the 5th Circuit's 
finding regarding the ``inexorable zero'' standard).
---------------------------------------------------------------------------

    The Department believes this safety valve for overwhelming 
quantitative evidence is appropriate for OFCCP's enforcement strategy. 
Nevertheless, the Department declines to lift the requirement for 
qualitative evidence in other cases. The Department acknowledges that 
the requirement for qualitative evidence in all other cases is neither 
compelled nor prohibited by Title VII case law. This is by design and 
central to the purpose of this rule. The Department is sensitive to 
past criticisms that OFCCP over-relied on statistical modeling or used 
models that did not properly account for contractors' legitimate, 
nondiscriminatory employment practices. The Department also wants to 
direct OFCCP's resources to the most compelling cases and those most 
likely to have a practical impact. Requiring qualitative evidence 
responds to those criticisms and better directs OFCCP's efforts. This 
requirement helps ensure that OFCCP's cases are well-grounded in fact, 
that its presentations are likely to be persuasive in resolution 
efforts, that its referrals for litigation are credible, and that it is 
using its resources effectively. This is also consistent with the view 
of commenters who argued that solely relying on statistical evidence is 
rarely appropriate in disparate treatment cases (where discriminatory 
intent must be established as the cause of the disparate treatment), 
and thus should be reserved for only egregious cases.\49\ As stated 
previously, OFCCP will seek to develop supporting qualitative evidence 
in all of its cases, including those with gross numerical or 
statistical disparities. In those rare circumstances where OFCCP issues 
a PDN based on evidence of extraordinary numerical or statistical 
disparities and no supporting qualitative evidence, OFCCP will provide 
an explanation for the lack of qualitative evidence and justification 
for the agency's decision to proceed with resolution procedures in the 
PDN, allowing the contractor an opportunity to respond.
---------------------------------------------------------------------------

    \49\ Supra note 47.
---------------------------------------------------------------------------

    Finally, paragraph (a)(2)(iii) is an exception clarifying that 
OFCCP may issue a PDN in the absence of qualitative evidence if the 
contractor has prevented OFCCP from compiling qualitative evidence. For 
example, OFCCP may proceed without qualitative evidence if the 
contractor has prevented OFCCP from interviewing employees who may have 
knowledge of facts relevant to a preliminary indicator of 
discrimination during compliance evaluations, or has destroyed or 
failed to produce personnel or employment records that similarly may 
have contained information relevant to a preliminary indicator of 
discrimination.\50\ The Department

[[Page 71564]]

believes this exception is necessary to avoid creating an incentive for 
contractors not to comply with OFCCP compliance evaluations.
---------------------------------------------------------------------------

    \50\ See 41 CFR 60-1.12(e), 60-1.43, 60-3.15, 60-300.80-81, and 
60-741.80-81.
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(b) Disparate Impact Theory of Liability
    Paragraph (a)(3) sets out OFCCP's evidentiary standard for findings 
or preliminary findings of discrimination premised on a disparate 
impact theory. Title VII's statutory text, as well as interpretive case 
law, requires not only that the plaintiff must demonstrate the 
existence of an adverse impact on a protected group, but that it must 
identify the particular employment practice causing that impact, unless 
the elements of the employer's decision-making process cannot be 
separated for analysis.\51\ For findings of discrimination premised on 
a disparate impact theory, paragraph (a)(3) therefore requires OFCCP to 
first demonstrate that a disparity has both sufficient quantitative 
evidence and is practically significant (paragraphs (a)(3)(i) and 
(ii)), and second to identify the policy or practice of the contractor 
causing the disparate impact (paragraph (a)(3)(iii)).\52\ As the 
Supreme Court has said, disparate-impact liability is concerned not 
with statistical imbalances alone but on the eradication of policies 
that form ``artificial, arbitrary, and unnecessary barriers'' to 
disfavored groups.\53\
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    \51\ 42 U.S.C. 2000e(k)(1). See generally Ricci v. DeStefano, 
557 U.S. 557, 577-78 (2009).
    \52\ Consistent with note42, supra, the final rule does not 
require OFCCP, at the PDN stage, to provide evidence that would 
rebut the contractor's burden of demonstrating that the selection 
procedure in question has been properly validated. This is in part 
because, under OFCCP's regulations, a contractor is not required to 
validate selection procedures until it is aware of an adverse 
impact, see 41 CFR 60-3.4(C), which it may not be until OFCCP issues 
the PDN.
    \53\ Texas Dep't of Hous. & Cmty. Affairs v. Inclusive 
Communities Project, Inc., 576 U.S. 519, 543 (2015) (quoting Griggs 
v. Duke Power Co., 401 U.S. 424, 431 (1971)); see also id. at 542 
(``[A] disparate-impact claim that relies on a statistical disparity 
must fail if the plaintiff cannot point to a defendant's policy or 
policies causing that disparity. A robust causality requirement 
ensures that `[r]acial imbalance . . . does not, without more, 
establish a prima facie case of disparate impact' and thus protects 
defendants from being held liable for racial disparities they did 
not create.'') (quoting Wards Cove Packing Co. v. Atonio, 490 U.S. 
642, 653 (1989)). Although Inclusive Communities involved a 
disparate impact claim under the federal Fair Housing Act, courts 
have applied the case in the Title VII context as well. See, e.g., 
Davis v. District of Columbia, 925 F.3d 1240, 1251 (D.C. Cir. 2019); 
Gagliano v. Mabus, No. 15-cv-2299, 2019 WL 3306293, at *2 (S.D. Cal. 
July 23, 2019); see also Inclusive Communities, 576 U.S. at 539-40 
(describing the analysis required under the FHA as analogous to the 
disparate impact standard under Title VII).
---------------------------------------------------------------------------

    OFCCP received a few comments seeking clarity on whether the 
evidentiary thresholds for issuance of a PDN apply to disparate impact 
findings or just disparate treatment findings and stating that 
statistical evidence is only relevant to disparate treatment because 
the NPRM suggested that statistical evidence can support an inference 
of discriminatory intent. The quantitative evidence and practical 
significance requirements apply to findings and preliminary findings of 
disparate impact. The Department here requires the same level of 
quantitative evidence as it does for disparate treatment claims--in 
both kinds of cases, typically a two-standard-deviation showing of 
disparate results after accounting for relevant variables to establish 
a statistically significant disparity. OFCCP also requires practical 
significance for the same reasons it requires it for disparate 
treatment claims: to prioritize agency resources, to be especially 
confident in its statistical findings, and to ensure it is bringing 
compelling cases.\54\
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    \54\ Of course, quantitative evidence also demonstrates that a 
disparity exists.
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    For disparate impact cases, the PDN must also specifically identify 
the policy or practice that is causing an adverse impact,\55\ and 
provide factual support to explain how the particular policy or 
practice is causing the discriminatory effect. This is typically 
accomplished using statistical evidence to demonstrate that the 
identified policy or practice specifically is causing the disparity. 
However, consistent with the Title VII statute and relevant case law, 
if the elements of the decision-making process cannot be separated for 
analysis, OFCCP may issue the PDN without identifying the exact step 
causing disparate impact.\56\ This could include, for instance, if a 
contractor has destroyed or failed to maintain records of its 
employment policies or processes preventing OFCCP from analyzing 
specific steps of the process. OFCCP expects to invoke this exception 
rarely.
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    \55\ 41 CFR 60-3.3A; see also Analogic Corp., 2017-OFC-00001, at 
31 (``In order to establish a disparate impact violation, OFCCP must 
demonstrate Analogic `uses a particular employment practice that 
causes a disparate impact on the basis of [a protected 
characteristic.]'') (citing 42 U.S.C. 2000e-2(k)(1)(A)(i); Wal-Mart 
Stores Inc. v. Dukes, 564 U.S. 338 (2011); Wards Cove Packaging Co., 
490 U.S. at 657; Connecticut v. Teal, 457 U.S. 440, 446 (1982); 
Robinson v. Metro-North Commuter R.R. Co., 267 F.3d 147, 160 (2d 
Cir. 2001)); see also Griggs, 401 U.S. at 431 (``[Title VII] 
proscribes not only overt discrimination but also practices that are 
fair in form, but discriminatory in operation. The touchstone is 
business necessity. If an employment practice which operates to 
exclude [African Americans] cannot be shown to be related to job 
performance, the practice is prohibited.''); see also TNT Crust, 
2004-OFC-3, at 35 (finding employer discriminated against Hispanic 
applicants by requiring that laborers possess basic English skills, 
which resulted in an adverse impact and was not demonstrably related 
to legitimate business necessities) (citing Griggs, 401 U.S. at 431-
32)).
    \56\ 42 U.S.C. 2000e-(k)(1)(B)(i); see also Analogic Corp., 
2017-OFC-00001, at 33 (``Courts have determined the Title VII 
exception to the general rule requiring a plaintiff to identify a 
specific employment practice caused the disparity is applicable only 
when the plaintiff has demonstrated the elements of the decision-
making process cannot be separated for analysis.'') (citing Davis v. 
Cintas Corp., 717 F.3d 476, 496 (6th Cir. 2013); Bennett v. Nucor 
Corp., 656 F.3d 892, 817-18 (8th Cir. 2011)); Lufkin Indus., Inc., 
519 F.3d at 278 (collecting cases in which courts found employment 
practices were ``not capable of separation for analysis'').
---------------------------------------------------------------------------

(c) Disclosure to Contractors
    Multiple comments asked OFCCP to provide more descriptive detail on 
the evidence that supports preliminary findings in the PDN, to include 
the type of employment action resulting in a preliminary finding, and 
to provide enough information so the contractor can investigate the 
preliminary findings and respond. The agency has taken significant 
steps in recent years to be more transparent and believes that the 
level of specificity that contractors seek is already required by the 
FCCM and recent directives.\57\ To provide greater certainty, the 
agency recommits specifically to be transparent in disclosing the 
quantitative evidence, the determination of potential significance, and 
a summary of the relevant qualitative evidence OFCCP has accumulated, 
where applicable. Paragraph (a)(4) requires that the PDN disclose the 
quantitative and qualitative evidence relied upon by OFCCP in 
sufficient detail to allow contractors to investigate allegations and 
meaningfully respond. The PDN also must contain an explanation for the 
agency's finding of practical significance. However, OFCCP may withhold 
personal identifying information from the description of the 
qualitative evidence if the information is protected from disclosure 
under recognized governmental privileges, or if providing that 
information would otherwise violate confidentiality or privacy 
protections afforded by law. As stated previously, when the exception

[[Page 71565]]

in paragraph (a)(2)(ii) applies, OFCCP will disclose why, in the 
absence of qualitative evidence, the agency is issuing the PDN based on 
evidence of an extraordinarily compelling disparity alone. In addition, 
upon the contractor's request, OFCCP must also provide the model and 
variables used in its statistical analysis and an explanation for why 
any variable proposed by the contractor was excluded from the 
statistical analysis.
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    \57\ Chapter 8E01 of the FCCM states, ``[The PDN] description 
will include identification of the discrimination victim(s), e.g., 
the affected class or individual(s); the employment action(s) giving 
rise to the preliminary findings; and the basis for the liability 
determination (e.g., disparate treatment in the selection of 
minority technicians). The PDN should also include facts and the 
results of analyses that support the preliminary determination and 
recommended remedies. Typically, the PDN includes the magnitude of 
the impact in terms of shortfalls or pay disparities and the measure 
of statistical certainty (e.g., standard deviation).'' See also 
FCCM, Letter L-35. OFCCP also provides guidance on what to 
communicate to contractors in Directive 2018-08, ``Transparency in 
OFCCP Compliance Activities'' (Sept. 2018), www.dol.gov/agencies/ofccp/directives/2018-08, and Directive 2018-05, see supra note 21.
---------------------------------------------------------------------------

    One commenter sought clarity on how OFCCP weighs evidence provided 
by the contractor to rebut preliminary findings. However, further 
guidance on the weighing of that kind of evidence is not well-suited to 
regulatory text, as how OFCCP evaluates a contractor's response depends 
on the particular facts under review in each case. That same commenter 
expressed concern regarding the amount of qualitative evidence required 
before issuing a PDN and asked OFCCP to include language in the final 
rule to quantify how much nonstatistical evidence is needed for OFCCP 
to make a preliminary finding. As discussed previously, the amount of 
evidence available--as well as its quality, credibility, and content, 
which may range from innocuous to very concerning--will depend on the 
facts of each compliance evaluation, and it is impracticable for OFCCP 
to prescribe a set volume or specific characteristics of qualitative 
evidence that would be sufficient in every conceivable evaluation. The 
evidence OFCCP examines and chooses to reject or rely upon will be 
based on the overall facts and circumstances of each particular case. 
The PDN will provide sufficient information to contractors to be able 
to understand OFCCP's finding and to meaningfully respond.
    Similarly, the Department received comments seeking a definition 
for ``material'' violation and clarity on what the agency considers 
``preliminary findings.'' The Department did not propose these 
definitions in the NPRM and declines to add definitions for these terms 
to the final rule. Definitions for the terms are not needed. The final 
rule provides significant clarity regarding, and guardrails for 
issuing, pre-enforcement notices. To the extent commenters were 
concerned with material but non-discriminatory violations, (e.g., 
recordkeeping, failure to implement audit and reporting systems), those 
also trigger OFCCP's resolution procedures for compliance 
evaluations.\58\ Rather than sending a PDN for potential violations 
that do not involve discrimination, OFCCP generally sends an NOV before 
proceeding to a conciliation agreement, or the SCN as a last 
resort.\59\ This final rule codifies use of the NOV for all material 
violations, with the exception of cases in which the contractor either 
denies access or otherwise fails to submit information requested in 
OFCCP's OMB-approved scheduling letters. For those cases, OFCCP will 
continue its current practice of proceeding directly to issuing an SCN 
to expedite resolution of those issues.
---------------------------------------------------------------------------

    \58\ FCCM, Chapter 8F00; FCCM, Chapter 8H00. For example, OFCCP 
may issue an NOV and enter into a conciliation agreement for failure 
to maintain records in accordance with 41 CFR 60-1.12, 60-300.80, 
and 60-741.80, or for failure to maintain affirmative action 
programs as required by 41 CFR part 60-2, 41 CFR part 60-300, 
subpart C, and 41 CFR part 60-741, subpart C.
    \59\ In some instances, OFCCP issues the SCN without first 
issuing an NOV for material violations that are non-discriminatory 
in nature. See FCCM, Chapter 8D01 (explaining that OFCCP issues the 
SCN without first issuing an NOV when a contractor fails to provide 
the records, information, or data requested in the scheduling letter 
and when the contractor refuses to provide access to its premises 
for an onsite review).
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(d) Response Deadline
    In response to several comments, paragraph (a)(5) of the final rule 
increases the time for contractors to respond to a PDN from 15 to 30 
days with the possibility of an extension. OFCCP believes that with all 
of the information being provided to a contractor in the PDN, including 
the summary of evidence, and the option to request additional 
information about the statistical analysis, that a contractor will 
likely need 30 days to respond, with the possibility of an extension 
for good cause shown.
2. Notice of Violation
    Section 60-1.33(b) of the final rule governs NOVs. The Department 
did not receive any comments solely concerning the NOV, with some 
commenters generally addressing both the PDN and NOV thresholds. 
Nevertheless, the Department has decided to revise Sec.  60-1.33(b) to 
make it clear that NOVs alleging discrimination findings are subject to 
the same requirements as PDNs, and that OFCCP will fully consider the 
arguments raised and information provided by contractors in response to 
PDNs.
    Section 60-1.33(b)(1) explains that OFCCP may issue an NOV if, 
following OFCCP's review of any response by the contractor pursuant to 
paragraph (a)(5), the agency has evidence sufficient to support a 
finding of disparate treatment and/or disparate impact 
discrimination,\60\ or that the contractor has committed other material 
violations of the equal opportunity clause. The NOV informs the 
contractor that corrective action is required and invites conciliation 
through a written agreement. This section also requires the OFCCP 
Director or acting agency head to approve an NOV before it is issued.
---------------------------------------------------------------------------

    \60\ See note 42, supra.
---------------------------------------------------------------------------

    Paragraph (b)(1) codifies use of the NOV for all material 
violations. An NOV is the first formal notification a contractor 
receives for a material violation that does not involve discrimination. 
However, consistent with current OFCCP policy and practice, the final 
rule allows OFCCP to proceed straight to a SCN if the asserted 
violation is that the contractor has denied OFCCP access to individuals 
or documents or otherwise failed to submit information requested in 
OFCCP's OMB-approved scheduling letters. These types of violations 
require expedited treatment because they directly inhibit OFCCP's 
compliance evaluations and cause delays in resolution of those 
evaluations. The Department did not intend for the NPRM to require an 
NOV for these types of violations and makes the exception explicit in 
the final rule.
    Paragraphs (b)(2) through (4) govern specifically NOVs that allege 
a finding of discrimination. Paragraph (b)(2) provides that OFCCP will 
only issue an NOV alleging a finding of discrimination if the 
contractor has not sufficiently rebutted the preliminary findings 
identified in the PDN or if the contractor failed to respond. Paragraph 
(b)(3) clarifies that the requirements for issuing a PDN also apply to 
an NOV alleging a discrimination violation. Finally, paragraph (b)(4) 
clarifies that OFCCP must reasonably address all concerns and defenses 
raised by the contractor in response to the PDN.
3. Show Cause Notice
    SCNs are governed by existing sections in the Code of Federal 
Regulations.\61\ The Department did not propose to revise those 
sections and does not now adopt any revisions.
---------------------------------------------------------------------------

    \61\ 41 CFR 60-1.28, 60-300.64, and 60-741.64.
---------------------------------------------------------------------------

    OFCCP may issue SCNs when the OFCCP Director has reasonable cause 
to believe that a contractor has violated an equal opportunity clause. 
As noted above, the final rule retains OFCCP's ability, consistent with 
current practice, to proceed directly to issuing a SCN for cases in 
which the contractor either denies access or otherwise fails to submit 
information requested in OFCCP's OMB-approved scheduling letters. In 
discrimination cases, SCNs generally follow issuance of an NOV

[[Page 71566]]

and the contractor's rejection of OFCCP's offer to conciliate or a 
failure of conciliation. Notwithstanding a rejection or failure of 
conciliation, pre-referral mediation remains a viable option for 
contractors who have received a SCN. If a contractor raises new or 
different information or arguments in response to an NOV, the agency's 
policy is to address those issues before or coincident with issuing a 
SCN. The Department notes the evidentiary standards that must be met in 
order to issue PDNs and NOVs in discrimination cases must also be met 
in order to issue a SCN in such cases; this is the most reasonable 
reading of the regulation's current requirement that the Director must 
have ``reasonable cause'' to believe a violation has occurred in order 
to issue a SCN, so no change to the regulatory text is needed. The 
Department also notes that meeting the evidentiary standards for 
issuing PDNs and NOVs does not necessarily mean that a case is legally 
sufficient to initiate litigation. The Solicitor of Labor retains 
authority to pursue formal enforcement proceedings and will do so only 
after determining that the required legal elements of a disparate 
treatment and/or disparate impact claim, as relevant, are satisfied.
4. Conciliation Agreements
    Before this rule, Sec.  60-1.33 provided for conciliation 
agreements. The Department has retained this provision without 
substantive change as Sec.  60-1.33(c) of the final rule.\62\
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    \62\ The Department added a comma between ``complaint 
investigation'' and ``or other review'' in the first sentence of 
this provision.
---------------------------------------------------------------------------

5. Expedited Conciliation Option

    This rule clarifies in Sec.  60-1.33(d) that Federal contractors 
have the option to bypass the PDN and NOV procedures to enter directly 
into a conciliation agreement when there are preliminary findings of 
material violations, regardless of whether those violations involve 
discrimination. This option for conciliation may suit contractors who 
wish to expedite the resolution of discrimination or other material 
violations. Recently, OFCCP has sought to promote the efficient 
resolution of material violations for multi-establishment Federal 
contractors with early resolution procedures.\63\ The final rule 
furthers the agency's efforts to improve efficiency and prioritize 
early resolution of cases by codifying an expedited option for 
resolution that would apply to compliance reviews in their early 
stages.
---------------------------------------------------------------------------

    \63\ See supra note 40.
---------------------------------------------------------------------------

    The Department received six comments relevant to the expedited 
conciliation option. One contractor organization specifically asked 
OFCCP to endorse use of the Early Resolution Procedures (ERP) and Early 
Resolution Conciliation Agreements (ERCAs) in its final rule and codify 
the process. While the Department fully endorses use of ERP and ERCAs 
as an expedited conciliation option, and the agency intends to continue 
using this option where a contractor is interested, it declines to 
codify the procedures at this time. OFCCP only recently began using ERP 
and ERCAs to promote corporate-wide compliance, and the procedures are 
still evolving as the program matures. Under the current procedures, 
OFCCP may alert contractors of their option to conciliate even before 
the agency issues a PDN, and the contractor has the option to initiate 
the resolution procedures. If material violations exist, the contractor 
may agree to participate in ERP, ultimately resulting in an ERCA. The 
agency will continue to provide subregulatory guidance on these 
procedures as the program develops.
    One commenter requested establishment of a pre-PDN conference 
between the contractor and the agency to discuss the issues that OFCCP 
intends to identify in the PDN. OFCCP's current practice is to engage 
in the equivalent of a pre-PDN conference through regular contact with 
the contractor, and the agency is committed to continuing to do so.\64\ 
Likewise, the ERP process requires a pre-PDN conference to discuss the 
potential ERCA if a contractor expresses interest in pursuing one. 
However, the Department believes it is premature to require a pre-PDN 
conference in all matters. Between the PDN, NOV, and SCN, there already 
are three mandatory notices that provide the contractor information 
about OFCCP's findings (or preliminary findings) of discrimination, as 
well as opportunities for the contractor to respond to each one, before 
a matter is referred for enforcement. Adding another step would likely 
add unnecessary delay. Moreover, OFCCP already offers early 
conciliation as well as its Ombuds Service for assistance with 
complaints about the agency's conduct. The agency will continue to 
evaluate whether a mandatory formal pre-PDN conference would be 
helpful, but declines to adopt that procedure at this time.
---------------------------------------------------------------------------

    \64\ Chapter 2O00 of the FCCM states, ``After advising the 
contractor of its compliance evaluation findings, the [compliance 
officer] must provide formal notification through a PDN . . . when 
there are preliminary indicators of discrimination.''
---------------------------------------------------------------------------

    Other comments expressed concern that the early resolution option 
would coerce contractors into conciliation by combining data from 
multiple establishments and that OFCCP would use the early resolution 
option as a way, in the words of one commenter, ``to circumvent legal 
standards by OFCCP personnel through initiation of discussions about 
resolution of merely `potential' employment discrimination that does 
not meet legal standards.'' OFCCP does not and will not use early 
resolution procedures to coerce contractors or to circumvent legal 
standards, and the Department has revised Sec.  60-1.33(d) to make it 
clear that contractors' participation must be voluntary. This language 
should not be interpreted to be coercive. It is intended to be 
permissive. One commenter further suggested that the Department should 
not allow OFCCP staff to initiate discussions about expedited 
conciliation options. While the Department appreciates the commenter's 
concern, the Department believes that allowing OFCCP staff to inform 
contractors that expedited conciliation is an available option is 
important to ensure that contractors are aware of that option. However, 
the final rule clarifies that OFCCP staff may not require or insist 
that the contractor avail itself of the expedited conciliation option. 
OFCCP's headquarters office also provides oversight of early resolution 
conciliations to ensure a degree of consistency in their content. 
Finally, OFCCP declines to change the label of this section, as 
suggested by one comment.
6. Severability
    The Department has decided to include a severability provision as 
part of this final rule. To the extent that any provision of this final 
rule is declared invalid by a court of competent jurisdiction, the 
Department intends for all other provisions that are capable of 
operating in the absence of the specific provision that has been 
invalidated to remain in effect.

C. Miscellaneous Comments

    A number of comments are not addressed above because they are not 
directly germane to the provisions of the final rule. Eight comments 
were not posted to Regulations.gov either because of lack of relevance 
to the proposed rule or because they were exact duplicates of an 
already posted comment. One comment was withdrawn after posting because 
the submitter subsequently provided a revised version that was posted 
instead.

[[Page 71567]]

    One commenter noted that age discrimination is not mentioned in the 
proposed rule. That is because none of the laws that OFCCP enforces 
protect applicants or employees from discrimination on the basis of 
age. The Age Discrimination in Employment Act, the primary Federal law 
prohibiting age discrimination in employment, is enforced and 
administered by the Equal Employment Opportunity Commission.
    Three comments pertained to previously issued OFCCP guidance about 
how the agency analyzes compensation discrimination.\65\ The comments 
asked for clarification regarding how OFCCP groups employees for pay 
analysis and which neutrality tests OFCCP uses to determine whether pay 
variables are neutral. One of the comments suggested that the 
Department should rescind the OFCCP policy directive that provides 
guidance on how the agency analyzes compensation to determine whether 
discrimination may be present.\66\ The Department declines at this time 
to expand the scope of this rule to include further guidance concerning 
pay analysis groupings specifically or to rescind its compensation 
directive. The Department appreciates the input received and is 
considering addressing its methods of compensation analysis in a future 
rulemaking or in new guidance documents.
---------------------------------------------------------------------------

    \65\ See Directive 2018-01, ``Use of Predetermination Notices 
(PDN)'' (Feb. 27, 2018), www.dol.gov/agencies/ofccp/directives/2018-01. OFCCP issued this directive to ensure that PDNs be used in all 
compliance evaluations with preliminary discrimination findings, 
both individual and systemic. Prior to the directive, use of PDNs 
was discretionary and reserved for systemic discrimination findings. 
See FCCM, Chapter 8 (detailing the procedures that OFCCP follows for 
issuing PDNs).
    \66\ Id.
---------------------------------------------------------------------------

    Finally, five comments specifically requested that the comment 
period be extended. After considering those requests, the Department 
determined that the original 30-day comment period provided adequate 
time for the public to comment on the proposed rule. Notably, the 
Administrative Procedure Act (APA) does not set forth a mandatory 
minimum time for public comments, but rather more generally requires an 
``opportunity to participate in the rule making through submission of 
written data, views, or arguments.'' \67\ OFCCP posted its declination 
letter on Regulations.gov as a supplement to the proposed rule on 
January 27, 2020.
---------------------------------------------------------------------------

    \67\ 5 U.S.C. 553(c). Thirty-day public comment periods are 
broadly viewed as permissible under the APA, particularly where, as 
here, the proposal is fairly straightforward and is not detailed or 
highly technical in nature. See, e.g., Conn. Light & Power Co. v. 
Nuclear Regulatory Comm'n., 673 F.2d 525, 534 (D.C. Cir. 1982) 
(upholding a thirty-day comment period even though the ``technical 
complexity'' of the regulation was ``such that a somewhat longer 
comment period might have been helpful''); Conference of State Bank 
Supervisors v. Office of Thrift Supervision, 792 F. Supp. 837, 844 
(D.D.C. 1992) (upholding the sufficiency of a thirty-day comment 
period).
---------------------------------------------------------------------------

D. Changes in 41 CFR Parts 60-300 and 60-741

    OFCCP has separate regulations concerning E.O. 11246, VEVRAA, and 
section 503. No commenter suggested that OFCCP's resolution procedures 
or the proposed definitions should be applied differently depending on 
the law the agency is enforcing. The Department thus adopts the same 
definitions and provisions on resolution procedures in 41 CFR part 60-
300 (VEVRAA) and 41 CFR part 60-741 (section 503) that are described 
above for 41 CFR part 60-1 (E.O. 11246).

E. Agency Head Title

    The final rule replaces outdated references to the official title 
of OFCCP's agency head in E.O. 11246 regulations, from ``Deputy 
Assistant Secretary'' to ``Director,'' throughout the entirety of 41 
CFR parts 60-1 and 60-2. The Department made the same change to the 
regulations implementing VEVRAA and section 503 through final rules in 
2013.\68\ The Department made the change after the Department of Labor 
abolished the Employment Standards Administration in November 2009. 
This restructuring resulted in the change of title for OFCCP's agency 
head, from ``Deputy Assistant Secretary'' (reporting to the head of the 
Employment Standards Administration) to ``Director'' reporting directly 
to the Secretary of Labor. The Department received no comments on this 
change and adopts it in the final rule.
---------------------------------------------------------------------------

    \68\ See 41 CFR 60-300.2(h) and 60-741.2(f); see also 78 FR 
58613 (Sept. 24, 2013); 78 FR 58681 (Sept. 24, 2013).
---------------------------------------------------------------------------

Executive Order 12866 (Regulatory Planning and Review) and Executive 
Order 13563 (Improving Regulation and Regulatory Review)

    Under E.O. 12866, OMB's Office of Information and Regulatory 
Affairs (OIRA) determines whether a regulatory action is significant 
and, therefore, subject to the requirements of E.O. 12866 and OMB 
review. Section 3(f) of E.O. 12866 defines a ``significant regulatory 
action'' as an action that is likely to result in a rule that: (1) Has 
an annual effect on the economy of $100 million or more, or adversely 
affects in a material way a sector of the economy, productivity, 
competition, jobs, the environment, public health or safety, or State, 
local or tribal governments or communities (also referred to as 
economically significant); (2) creates serious inconsistency or 
otherwise interferes with an action taken or planned by another agency; 
(3) materially alters the budgetary impacts of entitlement grants, user 
fees, or loan programs, or the rights and obligations of recipients 
thereof; or (4) raises novel legal or policy issues arising out of 
legal mandates, the President's priorities, or the principles set forth 
in E.O. 12866. OMB has determined that this rule is a significant 
regulatory action under E.O. 12866 and has reviewed the final rule. 
Pursuant to the Congressional Review Act (5 U.S.C. 801 et seq.), OIRA 
designated that this rule is not a ``major rule,'' as defined by 5 
U.S.C. 804(2).
    E.O. 13563 directs agencies to adopt a regulation only upon a 
reasoned determination that its benefits justify its costs; tailor the 
regulation to impose the least burden on society, consistent with 
obtaining the regulatory objectives; and in choosing among alternative 
regulatory approaches, select those approaches that maximize net 
benefits. E.O. 13563 recognizes that some benefits are difficult to 
quantify and provides that, where appropriate and permitted by law, 
agencies may consider and discuss qualitatively values that are 
difficult or impossible to quantify, including equity, human dignity, 
fairness, and distributive impacts.

A. Need for Rulemaking

    The final rule addresses stakeholder concerns by codifying the use 
of PDNs, NOVs, and an early conciliation option that already exist in 
the FCCM and agency guidance, such as directives. The FCCM and agency 
directives are not legally binding and have not gone through formal 
notice and public comment. They thus do not provide the same level of 
clarity, transparency, and certainty that this final rule does. The 
final rule also modifies those procedures to improve clarity and 
transparency, establish guardrails on the agency's issuance of pre-
enforcement notices, and further the strategic allocation of limited 
agency resources.

B. Discussion of Impacts

    In this section, the Department presents a summary of the costs 
associated with the codified procedures and modifications in this 
rulemaking. In the NPRM, the Department utilized the General Services 
Administration's System for Award Management (SAM) database to identify 
the number of contractors who may be impacted by the

[[Page 71568]]

rule.\69\ Those registered in the SAM database consist of contractor 
firms, and other entities such as state and local governments and other 
organizations that are interested in Federal contracting opportunities, 
and other forms of Federal financial assistance. In the NPRM, the 
Department acknowledged that the SAM number likely resulted in an 
overestimation because the system captures firms that do not meet the 
jurisdictional dollar thresholds for the three laws that OFCCP 
enforces, and it captures contractor firms for work performed outside 
the United States by individuals hired outside the United States, over 
which OFCCP does not have authority.
---------------------------------------------------------------------------

    \69\ U.S. General Services Administration, System for Award 
Management, data released in monthly files, www.sam.gov. In the 
NPRM, OFCCP used August 2019 data and identified 420,000 contractors 
that may be impacted by the proposed rule.
---------------------------------------------------------------------------

    The Department received no comments on using the SAM database to 
determine the affected contractor universe in the NPRM. However, in the 
final rule, the Department reevaluated the contractors likely to be 
affected and decided to utilize the Employment Information Report (EEO-
1) data, which identifies the number of contractors that could be 
scheduled for a compliance evaluation. By using the EEO-1 Report data, 
the Department mitigates the problems identified with the SAM data that 
resulted in the overestimation of the contractor universe. The EEO-1 
Report must be filed by covered Federal contractors who: (1) Have 50 or 
more employees; (2) are prime contractors or first-tier subcontractors; 
and (3) have a contract, subcontract, or purchase order amounting to 
$50,000 or more. OFCCP schedules only contractors who meet those 
thresholds for compliance evaluations. While the Department 
acknowledges that all Federal contractors may learn their EEO 
requirements in order to comply with the laws that OFCCP enforces, only 
those contractors scheduled for a compliance evaluation are likely to 
have a need to learn the resolution procedures because only those 
contractors may need to interact with OFCCP through these new 
resolution procedures. Further, because this rule stipulates procedures 
OFCCP must follow if it desires to issue a PDN or NOV, unless and until 
a contractor is scheduled for a compliance evaluation, the contractor 
need not familiarize itself with these changes. This change 
significantly alters the number of contractors possibly impacted by the 
final rule, reducing the number to 26,514.\70\ The Department believes 
the updated number of contractors is a more accurate estimation of 
those entities possibly impacted by the final rule and still likely 
overstates the number of entities that will take time to familiarize 
themselves.
---------------------------------------------------------------------------

    \70\ OFCCP obtained the total number of contractors from the 
most recent EEO-1 Report data available, which is from FY 2018.
---------------------------------------------------------------------------

1. Cost of Rule Familiarization

    OFCCP acknowledges that 5 CFR 1320.3(b)(1)(i) requires agencies to 
include in the burden analysis the estimated time it takes for 
contractors to review and understand the instructions for compliance. 
To minimize the burden, OFCCP will publish compliance assistance 
materials such as a fact sheet and answers to frequently asked 
questions.
    In line with recent assessments in other rulemakings, the agency 
has determined that either a Human Resources Manager (SOC 11-3121) or a 
Lawyer (SOC 23-1011) would review the rule. OFCCP estimates that 50 
percent of the reviewers would be human resources managers and 50 
percent would be in-house counsel. Thus, the mean hourly wage rate 
reflects a 50/50 split between human resources managers and lawyers. 
The mean hourly wage of a human resources manager is $62.29 and the 
mean hourly wage of a lawyer is $69.86.\71\ Therefore, the average 
hourly wage rate is $66.08 (($62.29 + $69.86)/2). OFCCP adjusted this 
wage rate to reflect fringe benefits such as health insurance and 
retirement benefits, as well as overhead costs such as rent, utilities, 
and office equipment. The agency used a fringe benefits rate of 46 
percent \72\ and an overhead rate of 17 percent,\73\ resulting in a 
fully loaded hourly compensation rate of $107.71 ($66.08 + ($66.08 x 46 
percent) + ($66.08 x 17 percent)). The estimated labor cost to 
contractors is reflected in Table 1, below.
---------------------------------------------------------------------------

    \71\ BLS, Occupational Employment Statistics, Occupational 
Employment and Wages, May 2019, www.bls.gov/oes/current/oes_nat.htm.
    \72\ BLS, Employer Costs for Employee Compensation, www.bls.gov/ncs/data.htm. Wages and salaries averaged $24.26 per hour worked in 
2017, while benefit costs averaged $11.26, which is a benefits rate 
of 46 percent.
    \73\ Cody Rice, U.S. Environmental Protection Agency, ``Wage 
Rates for Economic Analyses of the Toxics Release Inventory 
Program,'' (June 10, 2002), www.regulations.gov/document?D=EPA-HQ-OPPT-2014-0650-0005.

                                               Table 1--Labor Cost
----------------------------------------------------------------------------------------------------------------
                                                                                                   Fully loaded
          Major occupational groups           Average  hourly   Fringe benefit   Overhead rate        hourly
                                                 wage rate           rate                          compensation
----------------------------------------------------------------------------------------------------------------
Human Resources Managers and Lawyers........          $66.08              46%              17%          $107.71
----------------------------------------------------------------------------------------------------------------

    The agency estimates that it will take a minimum of 30 minutes (\1/
2\ hour) for a human resources manager or lawyer at each contractor 
firm to either read the rule or read the compliance assistance 
materials provided by OFCCP to learn more about the codified 
procedures. One commenter, a contractor organization, asserted that the 
agency underestimated the time needed to become familiar with the 
proposed rule. The commenter provided an alternate estimate of two to 
three hours. OFCCP acknowledges that the precise amount of time each 
company will take to become familiar with understanding the new 
regulations is difficult to estimate. The elements that the agency uses 
in its calculation take into account the length and complexity of the 
rule. Thus, OFCCP has decided to retain its initial estimate of one-
half hour for rule familiarization. The one-half hour estimate is an 
average across all contractors and accounts for the time needed to read 
the rule or read the compliance assistance materials provided by OFCCP 
to learn more about the codified procedures.
    Another contractor organization asserted that the agency's 
calculations did not account for the use of outside third parties that 
are used by Federal contractors and subcontractors to fully understand 
a contractor's obligations under the proposed regulations. The 
commenter surveyed its constituents and provided an estimate between 
$1,000 and $5,000 for outside assistance. The commenter did not provide 
specific data on the

[[Page 71569]]

characteristics of the contractors surveyed. The Department notes that 
some companies may decide to outsource familiarization with the new 
procedures, just as some companies may wait until OFCCP initiates an 
investigation before familiarizing themselves with the new procedures, 
but OFCCP does not anticipate that companies will incur both in-house 
and third party familiarization costs. The Department thus declines to 
add these third-party costs to its estimate in addition to the costs 
already calculated.
    Consequently, the estimated burden for rule familiarization is 
13,257 hours (26,514 contractor firms x \1/2\ hour). The Department 
calculates the total estimated cost of rule familiarization as 
$1,427,911 (13,257 hours x $107.71/hour) in the first year, which 
amounts to a 10-year annualized cost of $162,519 at a discount rate of 
3 percent (which is $6.13 per contractor firm) or $190,002 at a 
discount rate of 7 percent (which is $7.17 per contractor firm). Table 
2, below, reflects the estimated regulatory familiarization costs for 
the final rule.

                Table 2--Regulatory Familiarization Cost
------------------------------------------------------------------------
 
------------------------------------------------------------------------
Total number of contractors.............................          26,514
Time to review rule.....................................      30 minutes
Human Resources Managers fully loaded hourly                     $107.71
 compensation...........................................
Regulatory familiarization cost in the first year.......      $1,427,911
Annualized cost with 3 percent discounting..............        $162,519
Annualized cost per contractor with 3 percent                      $6.13
 discounting............................................
Annualized cost with 7 percent discounting..............        $190,002
Annualized cost per contractor with 7 percent                      $7.17
 discounting............................................
------------------------------------------------------------------------

    The rule does not include any additional costs because it adds no 
new requirements or burdens on contractors. When the Department uses a 
perpetual time horizon to allow for cost comparisons under E.O. 13771, 
the perpetual annualized cost is $81,215 at a 7 percent discount rate 
in 2016 dollars.\74\
---------------------------------------------------------------------------

    \74\ To comply with E.O. 13771 accounting, the Department 
multiplied the rule familiarization cost for Year 1 ($1,427,911) by 
the GDP deflator (0.9582) to convert the cost to 2016 dollars 
($1,368,224). The Department used this result to determine the 
perpetual annualized cost ($106,456) at a discount rate of 7 percent 
in 2016 dollars. Assuming the rule takes effect in 2020, the 
Department divided $106,456 by 1.07\4\, which equals $81,215.
---------------------------------------------------------------------------

2. Cost Savings
    OFCCP expects contractors impacted by the rule will experience cost 
savings. Specifically, the clarity provided in the new definitions, as 
well as the clarity of OFCCP's procedures related to resolution of 
material violations, provides certainty to contractors of what is 
required as well as an option for contractors to more expeditiously 
resolve the violations.
    If the rule increases clarity for Federal contractors, this impact 
most likely will yield cost savings to taxpayers (if contractor fees 
decrease because they do not need to engage third party representatives 
to interpret OFCCP's procedures and requirements). In addition, by 
increasing clarity for both contractors and for OFCCP, the rule may 
reduce costs associated with resolving preliminary findings and 
violations through conciliation by making it clearer to both sides at 
the outset what is required by the regulation.
3. Benefits
    E.O. 13563 recognizes that some rules have benefits that are 
difficult to quantify or monetize but are nevertheless important and 
states that agencies may consider such benefits. This rule has equity 
and fairness benefits, which are explicitly recognized in E.O. 13563. 
The rule is designed to achieve these benefits by:
     Supporting more effective enforcement of prohibitions 
against certain types of employment discrimination;
     Increasing fairness for contractors by providing more 
transparency and certainty on the agency's resolution procedures;
     Establishing guardrails on the agency's issuance of pre-
enforcement notices;
     Providing more efficient remedies to workers victimized by 
employment discrimination by effectuating corporate-wide corrective 
actions in conciliation agreements that may reach more victims than 
standard establishment-based conciliation agreements;
     Facilitating a more efficient option for contractors to 
resolve potential discrimination by providing notice of OFCCP's 
preliminary findings earlier in the compliance review process; and
     Furthering the strategic allocation of limited agency 
resources.

C. Alternatives

    In addition to the approach proposed in the rule, the Department 
considered alternative approaches. The Department considered leaving 
OFCCP's resolution procedures described only in agency subregulatory 
guidance. Though OFCCP codified ``conciliation agreements'' in 1979, 
the agency's other resolution procedures, namely the PDN and NOV, have 
only been explained in subregulatory guidance. Maintaining the status 
quo has led to OFCCP's inconsistent use of the PDN across agency 
offices, creating inefficiencies and leading to greater uncertainty for 
Federal contractors. Though the agency has taken recent subregulatory 
measures to increase consistency and certainty, codifying these agency 
resolution procedures will have a stronger impact and promote more 
efficient enforcement of E.O. 11246, section 503, and VEVRAA than the 
status quo alternative.
    The Department also considered different types of evidentiary 
standards for OFCCP to issue PDNs and NOVs. For example, the Department 
considered mandating a higher threshold for statistical significance, 
such as the three-standard-deviation threshold proposed in the NPRM, 
and not mandating qualitative evidence. The Department ultimately 
determined that requiring statistical evidence with two standard 
deviations or other quantitative evidence, a finding of practical 
significance, and appropriate qualitative evidence best balances all 
the equities involved and promotes efficient and effective allocation 
of resources.

Regulatory Flexibility Act and Executive Order 13272 (Consideration of 
Small Entities)

    The agency did not receive any public comments on the Regulatory 
Flexibility Analysis.
    The Regulatory Flexibility Act of 1980 (RFA), 5 U.S.C. 601 et seq., 
establishes ``as a principle of regulatory issuance that agencies shall 
endeavor, consistent with the objectives of the rule and applicable 
statutes, to fit regulatory and informational requirements to the scale 
of the business organizations and governmental jurisdictions subject to 
regulation.'' Public Law 96-354. The RFA requires agencies to consider 
the impact of a regulation on a wide range of small entities including 
small businesses, not-for-profit organizations, and small governmental 
jurisdictions. Agencies must review whether a rule would have a 
significant economic impact on a substantial number of small entities. 
See 5 U.S.C. 603. If the rule would, then the agency must prepare a 
regulatory flexibility analysis as

[[Page 71570]]

described in the RFA.\75\ However if an agency determines that the rule 
would not be expected to have a significant economic impact on a 
substantial number of small entities, then the head of the agency may 
so certify and the RFA does not require a regulatory flexibility 
analysis. See 5 U.S.C. 605. The certification must include a statement 
providing the factual basis for this determination and the reasoning 
should be clear.
---------------------------------------------------------------------------

    \75\ Id.
---------------------------------------------------------------------------

    The Department does not believe that this rule will have a 
significant economic impact on a substantial number of small entities. 
The final rule will most likely affect small firms in the construction 
industry (NAICS Sector 23) and small firms in the management of 
companies and enterprises industry (NAICS Sector 55). The annualized 
cost for both industries at a discount rate of 7 percent for rule 
familiarization is $7.17 per entity ($50.33 in the first year) which is 
far less than 1 percent of the annual revenue of the smallest of the 
small entities affected by the final rule (0.01% for construction and 
0.02% for management of companies and enterprises). Accordingly, the 
Department certifies that the final rule will not have a significant 
economic impact on a substantial number of small entities. That is 
consistent with the Department's analysis in the NPRM.

Paperwork Reduction Act

    The Paperwork Reduction Act of 1995 requires that OFCCP consider 
the impact of paperwork and other information collection burdens 
imposed on the public. See 44 U.S.C. 3507(d). An agency may not collect 
or sponsor the collection of information or impose an information 
collection requirement unless the information collection instrument 
displays a currently valid OMB control number. See 5 CFR 1320.5(b)(1).
    The Department has determined that there is no new requirement for 
information collection associated with this rule. The information 
collection contained in the existing E.O. 11246, section 503, and 
VEVRAA regulations are currently approved under OMB Control Number 
1250-0001 (Construction Recordkeeping and Reporting Requirements), OMB 
Control Number 1250-0003 (Recordkeeping and Reporting Requirements--
Supply and Service), OMB Control Number 1250-0004 (Office of Federal 
Contract Compliance Programs Recordkeeping and Reporting Requirements 
Under the Vietnam Era Veterans' Readjustment Assistance Act of 1974, as 
Amended), and OMB Control Number 1250-0005 (Office of Federal Contract 
Compliance Programs Recordkeeping and Reporting Requirements Under 
Rehabilitation Act of 1973, as Amended Section 503). Consequently, this 
rule does not require review by the OMB under the authority of the 
Paperwork Reduction Act.

Executive Order 13132 (Federalism)

    The Department has reviewed the rule in accordance with E.O. 13132 
regarding federalism, and has determined that it does not have 
``federalism implications.'' This rule will not ``have substantial 
direct effects on the States, on the relationship between the national 
government and the States, or on the distribution of power and 
responsibilities among the various levels of government.''

Executive Order 13175 (Consultation and Coordination With Indian Tribal 
Governments)

    The rule does not have tribal implications under E.O. 13175 that 
requires a tribal summary impact statement. The rule does not have 
substantial direct effects on one or more Indian tribes, on the 
relationship between the Federal Government and Indian tribes, or on 
the distribution of power and responsibilities between the Federal 
Government and Indian tribes.

List of Subjects

41 CFR Parts 60-1 and 60-2

    Administrative practice and procedure, Civil rights, 
Discrimination, Employment, Equal employment opportunity, Government 
contracts, Government procurement, Labor.

41 CFR Parts 60-300 and 60-741

    Administrative practice and procedure, Civil rights, 
Discrimination, Employment, Equal employment opportunity, Government 
contracts, Government procurement, Individuals with disabilities, 
Labor, Veterans.

Craig E. Leen,
Director, Office of Federal Contract Compliance Programs.

    For the reasons stated in the preamble, the Office of Federal 
Contract Compliance Programs amends 41 CFR parts 60-1, 60-2, 60-300, 
and 60-741 as follows:

PART 60-1--OBLIGATIONS OF CONTRACTORS AND SUBCONTRACTORS

0
1. The authority citation for part 60-1 continues to read as follows:

    Authority:  Sec. 201, E.O. 11246, 30 FR 12319, 3 CFR, 1964-1965 
Comp., p. 339, as amended by E.O. 11375, 32 FR 14303, 3 CFR, 1966-
1970 Comp., p. 684, E.O. 12086, 43 FR 46501, 3 CFR, 1978 Comp., p. 
230, E.O. 13279, 67 FR 77141, 3 CFR, 2002 Comp., p. 258 and E.O. 
13672, 79 FR 42971.

0
2. In part 60-1, except for Sec.  60-1.3, revise all references to 
``Deputy Assistant Secretary'' to read ``Director''.

0
3. Amend Sec.  60-1.3 by removing the definition for ``Deputy Assistant 
Secretary'' and adding definitions for ``Director'', ``Qualitative 
evidence'', and ``Quantitative evidence'' in alphabetical order to read 
as follows:


Sec.  60-1.3  Definitions.

* * * * *
    Director means the Director, Office of Federal Contract Compliance 
Programs (OFCCP) of the United States Department of Labor, or his or 
her designee.
* * * * *
    Qualitative evidence includes but is not limited to 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; testimony, interview statements, and documents about 
individuals denied or given misleading or contradictory information 
about employment or compensation practices, in circumstances suggesting 
discriminatory treatment based on a protected characteristic; 
testimony, interview statements, and documents about the extent of 
discretion or subjectivity involved in making employment decisions, in 
conjunction with evidence suggesting the discretion or subjectivity has 
been used to discriminate based on a protected characteristic; or other 
anecdotal evidence relevant to determining a contractor's 
discriminatory or non-discriminatory intent, the business necessity (or 
lack thereof) of a challenged policy or practice, or whether the 
contractor has otherwise complied with its non-discrimination 
obligations. Qualitative evidence may not be based solely on subjective 
inferences or the mere fact of supervisory discretion in employment 
decisions. The Office of Federal Contract Compliance Programs (OFCCP) 
may also consider qualitative evidence in the form of a contractor's 
efforts to advance equal employment opportunity beyond mere compliance 
with legal obligations in determining whether intentional 
discrimination has occurred.
    Quantitative evidence includes hypothesis testing, controlling for 
the major, measurable parameters, and variables used by the contractor

[[Page 71571]]

(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.), 
related to 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 by reference to any one of these statements:
    (1) The disparity is two or more times larger than its standard 
error (i.e., a standard deviation of two or more);
    (2) The Z statistic has a value greater than two; or
    (3) The probability value is less than 0.05. It also includes 
numerical analysis of similarly situated individuals, small groups, or 
other characteristics, demographics or outcomes where hypothesis-
testing techniques are not used.
* * * * *

0
4. Revise Sec.  60-1.33 to read as follows:


Sec.  60-1.33   Resolution procedures.

    (a) Predetermination Notice. If a compliance review or other review 
by OFCCP indicates evidence sufficient to support a preliminary finding 
of disparate treatment and/or disparate impact discrimination, OFCCP 
may issue a Predetermination Notice, subject to the following 
parameters and the approval of the Director or acting agency head:
    (1) For allegations included in a Predetermination Notice involving 
a disparate treatment theory of liability, OFCCP must:
    (i) Provide quantitative evidence as defined in this part;
    (ii) Demonstrate that the unexplained disparity is practically 
significant; and
    (iii) Provide qualitative evidence as defined in this part 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.
    (2) OFCCP may issue a Predetermination Notice under a disparate 
treatment theory of liability without satisfying all three components 
listed in paragraph (a)(1) of this section only if:
    (i) The qualitative evidence by itself is sufficient to support a 
preliminary finding of disparate treatment;
    (ii) The evidence of disparity between a favored and disfavored 
group is so extraordinarily compelling that by itself it is sufficient 
to support a preliminary finding of disparate treatment; or
    (iii) Paragraphs (a)(1)(i) and (ii) of this section are satisfied 
and the contractor denied OFCCP access to sources of evidence that may 
be relevant to a preliminary finding of discriminatory intent. This may 
include denying access to its employees during a compliance evaluation 
or destroying or failing to produce records the contractor is legally 
required to create and maintain.
    (3) For allegations included in a Predetermination Notice involving 
a disparate impact theory of liability, OFCCP must:
    (i) Provide quantitative evidence as defined in this part;
    (ii) Demonstrate the unexplained disparity is practically 
significant; and
    (iii) Identify the specific policy or practice of the contractor 
causing the adverse impact, unless OFCCP can demonstrate that the 
elements of the contractor's selection procedures are incapable of 
separation for analysis.
    (4) The Predetermination Notice must disclose the quantitative and 
qualitative evidence relied on by OFCCP in sufficient detail to allow 
contractors to investigate allegations and meaningfully respond. OFCCP 
will seek to obtain qualitative evidence in all cases in which it 
issues a Predetermination Notice; however, if the exception in 
paragraph (a)(2)(ii) of this section applies, OFCCP will disclose why, 
in the absence of qualitative evidence, the agency is issuing the 
Predetermination Notice based on evidence of an extraordinarily 
compelling disparity alone. In addition, upon the contractor's request, 
OFCCP must also 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. However, OFCCP may withhold 
personal identifying information from the description of the 
qualitative evidence if the information is protected from disclosure 
under recognized governmental privileges, or otherwise if providing 
that information would violate confidentiality or privacy protections 
afforded by law.
    (5) Any response to a Predetermination Notice must be submitted by 
the contractor within 30 calendar days of receipt of the Notice, which 
deadline OFCCP may extend for good cause.
    (b) Notice of Violation. (1) If, following OFCCP's review of any 
response by the contractor pursuant to paragraph (a)(5) of this 
section, the agency has evidence sufficient to support a finding of 
disparate treatment and/or disparate impact discrimination, as 
established in the parameters and exceptions in paragraph (a) of this 
section, or that the contractor has committed other material violations 
of the equal opportunity clause (with the exception of violations for 
denying access or failing to submit records in response to OFCCP's 
Office of Management and Budget (OMB)-approved Scheduling Letters, for 
which OFCCP may proceed directly to issuing a Show Cause Notice), OFCCP 
may issue a Notice of Violation to the contractor requiring corrective 
action and inviting conciliation through a written agreement, subject 
to approval by the Director or acting agency head.
    (2) OFCCP may issue a Notice of Violation alleging a finding of 
discrimination following issuance of a Predetermination Notice if the 
contractor does not respond or provide a sufficient response within 30 
calendar days of receipt of the Predetermination Notice, subject to 
approval by the Director or acting agency head, unless OFCCP has 
extended the Predetermination Notice response time for good cause 
shown.
    (3) The Notice of Violation must disclose the quantitative and 
qualitative evidence relied on by OFCCP in sufficient detail to allow 
contractors to investigate allegations and meaningfully respond. OFCCP 
will seek to obtain qualitative evidence in all cases in which it 
issues a Notice of Violation, however, if the exception in paragraph 
(a)(2)(ii) of this section applies, OFCCP will disclose why, in the 
absence of qualitative evidence, the agency is issuing the Notice of 
Violation based on evidence of an extraordinarily compelling disparity 
alone. In addition, upon the contractor's request, OFCCP must also 
provide the model and variables used in any statistical analysis and an 
explanation why any variable proposed by the contractor was excluded 
from that analysis. However, OFCCP may withhold personal identifying 
information from the description of the qualitative evidence if the 
information is protected from disclosure under recognized governmental 
privileges, or otherwise if providing that information would violate 
confidentiality or privacy protections afforded by law.
    (4) The Notice of Violation must address all relevant concerns and 
defenses raised by the contractor in response to the Predetermination 
Notice.
    (c) Conciliation agreement. If a compliance review, complaint 
investigation, or other review by OFCCP or its representative indicates 
a material

[[Page 71572]]

violation of the equal opportunity clause, and:
    (1) If the contractor, subcontractor or bidder is willing to 
correct the violations and/or deficiencies; and
    (2) If OFCCP or its representative determines that settlement 
(rather than referral for consideration of formal enforcement) is 
appropriate, a written agreement shall be required. The agreement shall 
provide for such remedial action as may be necessary to correct the 
violations and/or deficiencies noted, including, where appropriate (but 
not necessarily limited to), remedies such as back pay and retroactive 
seniority.
    (d) Expedited conciliation option. A contractor may voluntarily 
waive the procedures set forth in paragraphs (a) and/or (b) of this 
section to enter directly into a conciliation agreement. OFCCP may 
inform the contractor of this expedited conciliation option, but may 
not require or insist that the contractor avail itself of the expedited 
conciliation option.
    (e) Severability. Should a court of competent jurisdiction hold any 
provision(s) of this section to be invalid, such action will not affect 
any other provision of this section.

PART 60-2--AFFIRMATIVE ACTION PROGRAMS

0
5. The authority citation for part 60-2 continues to read as follows:

    Authority: Sec. 201, E.O. 11246, 30 FR 12319, E.O. 11375, 32 FR 
14303, as amended by E.O. 12086, 43 FR 46501, and E.O. 13672, 79 FR 
42971.


Sec.  60-2.1, 60-2.2, and 60-2.31   [Amended]

0
6. In Sec. Sec.  60-2.1, 60-2.2, and 60-2.31, remove ``Deputy Assistant 
Secretary'' everywhere it appears and add ``Director'' in its place.

PART 60-300--AFFIRMATIVE ACTION AND NONDISCRIMINATION OBLIGATIONS 
OF FEDERAL CONTRACTORS AND SUBCONTRACTORS REGARDING DISABLED 
VETERANS, RECENTLY SEPARATED VETERANS, ACTIVE DUTY WARTIME OR 
CAMPAIGN BADGE VETERANS, AND ARMED FORCES SERVICE MEDAL VETERANS

0
7. The authority citation for part 60-300 continues to read as follows:

    Authority:  29 U.S.C. 793; 38 U.S.C. 4211 and 4212; E.O. 11758 
(3 CFR, 1971-1975 Comp., p. 841).

0
8. Amend Sec.  60-300.2 by redesignating paragraphs (t) through (cc) as 
paragraphs (v) through (ee) and adding new paragraphs (t) and (u) to 
read as follows:


Sec.  60-300.2  Definitions.

* * * * *
    (t) Qualitative evidence includes but is not limited to 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; testimony, interview statements, and documents about 
individuals denied or given misleading or contradictory information 
about employment or compensation practices, in circumstances suggesting 
discriminatory treatment based on a protected characteristic; 
testimony, interview statements, and documents about the extent of 
discretion or subjectivity involved in making employment decisions, in 
conjunction with evidence suggesting the discretion or subjectivity has 
been used to discriminate based on a protected characteristic; or other 
anecdotal evidence relevant to determining a contractor's 
discriminatory or non-discriminatory intent, the business necessity (or 
lack thereof) of a challenged policy or practice, or whether the 
contractor has otherwise complied with its non-discrimination 
obligations. Qualitative evidence may not be based solely on subjective 
inferences or the mere fact of supervisory discretion in employment 
decisions. The Office of Federal Contract Compliance Programs (OFCCP) 
may also consider qualitative evidence in the form of a contractor's 
efforts to advance equal employment opportunity beyond mere compliance 
with legal obligations in determining whether intentional 
discrimination has occurred.
    (u) Quantitative evidence includes 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.), related to 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 by reference to any one of these statements:
    (1) The disparity is two or more times larger than its standard 
error (i.e., a standard deviation of two or more);
    (2) The Z statistic has a value greater than two; or
    (3) The probability value is less than 0.05. It also includes 
numerical analysis of similarly situated individuals, small groups, or 
other characteristics, demographics or outcomes where hypothesis-
testing techniques are not used.
* * * * *

0
9. Revise Sec.  60-300.62 to read as follows:


Sec.  60-300.62   Resolution procedures.

    (a) Predetermination Notice. If a compliance review or other review 
by OFCCP indicates evidence sufficient to support a preliminary finding 
of disparate treatment and/or disparate impact discrimination, OFCCP 
may issue a Predetermination Notice, subject to the following 
parameters and the approval of the Director or acting agency head:
    (1) For allegations included in a Predetermination Notice involving 
a disparate treatment theory of liability, OFCCP must:
    (i) Provide quantitative evidence as defined in this part;
    (ii) Demonstrate that the unexplained disparity is practically 
significant; and
    (iii) Provide qualitative evidence as defined in this part 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.
    (2) OFCCP may issue a Predetermination Notice under a disparate 
treatment theory of liability without satisfying all three components 
listed in paragraph (a)(1) of this section only if:
    (i) The qualitative evidence by itself is sufficient to support a 
preliminary finding of disparate treatment;
    (ii) The evidence of disparity between a favored and disfavored 
group is so extraordinarily compelling that by itself it is sufficient 
to support a preliminary finding of disparate treatment; or
    (iii) Paragraphs (a)(1)(i) and (ii) of this section are satisfied 
and the contractor denied OFCCP access to sources of evidence that may 
be relevant to a preliminary finding of discriminatory intent. This may 
include denying access to its employees during a compliance evaluation 
or destroying or failing to produce records the contractor is legally 
required to create and maintain.
    (3) For allegations included in a Predetermination Notice involving 
a disparate impact theory of liability, OFCCP must:
    (i) Provide quantitative evidence as defined in this part;

[[Page 71573]]

    (ii) Demonstrate the unexplained disparity is practically 
significant; and
    (iii) Identify the specific policy or practice of the contractor 
causing the adverse impact, unless OFCCP can demonstrate that the 
elements of the contractor's selection procedures are incapable of 
separation for analysis.
    (4) The Predetermination Notice must disclose the quantitative and 
qualitative evidence relied on by OFCCP in sufficient detail to allow 
contractors to investigate allegations and meaningfully respond. OFCCP 
will seek to obtain qualitative evidence in all cases in which it 
issues a Predetermination Notice; however, if the exception in 
paragraph (a)(2)(ii) of this section applies, OFCCP will disclose why, 
in the absence of qualitative evidence, the agency is issuing the 
Predetermination Notice based on evidence of an extraordinarily 
compelling disparity alone. In addition, upon the contractor's request, 
OFCCP must also 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. However, OFCCP may withhold 
personal identifying information from the description of the 
qualitative evidence if the information is protected from disclosure 
under recognized governmental privileges, or otherwise if providing 
that information would violate confidentiality or privacy protections 
afforded by law.
    (5) Any response to a Predetermination Notice must be submitted by 
the contractor within 30 calendar days of receipt of the Notice, which 
deadline OFCCP may extend for good cause.
    (b) Notice of Violation. (1) If, following OFCCP's review of any 
response by the contractor pursuant to paragraph (a)(5) of this 
section, the agency has evidence sufficient to support a finding of 
disparate treatment and/or disparate impact discrimination, as 
established in the parameters and exceptions in paragraph (a) of this 
section, or that the contractor has committed other material violations 
of the equal opportunity clause (with the exception of violations for 
denying access or failing to submit records in response to OFCCP's 
Office of Management and Budget (OMB)-approved Scheduling Letters, for 
which OFCCP may proceed directly to issuing a Show Cause Notice), OFCCP 
may issue a Notice of Violation to the contractor requiring corrective 
action and inviting conciliation through a written agreement, subject 
to approval by the Director or acting agency head.
    (2) OFCCP may issue a Notice of Violation alleging a finding of 
discrimination following issuance of a Predetermination Notice if the 
contractor does not respond or provide a sufficient response within 30 
calendar days of receipt of the Predetermination Notice, subject to 
approval by the Director or acting agency head, unless OFCCP has 
extended the Predetermination Notice response time for good cause 
shown.
    (3) The Notice of Violation must disclose the quantitative and 
qualitative evidence relied on by OFCCP in sufficient detail to allow 
contractors to investigate allegations and meaningfully respond. OFCCP 
will seek to obtain qualitative evidence in all cases in which it 
issues a Notice of Violation, however, if the exception in paragraph 
(a)(2)(ii) of this section applies, OFCCP will disclose why, in the 
absence of qualitative evidence, the agency is issuing the Notice of 
Violation based on evidence of an extraordinarily compelling disparity 
alone. In addition, upon the contractor's request, OFCCP must also 
provide the model and variables used in any statistical analysis and an 
explanation why any variable proposed by the contractor was excluded 
from that analysis. However, OFCCP may withhold personal identifying 
information from the description of the qualitative evidence if the 
information is protected from disclosure under recognized governmental 
privileges, or otherwise if providing that information would violate 
confidentiality or privacy protections afforded by law.
    (4) The Notice of Violation must address all relevant concerns and 
defenses raised by the contractor in response to the Predetermination 
Notice.
    (c) Conciliation agreement. If a compliance review, complaint 
investigation, or other review by OFCCP or its representative indicates 
a material violation of the equal opportunity clause, and:
    (1) If the contractor, subcontractor or bidder is willing to 
correct the violations and/or deficiencies; and
    (2) If OFCCP or its representative determines that settlement 
(rather than referral for consideration of formal enforcement) is 
appropriate, a written agreement shall be required. The agreement shall 
provide for such remedial action as may be necessary to correct the 
violations and/or deficiencies noted, including, where appropriate (but 
not necessarily limited to), remedies such as back pay and retroactive 
seniority.
    (d) Expedited conciliation option. A contractor may voluntarily 
waive the procedures set forth in paragraphs (a) and/or (b) of this 
section to enter directly into a conciliation agreement. OFCCP may 
inform the contractor of this expedited conciliation option, but may 
not require or insist that the contractor avail itself of the expedited 
conciliation option.
    (e) Severability. Should a court of competent jurisdiction hold any 
provision(s) of this section to be invalid, such action will not affect 
any other provision of this section.

PART 60-741--AFFIRMATIVE ACTION AND NONDISCRIMINATION OBLIGATIONS 
OF FEDERAL CONTRACTORS AND SUBCONTRACTORS REGARDING INDIVIDUALS 
WITH DISABILITIES

0
10. The authority citation for part 60-741 continues to read as 
follows:

    Authority: 29 U.S.C. 705 and 793; E.O. 11758 (3 CFR, 1971-1975 
Comp., p. 841).

0
11. Amend Sec.  60-741.2 by redesignating paragraphs (s) through (bb) 
as paragraphs (u) through (dd) and adding new paragraphs (s) and (t) to 
read as follows:


Sec.  60-741.2  Definitions.

* * * * *
    (s) Qualitative evidence includes but is not limited to 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; testimony, interview statements, and documents about 
individuals denied or given misleading or contradictory information 
about employment or compensation practices, in circumstances suggesting 
discriminatory treatment based on a protected characteristic; 
testimony, interview statements, and documents about the extent of 
discretion or subjectivity involved in making employment decisions, in 
conjunction with evidence suggesting the discretion or subjectivity has 
been used to discriminate based on a protected characteristic; or other 
anecdotal evidence relevant to determining a contractor's 
discriminatory or non-discriminatory intent, the business necessity (or 
lack thereof) of a challenged policy or practice, or whether the 
contractor has otherwise complied with its non-discrimination 
obligations. Qualitative evidence may not be based solely on subjective 
inferences or the mere fact of supervisory discretion in employment

[[Page 71574]]

decisions. The Office of Federal Contract Compliance Programs (OFCCP) 
may also consider qualitative evidence in the form of a contractor's 
efforts to advance equal employment opportunity beyond mere compliance 
with legal obligations in determining whether intentional 
discrimination has occurred.
    (t) Quantitative evidence includes 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.), related to 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 by reference to any one of these statements:
    (1) The disparity is two or more times larger than its standard 
error (i.e., a standard deviation of two or more);
    (2) The Z statistic has a value greater than two; or
    (3) The probability value is less than 0.05. It also includes 
numerical analysis of similarly situated individuals, small groups, or 
other characteristics, demographics or outcomes where hypothesis-
testing techniques are not used.
* * * * *

0
12. Revise Sec.  60-741.62 to read as follows:


Sec.  60-741.62   Resolution procedures.

    (a) Predetermination Notice. If a compliance review or other review 
by OFCCP indicates evidence sufficient to support a preliminary finding 
of disparate treatment and/or disparate impact discrimination, OFCCP 
may issue a Predetermination Notice, subject to the following 
parameters and the approval of the Director or acting agency head:
    (1) For allegations included in a Predetermination Notice involving 
a disparate treatment theory of liability, OFCCP must:
    (i) Provide quantitative evidence as defined in this part;
    (ii) Demonstrate that the unexplained disparity is practically 
significant; and
    (iii) Provide qualitative evidence as defined in this part 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.
    (2) OFCCP may issue a Predetermination Notice under a disparate 
treatment theory of liability without satisfying all three components 
listed in paragraph (a)(1) of this section only if:
    (i) The qualitative evidence by itself is sufficient to support a 
preliminary finding of disparate treatment;
    (ii) The evidence of disparity between a favored and disfavored 
group is so extraordinarily compelling that by itself it is sufficient 
to support a preliminary finding of disparate treatment; or
    (iii) Paragraphs (a)(1)(i) and (ii) of this section are satisfied 
and the contractor denied OFCCP access to sources of evidence that may 
be relevant to a preliminary finding of discriminatory intent. This may 
include denying access to its employees during a compliance evaluation 
or destroying or failing to produce records the contractor is legally 
required to create and maintain.
    (3) For allegations included in a Predetermination Notice involving 
a disparate impact theory of liability, OFCCP must:
    (i) Provide quantitative evidence as defined in this part;
    (ii) Demonstrate the unexplained disparity is practically 
significant; and
    (iii) Identify the specific policy or practice of the contractor 
causing the adverse impact, unless OFCCP can demonstrate that the 
elements of the contractor's selection procedures are incapable of 
separation for analysis.
    (4) The Predetermination Notice must disclose the quantitative and 
qualitative evidence relied on by OFCCP in sufficient detail to allow 
contractors to investigate allegations and meaningfully respond. OFCCP 
will seek to obtain qualitative evidence in all cases in which it 
issues a Predetermination Notice; however, if the exception in 
paragraph (a)(2)(ii) of this section applies, OFCCP will disclose why, 
in the absence of qualitative evidence, the agency is issuing the 
Predetermination Notice based on evidence of an extraordinarily 
compelling disparity alone. In addition, upon the contractor's request, 
OFCCP must also 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. However, OFCCP may withhold 
personal identifying information from the description of the 
qualitative evidence if the information is protected from disclosure 
under recognized governmental privileges, or otherwise if providing 
that information would violate confidentiality or privacy protections 
afforded by law.
    (5) Any response to a Predetermination Notice must be submitted by 
the contractor within 30 calendar days of receipt of the Notice, which 
deadline OFCCP may extend for good cause.
    (b) Notice of Violation. (1) If, following OFCCP's review of any 
response by the contractor pursuant to paragraph (a)(5) of this 
section, the agency has evidence sufficient to support a finding of 
disparate treatment and/or disparate impact discrimination, as 
established in the parameters and exceptions in paragraph (a) of this 
section, or that the contractor has committed other material violations 
of the equal opportunity clause (with the exception of violations for 
denying access or failing to submit records in response to OFCCP's 
Office of Management and Budget (OMB)-approved Scheduling Letters, for 
which OFCCP may proceed directly to issuing a Show Cause Notice), OFCCP 
may issue a Notice of Violation to the contractor requiring corrective 
action and inviting conciliation through a written agreement, subject 
to approval by the Director or acting agency head.
    (2) OFCCP may issue a Notice of Violation alleging a finding of 
discrimination following issuance of a Predetermination Notice if the 
contractor does not respond or provide a sufficient response within 30 
calendar days of receipt of the Predetermination Notice, subject to 
approval by the Director or acting agency head, unless OFCCP has 
extended the Predetermination Notice response time for good cause 
shown.
    (3) The Notice of Violation must disclose the quantitative and 
qualitative evidence relied on by OFCCP in sufficient detail to allow 
contractors to investigate allegations and meaningfully respond. OFCCP 
will seek to obtain qualitative evidence in all cases in which it 
issues a Notice of Violation, however, if the exception in paragraph 
(a)(2)(ii) of this section applies, OFCCP will disclose why, in the 
absence of qualitative evidence, the agency is issuing the Notice of 
Violation based on evidence of an extraordinarily compelling disparity 
alone. In addition, upon the contractor's request, OFCCP must also 
provide the model and variables used in any statistical analysis and an 
explanation why any variable proposed by the contractor was excluded 
from that analysis. However, OFCCP may withhold personal identifying 
information from the description of the qualitative evidence if the 
information is protected from

[[Page 71575]]

disclosure under recognized governmental privileges, or otherwise if 
providing that information would violate confidentiality or privacy 
protections afforded by law.
    (4) The Notice of Violation must address all relevant concerns and 
defenses raised by the contractor in response to the Predetermination 
Notice.
    (c) Conciliation agreement. If a compliance review, complaint 
investigation, or other review by OFCCP or its representative indicates 
a material violation of the equal opportunity clause, and:
    (1) If the contractor, subcontractor or bidder is willing to 
correct the violations and/or deficiencies; and
    (2) If OFCCP or its representative determines that settlement 
(rather than referral for consideration of formal enforcement) is 
appropriate, a written agreement shall be required. The agreement shall 
provide for such remedial action as may be necessary to correct the 
violations and/or deficiencies noted, including, where appropriate (but 
not necessarily limited to), remedies such as back pay and retroactive 
seniority.
    (d) Remedial benchmarks. The remedial action referenced in 
paragraph (c) of this section may include the establishment of 
benchmarks for the contractor's outreach, recruitment, hiring, or other 
employment activities. The purpose of such benchmarks is to create a 
quantifiable method by which the contractor's progress in correcting 
identified violations and/or deficiencies can be measured.
    (e) Expedited conciliation option. A contractor may voluntarily 
waive the procedures set forth in paragraphs (a) and/or (b) of this 
section to enter directly into a conciliation agreement. OFCCP may 
inform the contractor of this expedited conciliation option, but may 
not require or insist that the contractor avail itself of the expedited 
conciliation option.
    (f) Severability. Should a court of competent jurisdiction hold any 
provision(s) of this section to be invalid, such action will not affect 
any other provision of this section.
[FR Doc. 2020-24858 Filed 11-9-20; 8:45 am]
BILLING CODE 4510-CM-P