Executive Summary: It has long been a professional faux pas to ask someone how much money they make, and some employers prohibit their employees from talking about it. Well, if you are a federal contractor or subcontractor, be prepared to set aside your professional sensibilities, because things are about to change. On April 8, 2014, President Obama issued Executive Order 13665 to address the apparent lack of transparency in employers' pay policies and practices. To address this issue, Executive Order 13665 amended Executive Order 11246 to include a provision prohibiting covered entities from discharging or discriminating against employees or applicants for inquiring about, discussing, or disclosing their compensation or the compensation of another employee or applicant. In plain terms, Executive Order 13665 would prohibit covered entities from maintaining what are sometimes referred to as "pay secrecy" policies.
On September 15, 2014, the OFCCP released a Notice of Proposed Rulemaking ("NPRM") that, if adopted, would implement the mandates set forth in Executive Order 13665. Assuming the NPRM is eventually adopted, this "pay transparency rule" would cover federal contractors and subcontractors, as well as federally assisted construction contractors and subcontractors, holding a contract or contracts exceeding an aggregate value of $10,000 in a 12-month period entered into – or modified on or after – the rule's effective date.
In order to provide guidance on what types of topics would be encompassed by the pay transparency rule, the NPRM defines both "compensation" and "compensation information." "Compensation" is defined very broadly and basically encompasses any form of pay or benefit that employees may receive or applicants may be offered. A non-exhaustive list of examples from the NPRM include salary, overtime pay, shift differentials, bonuses, commissions, vacation and holiday pay, allowances, insurance and other benefits, stock options, profit sharing, and retirement contributions. "Compensation information" also has a very broad definition, and it is intended "to cover any information directly related to employee compensation, as well as the process or steps that led to a decision to award a particular amount or type of compensation."
In addition to the prohibition against "pay secrecy" policies, the other requirements that would be imposed upon covered entities by the pay transparency rule consist of the following:
- The equal opportunity clause appearing in covered contracts, subcontracts, and purchase order forms must be amended to add the text that appears in Section 2(b) of Executive Order 13665.
- A nondiscrimination provision with language mirroring that of Section 2(b) of Executive Order 13665 must be incorporated into existing employee handbooks and disseminated to employees and applicants. Dissemination through electronic means is permitted under the proposed rule.
The NPRM does offer two defenses to the prohibition against "pay secrecy" rules. The first defense involves employees who violate legitimate workplace rules while engaging in otherwise permitted "compensation" discussions. The NPRM provides an illustrative example, albeit an absurd one, in which an employee stands on her desk and shouts out her pay repeatedly. In this scenario, assuming her employer has a policy prohibiting disruptive behavior in the workplace, the employer "may" have a defense against an alleged violated of the pay transparency rule if it terminates her for a violation of its rule concerning disruptive behavior. The fact that the NPRM uses the word "may" as opposed to "shall" is somewhat troubling, as it implies the possibility that the OFCCP could treat even the most outlandish behavior as protected by the pay transparency rule.
The second defense permits covered entities to discipline an employee who, as part of his or her essential job functions, has access to the compensation information of other employees or applicants, and the employee discloses such compensation information to individuals who do not otherwise have access to it. For example, this defense could apply to employees working in a covered entity's human resources department, as an essential function of these employees' job duties often grants them access to this type of information. Notably, this defense is not applicable if the disclosure is made in response to a formal complaint or charge, in furtherance of an investigation, proceeding, or hearing, or otherwise consistent with a covered entity's duty to furnish information.
Employers' Bottom Line: In sum, the pay transparency rule, if implemented, places yet another administrative burden on employers subject to the OFCCP's jurisdiction. The current terms of the pay transparency rule outlined in the NPRM, however, are by no means final. Interested parties have until December 16, 2014 to submit written comments to the OFCCP regarding the NPRM. The OFCCP will then take the comments into consideration before issuing the final rule. That being said, the current version of the NPRM is likely to closely resemble the final rule, so employers should continue to monitor the status of the NPRM.