President Obama has recently issued a number of executive orders imposing new requirements on federal contractors in the area of labor and employment. Some of these executive orders, which are regulated and enforced by the Office of Federal Contract Compliance Programs (OFCCP), will become effective or will result in new regulations in 2016. As the term "federal contractor" includes most banks and financial institutions, these new requirements threaten to further increase costs and compliance burdens in the banking industry.

When Financial Institutions are Considered Federal Contractors

While different laws enforced by the OFCCP have different jurisdictional thresholds and the question of government contractor status is not always straightforward, the OFCCP generally considers a financial institution a federal contractor if it (i) is covered by the Federal Deposit Insurance Corporation (FDIC) or the National Credit Union Association (NCUA) with deposit insurance; (ii) serves as a federal fund depository; or (iii) holds a federal contract exceeding $10,000. Financial institutions falling within this definition must comply with the new requirements discussed below, as well as a significant number of existing laws and regulations.

Paid Sick Leave for Financial Institution Employees

Effective January 1, 2017, financial institutions with covered federal contracts entered into after this date will be required to provide paid sick leave to employees. Executive Order 13706 provides that federal contractors must allow employees to earn at least 56 hours or 7 days of paid sick leave annually. Although more detail will be provided in the OFCCP final rule to be released by the fall of 2016, key provisions of the Executive Order include the following:

  • Federal contractors must allow employees to earn at least one hour of paid sick leave for every 30 hours worked.
  • Paid sick leave must carry over from year to year and must be reinstated for employees rehired within 12 months of job separation.
  • Employees of federal contractors may use paid sick leave to cover a broad variety of absences set forth in the order.
  • Employers are not required to pay out accrued and unused sick leave upon termination of employment.

Pay Transparency Rule Affecting Financial Institution Non-Discrimination Policies

The OFCCP's final rule regarding pay transparency prohibits federal contractors from discharging or discriminating against employees and applicants who ask about or discuss compensation. This rule, which implements Executive Order 13665, will take effect on January 11, 2016 and will apply to all federal contractors—including financial institutions—with contracts exceeding $10,000 in value that are entered into or modified on or after the effective date. Under the rule, financial institutions that are federal contractors must, among other things:

  • Include certain information in covered federal contracts and subcontracts
  • Eliminate formal or informal policies preventing the discussion of compensation among employees
  • Update employee handbooks to include the "pay transparency policy statement" set forth in the rule, protecting employees and applicants from discrimination for inquiring about, discussing, or disclosing their own pay or the pay of another employee or applicant
  • Post or otherwise disseminate the non-discrimination provision to employees or applicants, in addition to updating the employee handbook

Notably, while federal contractors are prohibited from retaliating against employees or applicants who discuss or inquire about compensation, federal contractors are not required to affirmatively disclose the pay information of other employees. Furthermore, this rule does not permit employees who have access to compensation information as part of their essential job functions to disclose other employees' compensation except for in certain enumerated circumstances.

What Should Financial Institutions Do Now?

Financial institutions should take the steps necessary to ensure that they are compliant with these and other rules that apply to federal contractors. Banks and financial institutions subject to these rules and orders should promptly review their formal and informal policies regarding the discussion of employee compensation, update employee handbooks to include the pay transparency policy statement, provide any necessary training regarding this non-discrimination provision, and otherwise ensure compliance with the new pay transparency rule. In addition, financial institutions should review and update their sick leave and/or paid time off policies as applicable to meet the minimum requirements of Executive Order 13706 after the implementing regulations are issued. For more information from Stinson Leonard Street about recent laws and regulations affecting federal contractors, please see the related resources section below.