On September 10, 2015, the Office of Federal Contract Compliance Programs (OFCCP) published its final rule on pay transparency. The purpose of the rule is to prohibit “pay secrecy policies” to make it “possible for workers and job applicants to share information about their pay and compensation without fear of discrimination.” This rule implements Executive Order 13665, Non-Retaliation for Disclosure of Compensation Information, which President Obama signed on April 8, 2014.

The new rule goes into effect on January 11, 2016 and covers applicants and employees of companies with over $10,000 in federal contracts or subcontracts that are entered into or modified on or after January 11, 2016.

The new rule includes the following key requirements:

  • The rule prohibits employers from maintaining formal or informal policies preventing workers from discussing their own compensation or the compensation of their co-workers. The term “compensation,” as defined by the rule, refers to payments made to any employee or offered to an applicant, including salary, wages, overtime, bonuses, commissions, vacation and holiday pay, insurance, and stock options.
  • The rule prohibits an employer from firing or discriminating against employees for discussing, disclosing, or inquiring about their own pay or the pay of their coworkers.
  • The rule requires employers to update their policies and handbooks to include a nondiscrimination provision addressing pay transparency and to disseminate the policy to applicants and employees.
  • The rule requires employers to update the equal opportunity clause in applicable federal contracts and subcontracts to prohibit discrimination against employees and applicants who discuss compensation.

Additionally, the rule provides employers with two defenses to allegations of discrimination based on discussing compensation:

  1. a general “workplace rule” regarding adverse action that is consistently applied and does not prohibit the discussion of compensation information and
  2. an “essential job functions” defense that allows adverse action against employees who disclose pay information learned in the course of their  fundamental job duties.

The rule does not require employers to provide employees or job applicants with information on the pay of other employees or applicants.

The rule allows job applicants and employees to file a complaint of discrimination with OFCCP if they believe a federal contractor or subcontractor has discriminated or retaliated because the applicant or employee inquired about, discussed, or disclosed their compensation or the compensation of another employee or applicant. .

In light of the final rule, federal contractors should take the time to train managers to ensure they do not take potentially discriminatory actions against applicants or employees who discuss compensation information.  It is also a good time to review policies to ensure that they are in compliance with the new rule.