On September 10, 2015, the Office of Federal Contract Compliance Programs (OFCCP) released its long-anticipated Final Rule governing workplace discussions of employee compensation, nearly a year after the OFCCP had released it in its proposed format. Published in the Federal Register on September 11, the Final Rule was issued in accordance with President Obama’s Executive Order 13665, which prohibits government contractors from retaliating against employees or applicants who discuss, disclose or inquire about employee compensation in the workplace.
Effective January 11, 2016, the regulations contained in the Final Rule make several key changes to a government contractor’s existing affirmative action and equal employment obligations. Initially, the Final Rule specifically defines what constitutes “compensation” for purposes of nonretaliation protection. Despite a number of concerns voiced by commentators, the OFCCP adopted the broad language set forth in the proposed regulations. As a result, employees and applicants now will be protected if they discuss virtually any form of payment or benefits, including wages, stock options, insurance benefits and retirement contributions.
With this definition in mind, government contractors now are required to incorporate the Final Rule’s nonretaliation provision into the equal opportunity clause for all new or modified contracts entered into on or after January 11, 2016. The provision must expressly state that the government contractor will not discharge or discriminate in any manner against employees or applicants who inquire about, discuss or disclose their own compensation or that of another employee or applicant.
The Final Rule imposes a similar requirement for a government contractor’s existing employee handbooks and manuals, which now must incorporate a “Pay Transparency Policy Statement” using language approved by the OFCCP. The policy statement must also be posted in the workplace where it can be readily accessed by employees and applicants. The OFCCP has published the required language on its website.
Fortunately for government contractors, the Final Rule also adopted several safe harbors set forth in the proposed regulations, which now permit employee discipline in certain situations. The first is a general defense provision, which enables government contractors to avoid retaliation liability if they would have disciplined an employee regardless of whether that person was discussing compensation. For example, the Final Rule allows a contractor to discipline an employee who violates a uniform rule against disruptive workplace behavior, even when the disruption is caused by a compensation-related discussion.
The second safe harbor establishes an “essential job functions” defense to liability, allowing government contractors to discipline employees who breach their confidentiality duties by discussing compensation. This defense may apply in situations where an employee who has access to confidential compensation information as part of his or her essential job duties discloses that information to individuals who do not otherwise have access to it. By adopting this safe harbor in the Final Rule, the OFCCP continues to recognize the need to strike a balance between protecting employee rights and safeguarding a government contractor’s confidential information.
To comply with the Final Rule, government contractors should update their existing employee handbooks and manuals to include the required pay transparency policy language. They also should remind their managers and supervisors that employee compensation is now a permissible discussion topic in the workplace. Managers and human resources personnel should be educated, however, on situations where confidentiality duties and workplace rules may still be enforced, even if a violation is caused by an employee’s discussion of compensation.