IMPLICATIONS OF RUDEBUSCH V. HUGHES (2002) FOR OFCCP PLANS TO RESCIND ITS 2006 COMPENSATION STANDARDS

by Art Gutman Ph.D., Professor, Florida Institute of Technology

As noted in several recent DCI Blogspots, the OFCCP is proposing to rescind the Standards written in 2006 for evaluating systematic discrimination in compensation cases. As noted in prior Blogspots, most notably an August 2010 post by DCI President David Cohen, These Standards incorporate three major criteria for evaluating such cases that all of us feel are absolutely necessary for a continued proper analysis of compensation cases. These include:

1. Job titles grouped into similarly situated employee groupings (SSEG)

2. Statistically significant differences in pay between protected classes after controlling for legitimate and non-discriminatory variables (multiple regression analysis)

3. Anecdotal evidence of discrimination to bring those statistics to life.

Absent the OFCCP’s proposed action, cases such as Rudebusch v. Hughes (CA9 2006) [313 F.3d. 506] belong in the dustbin of voluntary compensation actions gone sour. Indeed, if you Shepardize Rudebusch, you will find only 32 citations, 29 of which are 9th Circuit Court cases or district court cases within the 9th Circuit, and one of which is a California state court case (also within the 9th Circuit). The two outliers are Cullen v. Indiana University (CA7 2003) and McClaurin v. Amtrak (DC District Court 2004), and both rulings support the need to satisfy Criteria 1 and 2 as noted by Cohen. However, the proposed rescission of the 2006 OFCCP Standards, particularly Criteria 1 and 2, breathes new life into the Rudebusch case, making it both “too sweet” (for minorities and females wrongfully thought to be victims of compensation discrimination) and “too sour” (for employers who act upon insufficient grounds for adjusting salaries for minorities and females).

The issues here are complex, and readers will have to bear with me as I detail the dangerous confluence of events posed by combining rescission of the OFCCP Standards and the Rudebusch ruling. I will start with a summary of the facts in the Rudebusch case, followed by the court rulings. Then I will conclude with the implications of these rulings in light of the OFCCP’s move to rescind the 2006 Standards.

Facts of the Rudebusch Case

Eugene Hughes, the president of Northern Arizona University (NAU), a state institution, approved a plan to adjust salaries of female and minority male faculty whose salaries were thought to fall below those of males and non-minority faculty. He did so based on two factors: (1) a multiple regression analysis (i.e., the “Chambers Study”) that was later shown to be flawed by a subsequent study (the “Gantz/Miller Study”), and (2) the “flight” of minority faculty as noted in an OFCCP affirmative action (AA) report. The second factor was ultimately deemed insufficient, by itself, to require AA. For present purposes, the focus is on the two studies.

The Chambers study, a 1993 “annual equity report”, used a multiple regression analysis that controlled for factors such as rank, years of service, and discipline. Chambers concluded there were "statistical differences in gender and ethnic equity" that were removable with $278,966 in adjustments for 72% of the female faculty with adjustment in the $1,001 to $3,000 per year range depending upon how far a female’s salary fell below the predicted salary of similarly situated white male professors. A similar analysis for minority faculty resulted in recommended adjustments ranging from $250 to $6,945 for about half of the minority male faculty. Women and minorities at or above the predicted values received no adjustments.

Gantz and Miller challenged several aspects of Chambers study. First, assuming Chambers methodology was appropriate (i.e. controlling, Gantz and Miller reported that adjustments should be made for smaller number of faculty (93 male minority and female professors) for a smaller grant total ($164,410). More importantly, they (1) found non-significant differences using Chamber’s methodology (controlling only for rank, years of service & discipline). Indeed, among 493 faculty in the Chambers study, 85 female and minority faculty members were deemed underpaid, but so were 192 non-minority males, prompting the 9th Circuit to suggest:

Though this may show that almost everyone at NAU was being underpaid, the existence of across-the-board disparities would seem to undercut the study's ability to demonstrate that minorities were discriminated against simply because their salaries fell below predicted. This evidence falls far short of showing conspicuous imbalance along ethnic or gender lines.

A key factor exposed in the Gantz/Miller study was that merit and performance factors (such as publications and grant funding) were not controlled for. For example, in one cohort analysis, a minority faculty member was given an adjustment of $3,353 relative to a non-minority cohort who had more publications (including several books) and who had brought in more money in grants.

Enough on the facts --- the Chambers study illustrates a poorly conceived regression analysis, whereas the Gantz/Miller study illustrates a best practices approach to compensation evaluations. One would think this would have been sufficient to end the case --- unfortunately, there were several thorny issues in the case at the district court and circuit court levels.

The Court Rulings in Rudebusch

The charges in this case included a “personal capacity” suit against the president of NAU (permissible in constitutional claims, but not Title VII claims) and Title VII reverse discrimination charges by non-minority males (such as Rudebusch). The district court concluded that 14th Amendment rules permits “ample room for reasonable error” on the part of a public official, which reduces to actions that are not “plainly incompetent.” (based on Supreme Court’s ruling in Saucier v. Katz, 2001). The district court granted summary judgment to the president on this issue and 2 of 3 circuit court judges agreed. Interestingly, the 3rd judge dissented on this issue, stating that “Any competent university president would know that he can't pay people more or less than others based on their sex and race.” More on this later.

The reverse discrimination claim was decided under Title VII rules based on the Supreme Court’s ruling in Johnson v. Transportation (1987). In Johnson, a female (Dianne Joyce) and a male (Paul Johnson) were among seven finalists for promotion in a state agency that had 238 skilled craft workers, all male. Also, females were underrepresented throughout the agency and were segregated into five of seven job categories. Therefore, an Affirmative Action Plan (AAP) was developed to achieve “a statistically measurable yearly improvement in hiring, training and promotion of minorities and women” in the suspect job categories. Johnson, was rated slightly higher than Joyce, and was recommended by the three supervisors who provided the ratings. But the agency director, with input from an AA officer whom Joyce had petitioned, ordered his subordinate to choose any of the seven finalists. Joyce was selected and Johnson filed a Title VII claim alleging that sex was the "determining factor in [Joyce's] selection." Ultimately, the Supreme Court favored Joyce based on three criteria: (1) there was a “manifest imbalance” in the workforce favoring men; (2) Johnson’s rights were not “trammeled” (he was promoted not too long thereafter); and (3) the AAP was designed to achieve balance, not maintain it. I have some issues with applying Johnson v. Transportation to the Rudebusch case, but that’s a matter for another Blogspot.

The reverse discrimination charges were tried to a jury, which found for NAU on all three Johnson criteria, and the district court approved. Interestingly, the district court permitted into evidence a letter by the OFCCP concluding, among other things, “that Hughes' actions in March 1993 were in compliance with the university's affirmative action program and its obligations as a recipient of federal funding.” In other words, the salary adjustments were appropriate. The plaintiffs objected on grounds of “hearsay” and “relevance”, and the 9th Circuit ruled that it was a mistake on the part of the district court judge to consider this evidence, but nevertheless deemed it “harmless error” (more on that later too).

Tackling the three criteria in order, the 9th Circuit, though siding with the Gantz/Miller report that there was insufficient evidence of a “manifest imbalance”, nevertheless had its hands tied because the plaintiff’s never appealed this part of the ruling. The 9th Circuit also ruled in favor of NAU on the second criterion, seeing no evidence of “trammeling” (which is usually reserved for layoffs and terminations). However, the 9th Circuit overruled the district court on criterion 3. Ultimately, on remand in 2006 in Rudebusch v. Arizona [436 F. Supp. 2d 1058], the district court order 22% increases (as opposed to one-time payments) for 18 non-minority male professors who had administrative responsibilities that others (e.g., females & minority males) did not have.

Implications

Let’s begin with the implications of rescinding the 2006 Standards. The OFCCP is on record as stating the following:

[U]nder Title VII, a pattern or practice class-wide disparate treatment case may be proven by statistics. See, e.g., Int'l Brotherhood of Teamsters v. United States, 431 U.S. 324, 339-40 (1977); Palmer v. Shultz, 815 F.2d 84, 90-91 (DC Cir. 1987). Cf. OFCCP v. Greenwood Mills, Inc., No. 89-OFC-39, Decision and Order of Remand, slip op. at 14 (Sec'y of Labor Nov. 20, 1995); OFCCP v. Jacksonville Shipyards, 89-OFC-1, Decision and Remand Order, slip op. at 5 (Sec'y of Labor May 9, 1995).

This is not a correct interpretation of the cases cited, but that too will have to wait for a future Blogspot. The correct interpretation is that a “gross disparity” or “manifest imbalance” (take your choice … they are synonyms) may be rebutted by multiple regression statistics showing that the disparity evaporates upon controlling for key confounding variables (e.g., merit and performance factors). Under Title VII law, if rebutted, there is no prima facie case --- case dismissed. Even if a prima facie case is assumed, the defendant still has the opportunity to explain, without having to prove, why the disparity exists, and it’s up to the plaintiff to prove that the explanation is pretext. The problem, therefore, with rescinding the 2006 Standards is that the OFCCP is free to conclude that a violation exists based on weak evidence (such as the Chambers study), and, the agency can choose to simply reject the defendant’s explanation without applying clear Title VII standards. Thus, the OFCCP can force a “settlement” on a defendant that would not be enforced by a federal judge.

In this scenario non-affected parties can file reverse discrimination claims and win in federal court despite what the OFCCP decides (hence …. “sweet and sour”). In other words, if there is weak evidence of discrimination and a federal contractor decides to make salary adjustments based on race or gender in order to settle with the OFCCP, those salary adjustments may later be deemed discriminatory acts against those whose salaries were not adjusted.

Note that all of this occurred well before the highly publicized Supreme Court ruling in Ricci v. DeStefano (2009) in which, under Title VII rules, a majority of Justices demanded a “strong basis in evidence” for believing an employer would lose against minorities in order to counter reverse discrimination charges from non-minorities. There are core differences between Rudebusch and Ricci. For example, Rudebusch employed a 14th Amendment standard and Ricci involved discarding test results for fear of losing a Title VII adverse impact case. In addition, the Ricci Court explicitly rejected the “reasonableness” standard cited in the Rudebusch case. However, both cases highlight that there is potential vulnerability to employers that make race- or gender-based decisions in response to evidence that cannot meet strong legal scrutiny. As a result, federal contractors need to consider the potential vulnerability of reverse discrimination claims as a function of pay adjustments in OFCCP settlements if there are no clear standards for defining what pay discrimination looks like. The proposed rescission of the Standards and Guidelines would create precisely such a scenario.

There are many other issues to discuss here. Hopefully this post starts some dialogue. Consider this a starting point and look for additional Blogspots on these and related issues in the near future.

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