On September 17, 2014, the U.S. Department of Labor Office of Federal Contract Compliance Programs (OFCCP) published a Notice of Proposed Rulemaking in the Federal Register to implement Executive Order 13665, which was signed by President Obama on April 8, 2014. Generally, the proposed rule would prohibit federal contractors from maintaining pay secrecy policies and would amend the equal opportunity clauses in Executive Order 11246 to provide protections to workers who talk about pay. The rule would apply to federal contractors with a federal contract worth more than $10,000 and entered into or modified on or after the effective date of the final rule, as well as to federal subcontractors working under such a covered federal contract.

Specifically, the proposed rule would prohibit federal contractors and subcontractors from discharging or otherwise discriminating or retaliating against any employee or applicant for discussing, disclosing or inquiring about their compensation or that of another employee or applicant. Federal contractors and subcontractors also would be required to incorporate a prohibition against compensation disclosure discrimination into their existing employee manuals or handbooks and to disseminate the nondiscrimination provision to employees and job applicants through electronic or physical postings.

The proposed rule provides employers with two defenses to allegations of discrimination. One such defense, the "general defenses provision," would allow an employer to take an adverse action against an employee who violates a legitimate workplace rule in connection with the compensation disclosure or inquiry. The OFCCP provided the following example of where the general defenses might apply: The contractor may have a rule that prohibits employees from being disruptive in the workplace, and an employee may violate that rule by standing on her desk and repeatedly shouting out her pay. The second defense, the "essential job functions defense provision" generally would shield from liability contractors who take an adverse action against an employee who discloses confidential compensation information with which the employee has been entrusted as part of the employee's essential job functions.

Notably, the OFCCP's proposed rule would expand the protections that already exist under Section 7 of the National Labor Relations Act (NLRA), which gives non-management and non-supervisor employees the right to engage in protected concerted activities, including disclosing and discussing their wages. The proposed rule applies to allemployees regardless of position, and therefore, it would extend pay secrecy protections to managers and supervisors.

The changes are not final. The OFCCP has asked for public comments on the proposed rule by December 16, 2014. After considering those comments, OFCCP will issue a final rule. However, the proposed revisions appear consistent with the Obama administration's increased focus on pay equity and transparency as a means to eradicate gender- and race-based pay discrimination.

What This Means for Employers

The OFCCP's Notice of Proposed Rulemaking is yet another step the OFCCP is taking in its ongoing, high-profile movement against pay discrimination based on gender and/or race and ethnicity. While the proposed changes are not yet in effect and are subject to change following a public comment period, federal contractors and subcontractors to whom the rule would apply if finalized should stay abreast of the status of the rule. Contractors also should consider developing training for managers, supervisors, recruiters and human resources staff on pay secrecy issues, in the event the rule is finalized.

As noted above, the proposed rule also highlights the existing pay secrecy protections that exist under the NLRA. Employers may want to review their policies and practices that could potentially run afoul of these existing protections—such as confidentiality and social media policies—to ensure that they are currently in compliance with the law.

Finally, the proposed rule appears to signal the OFCCP's continued focus on pay discrimination, which federal contractors can anticipate will remain a key issue and focus of the OFCCP during compliance reviews. Contractors should ensure that they are meeting their obligations to at least annually review their compensation practices to diagnose and address any potential issues of pay discrimination—before they are uncovered by the OFCCP in a compliance review.