eLABORate: New Federal Contractor Pay Transparency Rule Takes Effect

January 25, 2016

Federal contractors long have been aware of the numerous laws and regulations prohibiting pay discrimination. On January 11, 2016, new rules pertaining to pay transparency issued by the Office of Federal Contract Compliance Programs (OFCCP) took effect. The new rules seek to effectively eliminate the practice of restricting employees’ discussions wage, salary, benefits or bonus information. For federal contractors, this could mean significant changes to company policies and employee handbooks, as well as contracts and other documents.

“Pay transparency” and “pay secrecy” involve discussion or disclosure among employees regarding their own compensation and that of their peers. According to the OFCCP, pay secrecy policies frustrate employees’ ability to obtain the compensation information needed to report or charge discrimination based upon differences in pay. The regulations are designed to remove this impediment and promote the free flow of compensation information among employees.

The road to the new rules began in 2014, when President Barack Obama signed Executive Order 13655, which amended longstanding Executive Order 11246 to include explicit protections for employees who may have “inquired about, discussed, or disclosed” compensation information regarding themselves or fellow employees. See E.O. 13665 § 2 (April 8, 2014). The OFCCP issued the Final Rule implementing the order September 11, 2015. See Final Rule, 176 F.R. 54934 (September 11, 2015). The most important points in the Final Rule for federal contractors are the new EEO Statement requirements, proposed analytical framework for adjudicating charges of pay transparency discrimination and the two narrow defenses available to federal contractors charged with pay transparency discrimination.

First, the Final Rule requires federal contractors to include new language in their EEO Statements. Well known to federal contractors, the EEO Statement is a critical component of OFCCP compliance that is required to be included with all contract documents, attached to all employee handbooks and posted prominently on federal contractors’ premises. The new language includes an explicit statement that the “contractor will not discharge or in any other manner discriminate against employees or applicants” based upon discussion of compensation information. The full required language is available at the OFCCP website by clicking here.

Second, the OFCCP in the Final Rule states it will analyze claims under a disparate treatment discrimination framework, despite that such a claim might appear more like a retaliation claim. The OFCCP considers the retaliation standard, which requires opposition to illegal practices or participation in an investigation, too narrow considering the range of activities involved in discussions of compensation. As a result, the OFCCP will consider any adverse action resulting from discussion of compensation information as discrimination, not retaliation.

Third, OFCCP provides contractors with two narrow defenses to claims under the Final Rule. First, the OFCCP will permit general “workplace rule” defenses, provided the proffered workplace rule is applied objectively and without regard to discussions of compensation information. Second, an employee who obtains knowledge of compensation through his “essential job functions” is not necessarily protected by the regulations if he shares compensation information learned through conducting those functions. Nonetheless, such an employee is protected if he, having noticed pay discrepancies in the course of his work, reports such discrepancies to management. He also may disclose his own compensation to others or compensation information he obtains from sources other than his job functions.