On September 11, 2015, the Department of Labor’s  Office  of  Federal  Contract  Compliance  Programs (OFCCP) published its Final Rule, Government Contractors,  Prohibitions  Against  Pay  Secrecy  Policies  and  Action,  implementing  Obama’s  April  2014 Executive  Order  13665,  entitled  “Non-Retaliation  for Disclosure  of  Compensation  Information.”  The  Order and  the  final  rule  prohibit  federal  contractors  from, among  other  things,  discriminating  against  in  any manner,  employees  and  job  applicants  who  inquire about,  discuss,  or  disclose  their  own  compensation  or the  compensation  of  other  employees  or  applicants.

Coverage

The final rule applies to covered federal supply and service contracts and federally assisted construction contracts worth more than $10,000 and entered into or modified on or after January 11, 2016.

The final rule protects employees from termination or other discrimination for discussing, inquiring about, or disclosing compensation, defined as “salary, wages, overtime pay, shift differentials, bonuses, commissions, vacation and holiday pay, allowances, insurance and other benefits, stock options and awards, profit sharing, and retirement,” or compensation information, defined as follows:

the amount and type of compensation provided to employees or offered to applicants, including, but not limited to,  the desire of the contractor to attract and retain a particular employee for the value the employee is perceived to add to the contractor’s profit or productivity; the availability of employees with like skills in the marketplace; market research about the worth of similar jobs in the relevant marketplace; job analysis, descriptions, and evaluations; salary and pay structures; salary surveys; labor union agreements; and contractor decisions, statements and policies related to setting or altering employee  compensation.

Notification  Requirements

Covered  federal  contractors  and  subcontractors  are required   disseminate   the   nondiscrimination   provision, using  language  as  prescribed  by  the  Director  of  the OFCCP, to employee and applicants: 1) in existing employee  manuals  or  handbooks;  and  2)  by  electronic posting  or  by  positing  a  copy  in  “conspicuous  places” available  to  employees  and  applicants.

Covered Contractor Defenses

The final rule offers two defenses to employers.

General Defenses

First, the contractor may pursue a defense to an alleged violation of the nondiscrimination provision as long as the adverse action against an employee or applicant is based on a violation of a “consistently and uniformly applied company policy, and that this policy does not prohibit, or tend to prohibit, employees or applicants from discussing or disclosing their compensation or the compensation of other employees or applicants.”

Essential Job Functions

Second, a contractor will have a defense to any adverse action taken against an employee, if the employee has access to the compensation information of other employees or applicants as part of the employee’s essential job functions, and discloses the compensation of such other employees or applicants to individuals who do not otherwise have access to such information. The disclosure must not have been made in response to a formal complaint or charge, in furtherance of an investigation, proceeding, hearing, or action, including an investigation conducted by the contractor, or be consistent with the contractor’s legal duty to furnish information.

State Legislation

Numerous states—including California, Connecticut, Colorado, Illinois, Louisiana, Maine, Michigan, Minnesota, New Jersey, Oregon, Vermont, and  New Hampshire—have adopted some form of anti- wage secrecy legislation. See our client briefing, Connecticut Enacts “Pay Equity and Fairness” Act— Expanding List of States with Pay Transparency  Legislation.

Federal contractors should carefully review policies and procedures to ensure compliance with the OFCCP’s final rule.