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eLABORate: New Pay Transparency Requirements Proposed for Federal Contractors

September 17, 2014

On September 17, the Department of Labor’s Office of Federal Contract Compliance Programs (“OFCCP”) published a proposed rule to implement pay transparency requirements for Federal contractors and subcontractors. The proposed rule comes as a result of Executive Order 13665, entitled “Non-Retaliation for Disclosure of Compensation Information,” signed by President Obama on April 8, 2014.

Generally, this proposal would amend Executive Order 11246 to prohibit employers from firing or taking other adverse actions against employees who discuss their pay and other employees’ pay. The proposal includes limited exceptions and does not protect employees like those in human resources who disseminate information on pay they acquired as part of their essential job functions, unless in response to a charge or investigation. The proposed rule also does not protect employees who are disciplined for disruptive behavior, such as an employee being disciplined for violating a work rule by “standing on her desk and repeatedly shouting out her pay,” so long as the discipline was about the disruption, not the disclosure of pay. Employers subject to the rule would need to amend their employee handbooks or manuals, in addition to engaging in training to educate decision makers in the workplace on this new requirement. The provisions of this proposed rule would apply to covered contracts entered into or modified on or after the effective date of the Final Rule.

The OFCCP claims that the rule is needed to help close a continued pay gap within the workforce despite the existence of laws protecting workers from compensation discrimination. OFCCP argues, “Among the possible contributing factors to the enduring pay gap is the prevalence of workplace prohibitions against discussing compensation. Whether communicated through a written employment policy or through more informal means, strictures against revealing compensation can conceal compensation disparities among employees.”

Of the numerous proposed revisions to the existing regulations, the proposed rule would enact the following changes:

  1. Amend the Equal Opportunity Clause to include the requirement that Federal contractors refrain from discharging or otherwise discriminating against employees or applicants who inquire about, discuss or disclose their compensation or the compensation of other employees or applicants, except where the disclosure was carried out by an employee who obtained the information in the course of performing his or her essential job function.
  2. Require Federal contractors to incorporate the nondiscrimination provision into their existing employee manuals or handbooks, and disseminate the nondiscrimination provision to employees and to job applicants.
  3. Establish a general defense provision and an essential job functions defense provision, providing contractors with defenses to alleged violations of the nondiscrimination obligation for employees who inquired about, disclosed or discussed compensation.

The OFCCP is taking comments on this proposed rule through December 16, 2014. We will update you concerning further progress in the pay transparency regulation.