The Office of Federal Contract Compliance Programs (OFCCP) - an agency of the Department of Labor - has enacted a rule requiring federal contractors and subcontractors to disclose information regarding pay practices and compensation to any inquiring employee or applicant. The rule does not require employers to directly inform individuals about pay practices or data, but it does permit the inquiring individual to question or consult with other employees, and the employer may not discriminate or take any adverse action against the him or her for doing so.

While the rule may have been created with good intentions, the reality is that federal contractors will be put further under the microscope with regards to their pay practices. Employees or applicants who find out they are receiving less compensation than others who they subjectively believe their peers to be may neglect to consider the other factors considered by the employer in making compensation decisions, such as experience, education level, teamwork, and so forth. In addition, the rule may also be a tool that labor organizations can use to their advantage by attempting to require employers to reveal compensation information, which can then be used against an employer for campaign purposes to sow discord among employee populations.

The new rule expands on similar protections already in place under the National Labor Relations Act (NLRA). For example, while the NLRA permits lower-level employees to freely discuss compensation as protected concerted activity, the new rule expands such protections to supervisors, managers, and applicants as well. As we have discussed before, the NLRB has made it clear it is on the lookout for ways to target employer personnel policies. Similarly, the OFCCP has made it clear that in any desk audit, it will specifically review employee manuals and handbooks and any subcontracts to ensure compliance with the new EEO language regarding pay secrecy prohibition, and encourages employers to distribute the new language to employees as well as re-train management level employees.

The OFCCP’s new rule does provide two defenses for the employer. The first is along the lines of a legitimate business reasons defense: An employer will not violate the rule if the employee violated a workplace rule that is unrelated to the discussion of compensation. For example, if the company has a policy against workplace harassment and an employee is constantly harassing a coworker to inquire about his compensation, the employer may take adverse action and still have a defense to a discrimination complaint filed by the employee.

The second defense applies to employees who maintain personnel records or deal with pay and compensation information as part of his or her essential job function. These employees are not “covered/protected” by the pay secrecy prohibitions if they engage in conduct such as disclosure based on information they acquired in the furtherance of their jobs. Let’s say for example an employee is an internal accountant and one of his essential job functions is to maintain the confidentiality of employee compensation, and he shares the names and pay rates of various employees’ pay. An employer can take an adverse action against the account, and the defense will protect the employer from an assertion that it has violated the new pay secrecy rules.

As with any new rule, it is important for employers to evaluate the impact on their policies and practices and contact legal counsel to confirm their updated practices are in compliance with the new law.