January 15, 2016

New Pay Transparency Rule for Federal Contractors

2016 is expected to be another active year of regulatory change at the U.S. Office of Federal Contract Compliance Programs (OFCCP), including the anticipated implementation of the “Fair Play and Safe Workplaces” executive order requiring government contractors to report certain labor and employment law violations, and a pending new rule requiring contractors to collect and report certain employee compensation data. But first to launch is the final rule implementing Executive Order 13665, which has the stated purpose of promoting pay transparency.

Effective January 11, 2016, the new rule generally prohibits covered contractors from discharging or discriminating against applicants or employees who inquire about, discuss or disclose their own compensation or the compensation of another employee or applicant (with certain limited exceptions). The rule also requires certain modifications to federal contracts, inclusion of the non-discrimination policy in employee manuals or handbooks, and dissemination to applicants and employees by mandated postings.

Covered Federal Contractors: The rule applies to certain federal contractors who enter into a new federal contract or subcontract, or who modify an existing federal contract or subcontract on or after January 11, 2016. Covered federal contractors or subcontractors include those that: (1) hold a single federal contract, subcontract or federally assisted construction contract in excess of $10,000; (2) hold federal contracts or subcontracts that have a combined total in excess of $10,000 in any 12-month period; or (3) hold government bills of lading, serve as a depository of federal funds, or are an issuing and paying agency for U.S. savings bonds and notes in any amount.

Prohibited Conduct: The rule prohibits covered contractors from discharging or discriminating against employees or applicants due to their inquiries about, discussions or disclosures of their own compensation or the compensation of another employee or applicant. Covered contractors are also prohibited from having polices that prohibit or tend to restrict employees or applicants from discussing or disclosing their compensation or the compensation of others.

“Compensation” is broadly defined to include not just an employee’s paycheck, salary or wages, but also overtime pay, shift differentials, bonuses, commissions, vacation and holiday pay, allowances, insurance and other benefits, stock options and awards, profit sharing, and retirement.

However, disclosure of compensation information obtained by certain employees (e.g., human resources professionals) through their essential job functions is generally not protected. Further, contractors may pursue a general defense to an allegation of discrimination if they are applying a consistently and uniformly applied policy or practice, provided that the policy or practice does not prohibit discussions of compensation.

Contract Updates, Handbook and Posting Requirements

Contracts — Contracting agencies are required to modify the equal employment opportunity clauses in new and modified contracts to include certain non-discrimination language. The rule does not change the option for covered contractors to incorporate the equal employment opportunity clause by reference into covered contracts and subcontracts or purchase orders.

Handbooks — Covered contractors are also required to include non-discrimination language prescribed by OFCCP into existing employee manuals or handbooks which is available on the U.S. Department of Labor website under “Pay Transparency Nondiscrimination Provision.”

Posting — Covered contractors must disseminate the same non-discrimination language either by electronic posting or printing and posting a copy in conspicuous places available to applicants and employees. Contractors should also ensure they are posting the OFCCP “EEO is the Law” Poster Supplement (updated September 2015).

If you have any questions about complying with the pay transparency rule or any other federal contractor requirements, please contact the authors or any member of Faegre Baker Daniels’ Affirmative Action Compliance team.

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