A new rule banning federal contractors from discriminating or retaliating against employees for discussing compensation took effect on January 11, 2016. The Department of Labor believes the rule will promote pay transparency and help level the playing field for women and people of color, who are often unware they are facing pay discrimination. The rule applies to all federal contracts and subcontracts in excess of $10,000 entered into or modified after the effective date. If you are covered by the rule, follow the steps below to ensure compliance.

  1. Educate management and decision-makers regarding employee rights. Under the new rule, employees have the right to inquire about, discuss, or disclose their own compensation or the compensation of other employees through ordinary means such as conversations with coworkers. Employees cannot be disciplined, harassed, demoted, terminated, or denied employment because they exercised this right. Contractors are also prohibited from having policies that prohibit or tend to restrict employees from discussing or disclosing their compensation or the compensation of others. “Compensation” includes any payments made to the employee, including salary, wages, overtime, bonuses, commissions, etc. (Note that the new rule does not require employers to provide employees with information about the pay of their coworkers.)
  2. Update your handbooks and postings. The new rule requires federal contractors to incorporate a nondiscrimination provision into their existing manuals and handbooks. They must also post a supplement to their “Equal Opportunity is the Law” poster reflecting the recent regulatory changes. Both the non-discrimination provision and the new posting are available on the Office of Federal Contract Compliance Programs’ website.
  3. Know your defenses. The rule provides federal contractors with two defenses to an action that might otherwise be discriminatory. The “essential job functions” defense applies when an employee, as part of his or her essential job function, has access to the compensation information of other employees and discloses that information to an individual who would not otherwise have access to it. For example, a human resources manager who discloses compensation information that she obtained through the performance of her job would not be protected. Under the “workplace rule” defense, a contractor can defend against a claim of discrimination by showing it took adverse action against an employee for violating a consistently and uniformly applied policy. For example, if a contractor allows employees to take a 20-minute break every three hours, and two employees take a 30-minute break during which they discuss their pay, the contractor could rightfully refuse to pay the employees for the extra 10 minutes, provided this was the usual penalty for exceeding break time.