The Office of Federal Contract Compliance Programs (OFCCP) has announced a proposed rule on pay transparency, to be published in the September 17, 2014 Federal Register. The proposed rule would implement Executive Order 13665, which prohibits federal contractors from retaliating against applicants and employees for inquiring about, disclosing or discussing pay information. The proposed rule applies to covered federal contracts and subcontracts exceeding $10,000 in value that are entered into or modified on or after the effective date of the final rule. While the proposed rule could change before it is finalized, it is time for federal contractors to consider their policies and practices on pay information.

OFCCP’s Case for Pay Transparency

OFCCP, in the proposed rule, asserts that pay transparency is necessary to ensure that qualified and productive employees receive fair compensation. According to OFCCP, pay transparency permits workers to make informed decisions about their careers and compensation, and may encourage employees to work harder to reach new goals. OFCCP notes that the pay transparency rule would be expected to result in net increased wage payments to employees, as well as corresponding higher costs to employers.

OFCCP’s Proposed Rule Promotes Transparency for All Types of Compensation

The Executive Order and proposed rule are intended to permit applicants and employees to share a broad spectrum of compensation and compensation information. OFCCP’s has defined “compensation” in its proposed rule to cover any payments made to, or on behalf of, an employee or offered to an applicant as remuneration for employment, including but not limited to salary, wages, overtime pay, shift differentials, bonuses, commissions, vacation and holiday pay, allowances, insurance and other benefits, stock options and awards, profit sharing, and contributions to retirement. OFCCP has defined “compensation information” to include decisions, statements or actions related to setting or altering employees’ compensation.

OFCCP’s Proposed Rule Recognizes the Need for Exceptions to Pay Transparency

Under the proposed rule, contractors would not be liable for taking adverse action against employees who disclose pay information that they obtain in the course of performing their essential job functions. This exception to pay transparency is aimed at employees who have access to compensation information pursuant to their work duties and disclose that information to other individuals who do not otherwise have access to such information. Examples would include Human Resources personnel with access to compensation information and managers who make compensation decisions.

This exception has limitations. Employees would be able to disclose pay information in response to a formal complaint or charge, in furtherance of an investigation, proceeding or hearing, or as part of the contractor’s legal duty to furnish information. Moreover, employees would be permitted to share information they receive through means other than performing their essential job functions, such as in discussions with colleagues. Finally, employees would be permitted to disclose pay information in the course of pursuing their own possible compensation discrimination claim or to raise possible disparities in the compensation of others to a manager.

Covered contractors also would be permitted to enforce rules against disruptive behavior or other legitimate workplace rules that do not violate Executive Order 13665. OFCCP provides the examples of an employee yelling about his pay while standing on a desk and an employee repeatedly asking a co-worker about pay when the co-worker has indicated that he or she does not want to discuss pay.

OFCCP Proposes Contractor Actions to Promote Pay Transparency

The OFCCP is proposing that covered contractors and subcontractors incorporate Executive Order 13665’s prohibition on retaliating against applicants and employees for inquiring about, disclosing or discuss the pay information into existing employee handbooks and manuals and disseminate this nondiscrimination provision to applicants and employees via electronic or physical postings. Notably, the OFCCP also is considering requiring contractors to incorporate management training on nondiscrimination in pay into their existing manager training programs or meetings. While no action is required now, contractors should keep pay transparency on their radar screens.

OFCCP’s Proposed Rule Expands the NLRA’s Protections on Disclosure of Pay Information

The National Labor Relation Act (NLRA) prohibits discrimination against employees and job applicants who discuss or disclose their compensation or the compensation of others. OFCCP points out that Executive Order 13665 is compatible with the NLRA, but provides protection to a broader group of employees. Notably, the Executive Order, unlike the NLRA, covers supervisors, managers, agricultural workers, and rail and air carrier employees. The Executive Order also covers activity that is taken by a single employee acting solely for himself/herself.

OFCCP’s Continued Focus on Ensuring Equal Pay

OFCCP’s proposed pay transparency rule is just one of the ways that this administration is tackling equal pay in the workplace. In January 2014, the Obama administration issued an Executive Order raising the federal minimum wage to $10.10 an hour for employees of federal contractors and contractors. This new rate goes into effect January 1, 2015, and applies to all new federal contracts based on solicitations issued on or after that date. In July 2014, the Obama administration released an Executive Order requiring covered federal contractors and subcontractors to, among other things, disclose information necessary for employees to verify the accuracy of their paychecks. Then, in August of this year, OFCCP issued proposed regulations requiring federal contractors and subcontractors to disclose compensation data by sex and race. So stay tuned as OFCCP continues to push for changes in federal contracting compensation practices.