Maintaining the Attorney-Client Privilege Over Pay Equity Analyses

More and more of our clients are conducting workforce pay equity analyses. The reasons vary. Sometimes the analysis has been requested by the company’s Board of Directors or executive leadership to assess whether the company is meeting internal or external benchmarks. Sometimes the analysis is performed because the company is investigating a perceived or actual disparity that has come to its attention. And sometimes the company has made such analyses a regular and recurring part of its compliance efforts, often because federal or state agencies require such analyses as a condition to contracting with the company.

No matter the reason a pay equity analysis is conducted, it has the potential to create risk by revealing pay disparities before the company has had an opportunity to fully analyze the data or consider corrective action. A critical way to protect against this risk is to maintain the attorney-client privilege over the analysis, at least while it is being conducted.

As it pertains to maintaining the privilege, companies that perform pay equity analyses pursuant to government contracting obligations recently received some welcome news from the Office of Federal Contract Compliance (OFCCP). The OFCCP clarified that employers are not required to disclose privileged pay equity materials when responding to OFCCP inquiries. See OFCCP Directive 2022-01 Revision 1. Instead, they may either (1) produce redacted materials; (2) conduct a separate, non-privileged analysis; or (3) provide an affidavit setting forth facts regarding how the analysis was conducted.

The OFCCP’s willingness to honor a company’s assertion of privilege underscores the importance of considering privilege issues when conducting pay equity analyses. Too often, our clients consider privilege issues only after the analysis has begun, risking the possibility that the privilege has already been waived. It behooves companies to plan in advance how the privilege will be maintained.

Below are key steps to consider in maintaining the attorney-client privilege over pay equity analyses:

1. Document from the outset that the analysis is being directed by legal counsel for the purpose of providing legal advice to the company. Material does not become privileged simply because it is labeled “privileged” or because a lawyer is copied on correspondence. Under federal and state law, communications are privileged only if they are confidential between an attorney and client and made for the purpose of securing legal advice. It is therefore critical that the pay equity analysis be conducted in conjunction with legal analysis, and not merely as part of routine compliance efforts or fact-gathering. Documenting the legal basis for the project will bolster the argument that the analysis in fact falls under the privilege.

2. Consider retaining outside counsel to oversee the analysis. In-house counsel often wear multiple hats within the organization, providing both legal and non-legal business advice. If a company’s in-house counsel routinely provides non-legal business advice—and especially if he or she has done so in connection with previous non-privileged pay equity audits—it may be unclear whether counsel’s involvement is truly for purpose of providing legal advice. Retaining and involving outside counsel greatly reduces this risk.

3. Restrict involvement in the analysis to persons who have a business need to be involved or to know the results. In the corporate context, the attorney-client privilege can be waived if communications are disclosed outside the group of employees whose duties include the matter being discussed. To mitigate this risk, it is helpful at the outset to define the universe of employees with a business need to know and to require that all communications and disclosures stay within this group of employees. After the analysis is completed, the company can decide whether to disclose the results to other employees and third parties and, if it chooses to do so, how best to manage the risk that the privilege is wholly or partially waived.

4. Consider whether it makes sense to separate privileged analysis from non-privileged analyses that the company may do pursuant to federal, state, or local contracting obligations. As noted above, entities that contract with the federal government and certain state or local agencies may have obligations to conduct certain pay equity analyses as a condition of doing business with the agency. The federal OFCCP has now made clear that a company may omit privileged material when it responds to the agency’s information requests. In some cases, the most efficient way of doing so may be to conduct a separate, non-privileged analysis to be shared with the agency, while the privileged analysis stays confidential.

The Bottom Line

It is critical to consider the attorney-client privilege before and during a pay equity analysis. The above steps can help avoid a situation in which the company is unwittingly compelled to produce sensitive pay equity analysis material in litigation or during agency investigations that it did not contemplate having to produce.