Over the last few years, there has been an increasing number of initiatives by various interest groups to require extensive reporting by employers regarding the composition of their workforce by ethnic and gender categories, and also requirements that employers report on the compensation provided to their employees. The general rationale stated for such proposals is that such reporting will result in greater diversity in the workplace and more equitable pay systems being implemented by employers. While such goals certainly have merit, virtually all of the reporting requirements that have been suggested, and in part accepted by governmental entities, provide little if no benefit to any stakeholder and only result in increased regulatory costs being born by employers. A prime example of such overregulation by the administrative state is a pay data reporting rule adopted at the conclusion of the Obama Administration by the Equal Employment Opportunity Commission (“Commission” or “EEOC”). This pay data reporting requirement expanded the existing EEOC EEO-1 workforce composition reporting rule. Under the original EEO-1 reporting requirement, approximately 61,000 covered employers are required to annually report data regarding their respective workforces categorized by race/ethnicity, gender, and job category for a total of approximately 180 pieces of information. The 2016 new pay data reporting requirement expands reporting by 20-fold employer obligations from 180 pieces of information to 3,660. In total, under this new rule, covered employers will be required to collect and report on nearly 3 billion data fields. An empirical survey conducted by the U.S. Chamber of Commerce (“Chamber”), which included more than 50 companies that file approximately 20,000 EEO-1 Forms each year, concluded employers and federal contractors would spend $400.8 million to comply with the new rule and require approximately 8,056,045 hours in operational time to come into compliance. The Chamber’s $400.8 million figure only included direct labor costs - when indirect overhead costs are included, the revised EEO-1 Complement 2 compliance costs approach $1.3 billion annually. The Chamber’s study brings into serious doubt the EEOC’s 2016 projected compliance cost of $53.5 million and 1,892,980 compliance hours.
The Office of Management and Budget (“OMB”) in the Trump Administration found on August 29, 2017, numerous deficiencies with the new pay data reporting requirement, including a finding that such data would provide little, if any, insight or assistance to the Commission in addressing pay equity issues in the workplace. Accordingly, the OMB placed a stay on the implementation of the new pay data reporting requirement. This decision, like many other decisions of the Trump Administration invalidating regulatory overreach, was challenged in the courts. Specifically, the National Women’s Law Center (NWLC) and Labor Council for Latin American Advancement filed a complaint in the Federal District Court for the District of Columbia seeking to have the OMB order rescinded and the new pay data rule implemented.
U.S. District Court Judge, Judge Tanya Chutkan issued a decision on March 4, 2019, agreeing with the theories advanced by the Plaintiffs. Judge Chutkan’s decision resurrected the EEOC EEO-1 Component 2 pay data rule and invalidated OMB’s stay of this rule. Her erroneous decision includes a comprehensive order requiring that the EEOC go forward with collecting 2017 and 2018 pay data from covered employers. Pursuant to such Order, covered employers are required to file their pay data information on or before September 30, 2019. This regulatory overreach will significantly increase data that employers will be required to submit to the federal government, and as noted above, would result in more than $1 billion in new regulatory compliance costs for U.S. based employers.
It is highly unlikely that the vast amount of new information the EEOC’s new payroll data rule intends to collect would enhance in any manner enforcement of employment nondiscrimination policies. For example, the newly reported data will not include job experience, education, or skill level. The Commission, additionally, will not be able to determine based on the required 12 pay reporting and 10 EEO-1 job categories whether income disparities are the result of potential unlawful discrimination or the personal choices of workers regarding their careers, including the number of desired hours they wish to work. It is also important to note that the Component 2 data reliance on broad job categories is deficient. Employees grouped in a job category will often not be performing similar jobs. Indeed, the EEOC, by its own admission, does not believe that this data will identify specific similarly situated comparators or that such data will be reliable to establish pay discrimination as a legal matter.
There are also significant concerns about the confidentiality of pay data information required by the Component 2 rule. This private employee information is only partially protected by federal labor law as Title VII only prohibits the EEOC from making “public in any manner whatsoever any information obtained…pursuant to its authority…prior to the institution of any proceeding…involving this information.” This prohibition, however, is limited to EEOC employees. The U.S. Department of Labor Office of Federal Contract Compliance Programs (OFCCP) also has access to EEO-1 information of federal contractors and sub-contractors, but OFCCP employees are not covered by Title VII’s privacy protections. EEO-1 pay data, including EEO-1 Component 2 pay data obtained by the OFCCP is subject to Freedom of Information Act (FIOA) requests. Accordingly, there is a potential, notwithstanding the Supreme Court’s recent ruling in Food Marketing Institute v. Argus Leader Media, dba Argus Leader, that the reported data will not be confidential and will be publicly reported or disseminated in some fashion.
In addition to the OFCCP’s access, the EEOC shares data with other federal agencies, state and local fair employment practice agencies, and contractors through various letters or memoranda of understanding. The above-cited EEOC employee penalty protections do not apply to such recipients.
Additionally, the EEOC’s Chief Information Officer recently testified in the federal district court proceeding before Judge Chutkan, that he had significant concerns about whether the EEOC would be able to protect the confidentiality of any submitted pay data information.
The Department of Justice has filed an appeal of Judge Chutkan’s Order to the United States Court of Appeals for the District of Columbia. While the DOJ did not seek a stay of Judge Chutkan’s Order in the District Court, it has not stated a position on whether it will seek a stay of the Judge’s Order in the court of appeals. In the interim, the EEOC has issued a guidance to covered employers regarding the September 30 filing deadline. Additional guidance is to be furnished by the Commission over the next few weeks. Absent a stay being requested and granted, and/or intervention by the Office of Management and Budget, covered employers should proceed to undertake all appropriate steps to file the required pay data on or before September 30, 2019. Covered employers should stress in such filing that such information is confidential and not otherwise available in a public domain, and to the extent space is available on the reporting forum, indicate any assumptions and/or potential deficiencies in the accuracy of such filing given the short filing period available to employers to assemble, review, and file such data. Reporting employers should also track the compliance time and cost associated with such filing as the merits, or lack thereof, of the Component 2 data will no doubt be debated in the future. Specifically, the Component 2 pay data rule expires on September 30, 2019, and one issue that may surface in the future is the cost/benefit of employers filing such data.
Employers that have concerns about the new rule should express them to their congressional representatives, the EEOC, and the Office of Management and Budget. The Federalist Society will have a live Teleforum podcast regarding the new Component 2 pay data rule on September 3. Click here for more details.