The Office of Federal Contract Compliance Programs' (OFCCP) final rule regarding pay transparency will place new burdens on federal contractors. The final rule takes effect on January 11, 2016 (120 days after publication in the Federal Register) and applies to all federal contractors with contracts exceeding $10,000 in value that are entered into or modified on or after the effective date. Federal contractors should be aware of the requirements summarized below in order to prepare for compliance with the rule in the coming months.

The final pay transparency rule implements Executive Order 13665, which President Obama issued on April 8, 2014. Executive Order 13665 amends an existing executive order for federal contractors by prohibiting them from discharging or discriminating against an employee or applicant "because such employee or applicant has inquired about, discussed, or disclosed the compensation of the employee or applicant or another employee or applicant." The prohibition does not permit an employee who has access to other employees' compensation information as part of his or her job to disclose other employees' compensation unless such disclosure is in response to a formal complaint or charge, in furtherance of an investigation, or consistent with the contractor's legal duties.

While Executive Order 13665 is similar to existing worker protections such as the National Labor Relations Act (NLRA), the OFCCP takes the position that the protections of the Executive Order are broader because they cover "a broader range of workers, including supervisors, and a broader scope of protected activity than that covered under the NLRA." For example, while the NLRA protects employees engaging in concerted activities, the pay transparency rules aim to additionally protect an employee who acts solely on behalf of him or herself and not on behalf of a group.

As a practical matter, federal contractors will have to do the following to implement the final rule:

  • Incorporate Executive Order 13665's prohibition on discriminating against applicants or employees for inquiring about, disclosing, or discussing pay information into covered contracts and subcontracts.
  • Incorporate the following specific, OFCCP-prescribed language into employee handbooks:

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.

  • Disseminate the nondiscrimination provision to employees and applicants, either electronically or by posting a copy of the provision in conspicuous places available to employees and applicants. Note that placing the required language in an employee handbook is not sufficient to meet this requirement; the provision must be posted in addition to being included in an employee handbook. The OFCCP plans to propose an updated "EEO is the Law" poster that will include language notifying employees that discrimination based on compensation inquiries, discussions, or disclosures is prohibited.