On September 11, the Department of Labor (DOL) issued a final rule implementing Executive Order 13665, which prohibits federal contractors from discriminating against employees and job applicants who inquire about, discuss or disclose their own compensation or the compensation of other employees or applicants. Executive Order 13665 amends Executive Order 11246, which prohibits employment discrimination based on various protected factors (such as race, sex, religion, sexual orientation and gender identity) by revising the mandatory equal opportunity clauses in federal contracts and subcontracts, and federally assisted construction contracts. The Final Rule requires contractors to refrain from discriminatory activity and to notify employees or applicants of the contractor’s obligation not to discriminate against employees or applicants who discuss their compensation. According to the DOL, the Final Rule’s protection would typically apply where the applicant or employee uses what DOL describes as “ordinary means” to obtain this information, including conversations with co-workers.

The Final Rule generally applies to any business or organization that (1) holds a single federal contract, subcontract or federally assisted construction contract in excess of $10,000; (2) has federal contracts or subcontracts that have a combined total in excess of $10,000 in any 12-month period; or (3) holds government bills of lading, serves as a depository of federal funds, or is an issuing and paying agency for U.S. savings bonds and notes in any amount.

The DOL’s Office of Federal Contract Compliance Programs (OFCCP) has stated that this pay transparency rule allows employees and applicants to discover that they are underpaid in comparison to their peers and helps to prevent discrimination in pay based on protected factors such as race and sex. The OFCCP states that it believes the rule will help employees bring more compensation complaints to the OFCCP by allowing them to discuss compensation.

The Final Rule adopts the following changes from the proposed rule, which was published on September 17, 2014:

  1. Revises the Equal Opportunity Clause currently in relevant federal contracts to include a provision that prohibits employers from discharging, or in any manner discriminating against, any employee or job applicant because he or she disclosed or discussed their compensation or another employee’s or applicant’s compensation.
  2. Defines “compensation” consistent with the definition used by OFCCP in other guidance. This definition includes, but is not limited to, salary, wages, overtime pay, bonuses, commissions, vacation and holiday pay, insurance and other benefits, stock options and awards, profit sharing and retirement.
  3. Defines “compensation information” as the amount and type of compensation provided to employees or offered to applicants, including but not limited to the contractor’s desire to attract and retain a particular employee for the value he or she is perceived to add to the company, market research about the worth and value of similar jobs in the relevant marketplace, labor union agreements, and contractor statements altering or setting employee compensation.
  4. Defines “essential job function” as a part of an employee’s or applicant’s position if: (1) the access to compensation information is necessary in order to perform that function or other routinely assigned business task; or (2) the function or duties of the position include protecting and maintaining the privacy of employee personnel records.
  5. Establishes two defenses for contractors – the “general defenses” and the “essential job functions defense.” Under a general defense, a contractor may argue that it took disciplinary action against an employee for “violation of a consistently and uniformly applied rule, policy, practice, agreement or other instrument” that does not promote a pay secrecy policy. Under the essential job functions defense, the protections of the Executive Order do not apply to an employee who discloses compensation information that he or she accessed or received as an essential part of his or her job function unless it falls into an exception. According to the OFCCP, this policy “recognizes that contractors are entitled to prohibit some of their employees from releasing sensitive and confidential information relating to compensation.”

According to the Final Rule, positions where access to compensation information is an “essential job function” generally include positions such as human resources officers, information technology staff, and possibly other jobs where access to compensation information is part of the job duties. It is important to note that DOL says that an employee in this position may discuss compensation in the workplace based on this information if: (1) he or she is discussing information relating to their own possible claim of compensation discrimination; or (2) he or she reports possible disparities regarding the compensation of other employees internally to a management official for the contractor or through the contractor’s internal complaint process.

The Final Rule requires employers to notify employees and job applicants of these nondiscrimination protections through employee handbooks, manuals, and their current regular means of communicating with employees and applicants. The OFCCP also encourages contractors to incorporate personnel training on this nondiscrimination provision into their implementation process as a best practice.

Employers that enter into a new federal contract or modify an existing covered federal contract on or after January 11, 2016, will be subject to the Final Rule.