The Office of Federal Contract Compliance Programs announced that it will publish its Notice of Proposed Rulemaking on "pay transparency" in tomorrow's Federal Register and provided a link to the pre-publication version on its website. This NPRM is in response to Executive Order 13665, which President Obama signed on April 8, amending Executive Order 11246 and prohibiting federal contractors from retaliating against applicants and employees for discussing their compensation.

The OFCCP is proposing three main changes to the regulations implementing Executive Order 11246:

  • Revising the EO clauses to be included in federal contracts and federally assisted construction contracts
  • Establishing defenses to allegations of retaliation
  • Requiring contractors to notify applicants and employees of the non-retaliation protections.

To which federal contractors will the new requirements apply?

The OFCCP proposes that these new requirements apply to all federal contracts (1) that are entered into or modified on or after the effective date of the Final Rule, and (2) that exceed $10,000 in value.

When will the new requirements become effective?

These new requirements will apply only to covered contracts that have the EO clause; therefore, contractors will not be required to comply until they have entered into or modified a contract on or after the effective date of the Final Rule issued by the OFCCP.

What would be added to the EO clauses for federal contractors and federally assisted construction contractors?

The language to be added to the EO clauses is the same as that used in the Executive Order:

The contractor will not discharge or in any other manner discriminate against any employee or applicant for employment because such employee or applicant has inquired about, discussed, or disclosed the compensation of the employee or applicant or another employee or applicant. This provision shall not apply to instances in which an employee who has access to the compensation information of other employees or applicants as a part of such employee's essential job functions discloses the compensation of such other employees or applicants to individuals who do not otherwise have access to such information, unless such disclosure is in response to a formal complaint or charge, in furtherance of an investigation, proceeding, hearing, or action, including an investigation conducted by the employer, or is consistent with the contractor's legal duty to furnish information.

Contractors would be required to include the EO clause in all covered subcontracts.

What would the defenses to such a retaliation claim be?

The OFCCP is proposing a new section to the regulations entitled, "Contractor Obligations and Defenses to Violation of the Nondiscrimination Requirement for Compensation Disclosures." Under this section, a contractor would not be in violation if the employment decision that adversely affects an employee or applicant would have been taken "in the absence of the employee's or applicant's protected activity."

For example, the contractor could prove that it would have "disciplined the employee for violation of a consistently and uniformly applied rule, policy, practice, agreement, or other instrument that does not prohibit, or tend to prohibit, employees or applicants from discussing or disclosing their compensation or the compensation of other employees or applicants." The OFCCP provides an example of an employee who violates rules against disrupting the workplace by constantly asking other employees about their compensation despite their requests that she stop.

How would a contractor determine whether an employee could be punished for disclosing compensation information?

The non-retaliation clause does not apply to an "employee who has access to the compensation information of other employees or applicants as a part of such employee's essential job functions [and who] discloses the compensation of such other employees or applicants to individuals who do not otherwise have access to such information" except in the limited circumstances noted above.

The OFCCP proposes to define "essential function" as "fundamental job duties of the employment position an individual holds" and excludes "marginal functions of the position." To determine whether a function is essential, the OFCCP suggests considering the same factors used in determining whether a function is essential to the job under the Americans with Disabilities Act:

  • The reason the position exists is to perform that function
  • The limited number of employees available among whom the performance of that job function can be distributed
  • The function may be highly specialized so that the incumbent in the position is hired for his or her expertise or ability to perform the particular function.

This, however, ignores those situations where an individual may be authorized to access employees' compensation, though it may not be an "essential function" of their position.

The proposed regulations also do not specifically address the appropriate way to respond to employees who access employee compensation information without authorization. This would normally be considered a violation of a workplace rule for which an employer could take disciplinary action. However, as discussed above, the proposed rule provides that a contractor cannot base its defense on a rule that prohibits or tends to prohibit individuals from discussing or disclosing their compensation or the compensation of others. Would a rule that precludes employees from accessing confidential compensation information be a defense under this proposed rule if its purpose is to prohibit knowledge of and discussion about such information? It is not clear whether the proposal would allow individuals to discuss compensation information without reprisal if they gain access to the information without authorization. This is an issue that the OFCCP needs to explicitly address in the Final Rule and afford protection to contractors.

How would such a retaliation claim be analyzed?

Interestingly, the OFCCP is proposing to analyze alleged violations of the non-retaliation provision using the standard analytical framework for discrimination – as opposed to retaliation – claims. This is significant and tremendously important for contractors because the standard for discrimination claims allows the complaining party to prevail only upon a showing that his protected activity was a "motivating factor" for the adverse action. (If the employer can then show that it would have taken the same action in the absence of the impermissible motivating factor, an award would be limited to non-monetary relief, such as an injunction). In contrast, to prove a retaliation claim, a complaining party must demonstrate that the protected activity was the "but for" reason for the employment decision; in other words, the employer would not have taken the challenged action "but for" the employee's protected activity. Clearly, the discrimination standard is easier for a complaining party to satisfy.

The agency attempts to justify this departure by asserting "that the new prohibition here diverges from the traditional retaliation framework in that the adverse action would not flow from a complaint; assisting or participating in an investigation, evaluation or hearing; or otherwise opposing an act or practice made unlawful by Executive Order 11246. The traditional retaliation framework is designed to protect the integrity of the administrative and legal processes by which workers assert their rights to be free from discrimination. The prohibition at issue here serves a very different purpose – to protect workers from pay discrimination itself."

The OFCCP's clever argument disregards the fact that discrimination claims are generally meant to protect individuals from being treated differently because of an intrinsic or inherent characteristic, whereas retaliation claims are generally brought to redress punishment taken against employees for engaging in some activity that is legally protected, such as certain discussions of terms and conditions of employment.

The agency's contention is also inconsistent with the terms of the Executive Order on which the NPRM is based. The Executive Order is entitled, "Non-Retaliation for Disclosure of Compensation Information," not "Non-Discrimination." Admittedly, the over-arching aim of the Obama Administration was to combat pay discrimination; however, the only stated purpose of the Executive Order was to allow applicants and employees to discuss compensation information without fear of retribution. In other words, it is an anti-retaliation measure.

If the comments submitted in response to the NPRM do not convince the OFCCP of the error of its ways, contractors are likely to challenge the validity of this portion of the regulations in litigation.

Would employees be required to share compensation information with others?

No. The OFCCP states that the non-retaliation provision "in no way compels employees to share compensation information with others; it simply protects those who choose to do so from discrimination by their employer."

Therefore, employers would not be required to answer questions from applicants or employees about compensation; they simply cannot take adverse action against someone for asking.

Does the proposed rule define any new terms?

Yes.

"Compensation" would mean "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."

"Compensation information" would mean "information pertaining to any aspect of compensation, including but not limited to information about the amount and type of compensation as well as decisions, statements, or actions related to setting or altering employees' compensation."

How would contractors be required to notify applicants and employees of the non-retaliation rule?

The OFCCP plans to publish a "non-discrimination provision" that contractors would be required to incorporate into existing manuals or handbooks and disseminate to employees and applicants. Such dissemination could be accomplished by an electronic posting or posting the provision in conspicuous places available to applicants and employees.

Would contractors be required to conduct employee training?

The OFCCP is considering it, and has requested feedback on such an obligation.

When are comments to the proposed rule due?

Ninety days after publication, or December 16 if the NPRM is published tomorrow as projected.

To submit a comment, use one of the following methods, referencing RIN number 1250-AA06:

Online: http://www.regulations.gov

Fax (only if your comment is six pages or less): 202-693-1304

Mail: Debra A. Carr, Director

Division of Policy, Planning, and Program Development

Office of Federal Contract Compliance Programs

Room C-3325

200 Constitution Avenue, N.W.

Washington, D.C. 20210