The U.S. Department of Labor’s Office of Federal Contract Compliance Programs (OFCCP) has issued a new directive entitled “Calculating Back Pay as a Part of Make-Whole Relief for Victims of Employment Discrimination” (“Directive”). The Directive addresses the two distinct models for calculating back pay relief – formula relief and individual relief – and indicates when it is appropriate to use each of the two back pay models The lengthy directive, dated July 17, 2013 also includes discussion of employees’ duty to mitigate damages, interest calculations, and tax liability.

Generally, an award of back pay will be sought by the OFCCP as a part of the “make whole” relief awarded to victims of employment discrimination whenever that discrimination results in a loss of compensation or benefits for the aggrieved individual. As set forth in the Directive, so long as a federal contract is in effect when the discrimination occurred, back pay generally can be obtained for a period up to two years prior to the date of receipt of the scheduling letter or, in the case of a formal complaint, up to two years prior to the date the complaint is filed. According to the OFCCP, back pay then continues until the date on which the discriminatory actions are “stopped” by the contractor (the directive does not specify how), or stopped by means of a Conciliation Agreement, Consent Decree, or Final Court/Administrative Order.

 The Directive spells out a number of obligations of the employer/contractor with respect to mitigation issues. An aggrieved individual must use reasonable diligence to seek alternative employment during the period of unemployment due to discriminatory treatment, in order to “mitigate” his or her damages. The earnings from such employment will be deducted from the total amount of back pay awarded to the aggrieved individual. The OFCCP’s views on mitigation are specific: according to the Directive, victims are required to accept employment only if that employment is substantially equivalent to or the same as that sought or held with the contractor, and it is the contractor’s burden to show that with such diligence the victims were reasonably likely to have found such comparable employment. Victims of discrimination are not required to take a non-comparable employment position simply to retain their back pay awards, nor are such individuals required to relocate to accept alternative employment. It ultimately is the contractor’s burden to prove the amount of interim earnings with respect to an individual’s mitigation efforts.

According to the Directive, interest on back pay in discrimination cases is calculated on the adjusted back pay calculation after mitigation. Interest on the overall back pay award then is compounded on a quarterly basis, at the percentage rate established by the IRS for the underpayment of taxes. The current rate may be found at

Formula relief v. Individual relief. OFCCP compliance officers (and not the contractor) make a determination of which back pay relief model to use on a case-by-case basis. The Directive includes numerous examples of situations in which each type of relief may be appropriate.
Under formula relief, used typically when a case includes a large number of employees, the OFCCP may equally divide the total back pay award among all of the identified class members, which amounts to a pro-rata share of back pay that each class member receives as a remedy. As explained in the Directive, formula relief is a method of approximating losses in circumstances in which it is unrealistic to attempt to compute multiple individual losses with accuracy, such as situations in which calculating individual back pay relief is difficult because complete information or documentation (i.e., payroll records) is unavailable or missing. When using the formula relief model, earnings may be adjusted or averaged to approximate the loss. For example, in calculating lost overtime pay, an average of overtime hours worked by all of the employees in the position at issue should be used.

 Generally, OFCCP will use the individual relief model when it has identified a single victim of discrimination, or a small group of such individuals. The individual, or “victim-specific” model, provides make-whole relief for each identified victim of discrimination. Unlike the formula relief model, the individual relief model is used whenever it is feasible to identify individual victims of discrimination and it is feasible to calculate specifically each individual’s economic losses. Circumstances that lead to the use of the individual relief model include the total class size, a limited duration of the period of loss, and the existence of documentation related to specific lost pay calculations.

The Directive also provides explicit information regarding the contractor’s obligations in the calculation of damages in “:hiring cases,” in which individuals claim to have been discriminated against during an application process.

 As a final note, the OFCCP specifically states that contractors are responsible for paying the employer share of applicable taxes on top of any calculated settlement amount, and for providing appropriate tax withholding and reporting as explained in detail in the Directive.