The workplace culture of federal contractors is about to change dramatically. It has been taboo in the private sector to discuss one’s personal salary or inquire about the compensation of others, but the recently issued Pay Transparency Final Rule will provide protections to applicants and employees who break tradition.

On September 10, 2015, the U.S. Department of Labor’s Office of Federal Contract Compliance Programs (OFCCP) published a Final Rule which prohibits federal contractors and subcontractors from discharging or discriminating against their employees and job applicants for discussing, disclosing, or inquiring about compensation. The Final Rule implements Executive Order (EO) 13665, signed by President Barack Obama on April 8, 2014.

The Lilly Ledbetter case brought national attention to the issue when her case was dismissed due to untimely filing. Her company’s policy forbidding her from discussing pay with co-workers prevented her from getting the information she needed to bring a complaint in time. The Lilly Ledbetter Fair Pay Restoration Act, the first piece of legislation signed by President Obama in 2009, changed the way “timely filing” is defined, making it easier to file charges based on unequal pay. The new regulation addresses the second hurdle – the ability to learn about pay discrepancies.

The new regulation is a sea change for employers. The Final Rule amends the Executive Order 11246 implementing regulations in the following manner:

  1. Requires a revised equal opportunity clause be included in covered federal contracts and subcontracts;

    The Equal Opportunity Clause that is included in covered federal contracts and subcontracts, federally assisted construction contracts and subcontracts, and purchase orders has been revised. The revised clause includes a provision prohibiting contractors from discharging, or in any manner discriminating against, any employee or applicant for employment because the employee or applicant inquired about, discussed, or disclosed the compensation of the employee or applicant or another employee or applicant. The Equal Opportunity Clause may still be incorporated by reference, by citing to 41 CFR 60–1.4, as the Final Rule does not change this option.

  2. Requires federal contractors to incorporate a prescribed nondiscrimination provision into their existing employee manuals or handbooks and disseminate the nondiscrimination provision to employees and to job applicants;

    Contractors are required to disseminate the nondiscrimination provision by either electronic posting or by posting a copy of the provision in conspicuous places available to employees and applicants for employment. [The regulations will also require posting of a new “EEO is the Law” poster, when it becomes available. The last poster was issued in 2009, so it is very outdated. In the meantime, contractors need to post the EEO Supplement Poster next to their EEO poster.] The following is the prescribed language for the pay transparency policy.

     

    PAY TRANSPARENCY POLICY STATEMENT
    The contractor will not discharge or in any other manner discriminate against employees or applicants because they have inquired about, discussed, or disclosed their own pay or the pay of another employee or applicant. However, employees who have access to the compensation information of other employees or applicants as a part of their essential job functions cannot disclose the pay of other employees or applicants to individuals who do not otherwise have access to compensation information, unless the disclosure is (a) in response to a formal complaint or charge, (b) in furtherance of an investigation, proceeding, hearing, or action, including an investigation conducted by the employer, or (c) consistent with the contractor’s legal duty to furnish information.

  3. Defines key terms such as compensation, compensation information, and essential job functions as used in EO 11246, as amended;

    The Final Rule includes a broad definition of “compensation,” which includes more than an employee’s paycheck or salary. It extends to employees and applicants, and includes salary, wages, overtime pay, shift differentials, bonuses, commissions, vacation and holiday pay, allowances, insurance and other benefits, stock options and awards, profit sharing, and retirement.

    “Compensation information” refers to the amount and type of compensation provided to employees or offered to applicants. Examples of “compensation information” include the desire of the contractor to attract and retain a particular employee for the value the employee is perceived to add to the contractor’s profit or productivity; the availability of employees with like skills in the marketplace; market research about the worth of similar jobs in the relevant marketplace; job analyses, descriptions, and evaluations; salary and pay structures; salary surveys; labor union agreements; and contractor decisions, statements and policies related to setting or altering employee compensation.

  4. Provides employers with two defenses to an allegation of discrimination: a general defense, which could be based on the enforcement of a "workplace rule" that does not prohibit the discussion of compensation information; and an essential job functions defense.

    There are two broad categories of inquiries, discussions, or disclosures that may not be protected under the new regulation.

    First, the Final Rule provides a defense for contractors in the event that compensation inquiries are made while violating a consistently and uniformly applied workplace rule, so long as that rule doesn’t generally prohibit compensation disclosures. For example, an employer may have a rule that prohibits employees from being disruptive in the workplace. An employee may violate that rule by standing on his desk and repeatedly and disruptively shouting out his pay. In this case, the employee may be disciplined for those actions, if he were disciplined for being disruptive and not for disclosing his pay, as long as the employer consistently and uniformly applied the workplace rule.

    Second, inquiries, discussions, or disclosures of compensation information that employees obtain through their “essential job functions” are not protected. Information is obtained as a part of an employee’s “essential job functions” if:
     

    • access to compensation information is necessary to perform that function or another routinely assigned business task, or

    • the function or duties of the position include protecting and maintaining the privacy of employee personnel records, including compensation information.

    However, employees with such essential job functions are protected under the Final Rule to the extent that they (a) discuss their own compensation with other employees or (b) discuss possible disparities involving another employee’s compensation with a management official or while using the contractor’s internal complaint process. Additionally, even if an employee has access to compensation information as part of her essential job functions, she may disclose or discuss the compensation of applicants or employees in response to a formal complaint or charge, investigation, proceeding, hearing or action. Further, these employees are protected by the Final Rule to the extent that they disclose or discuss the compensation of other applicants or employees based on information received through means other than essential job functions access.

The Final Rule applies to federal contractors with contracts totaling over $10,000, and becomes effective for all contracts entered into or modified on or after January 11, 2016.

But don’t wait until January. There’s a lot to be done between now and then. Changing policies and procedures involves the usual set of bureaucratic barriers to overcome, but changing the culture of the workforce is an entirely different set of challenges. And while the Final Rule does not require federal contractors to disclose what they pay their employees, there will be no consequences for employees (and applicants) who openly discuss their compensation, and the compensation of others, subject to the defenses outlined above.

The Final Rule is available on the OFCCP Web site at www.dol.gov/ofccp/PayTransparency.html.