More Changes For Federal Contractors: Pay Disclosure Discrimination

By Erin D. Schilling

On September 10, the Office of Federal Contract Compliance Programs (OFCCP) published a Final Rule prohibiting discrimination for compensation disclosure and discussion.  The Final Rule follows Executive Order 13665, which was signed by the President in April 2014.  The Final Rule amends the existing Equal Opportunity Clause under Executive Order 11246 to prohibit discrimination against an employee or applicant for inquiring about, discussing or disclosing their own compensation or that of another employee or applicant. The Final Rule also requires contractors and subcontractors to add prescribed language to their employee policies.

While Section 7 of the National Labor Relations Act (NLRA) already prohibits employers from restricting employee discussion of compensation, there are differences in scope of the restrictions.  Unlike the NLRA, this new Executive Order extends protections to supervisors and managers.

The Final Rule includes two defenses to a claim of discrimination for compensation disclosure:  a general defense provision that the OFCCP is referring to as the “workplace rule” and an “essential job functions” defense.  The “workplace rule” allows employers to discipline, discharge or otherwise take adverse action against an employee for violating a work rule, policy or agreement that does not prohibit employees or applicants from disclosing or discussing compensation.  For example, if an employee exceeds a break time while discussing compensation, the employer could discipline or discharge the employee for violating the break time rule, but not for discussing compensation.  

The “essential job functions” defense protects a contractor from liability for taking adverse action against an employee whose essential job functions include access to compensation data and who discloses such compensation to individuals who do not have access.  For example, a contractor could take adverse action if a human resources employee with access to compensation data disclosed such data.  This defense makes clear that employees with access to their employer’s confidential pay data cannot share such confidential information.

Effective Date:  The Final Rule takes effect with the Company’s first new federal contract or modification of an existing contract on or after January 11, 2016.  In other words, the effective date will vary for each contractor. In order to avoid missing the effective date, contractors and subcontractors should consider taking the following action items on or before January 11, 2016.

Action Items:  To comply with the new rule contractors and subcontractors should do the following by their organization’s effective date:

  • Update Equal Opportunity Clause in contracts and purchase orders to include non-discrimination for inquiring about, discussing or disclosing compensation.  

  • Add a “Pay Transparency Statement” to the contractor’s employee manual or handbook.  Contractors may create a separate standalone policy regarding pay disclosure discrimination or could also add this language to an existing policy.  The language of the statement is prescribed by the OFCCP as follows:  

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.