On September 11, 2015, the Department of Labor’s Office of Federal Contract Compliance Programs ("OFCCP") issued a Final Rule (the “Rule”) prohibiting federal government contractors and subcontractors (collectively, “contractors”) from discharging or otherwise discriminating against employees and job applicants who discuss, disclose or inquire about compensation. The Rule also requires contractors to incorporate notice of the new nondiscrimination provision in their employee personnel policies and to post it in conspicuous places available to employees and applicants.

What is the Purpose of the Rule?

The Rule implements President Obama’s 2014 Executive Order on non-retaliation for employee discussion or disclosure of compensation information. OFCCP asserts that there is a pay “gap” that disparately impacts women and persons of color, and that by allowing employees to freely discuss compensation without fear of adverse employer action, the Rule will “enhance the ability of Federal contractors and their employees to detect and remediate unlawful discriminatory practices.”

When Will the Rule Go Into Effect?

The effective date of the Rule is January 11, 2016. The Rule applies to contractors with covered federal contracts and subcontracts entered into or modified on or after January 11, 2016. Federal supply and service contracts and federally assisted construction contracts, valued at more than US$10,000, are covered under the Rule. 

What are the Key Provisions of the Rule?

Below is a summary of the Rule’s provisions and requirements:

  • Scope of Protected Disclosure - Contractors are prohibited from discharging or otherwise discriminating against employees and applicants for inquiring about, discussing, and disclosing their compensation, or the compensation of another employee or applicant, subject to the defenses described below. The Rule does not require contractors to provide compensation data on one employee to another or permit employees to obtain unauthorized access to compensation data. 
  • Pay Secrecy Policy Ban - Contractors are banned from having policies, practices or rules that prohibit or tend to prohibit employees and applicants from discussing or disclosing compensation. 
  • Broad Definition of Compensation - The term “compensation” is broadly defined to cover salary, wages, overtime pay, shift differentials, bonuses, commissions, stock options, insurance and other benefits, vacation pay, profit sharing and retirement benefits.
  • Employee Notification - Contractors are required to disseminate the new non-discrimination provision to employees and applicants through existing employee policies and electronic or physical posting. OFCCP’s website contains the language contractors must use in their policies and an updated “EEO is the Law” Poster Supplement that must be posted.
  • Contractor Defenses - The Rule identifies two contractor defenses: the “essential job functions” defense, which OFCCP describes as a “complete defense” because the employee disclosure is not protected under the Rule, and “general defenses,” which can be used to shield contractors from liability when an employee disclosure might otherwise be protected under the Rule.
  • Essential job functions defense - A contractor is permitted to take adverse action against an employee who has access to compensation information of employees or applicants as part of his or her “essential job functions” and discloses such information to others who do not otherwise have access to such information, unless such disclosure falls under an exemption. Exemptions include disclosures 1) made in response to a formal complaint or charge; 2) in furtherance of an investigation, proceeding, or hearing; or 3) consistent with contractor’s legal duty to furnish information. OFCCP believes these exemptions are needed in part so that employees whose job duties include access to compensation information can pursue their own complaints of compensation discrimination or raise with management officials possible compensation disparities concerning others.
  • General Defenses - A contractor may pursue a defense to an alleged violation of the Rule “as long as the defense is not based on a rule, policy, practice, agreement, or other instrument that prohibits employees or applicants from discussing or disclosing their compensation or the compensation of other employees or applicants.” The Rule provides that a contractor may pursue this defense by demonstrating, “for example, that it disciplined the employee for violation of a consistently and uniformly applied company policy” that does not prohibit or tend to prohibit compensation disclosure. As a specific example, OFCCP explains that a contractor who uniformly warns employees for exceeding their breaks by an allotted time may do so even if employees were discussing compensation during the excess break time.
  • What to Expect and How to Prepare?
    By the time the Rule is effective, contractors should incorporate the new non-discrimination provision into employee policies, post the nondiscrimination provision electronically or physically, and review their policies and practices to remove any restrictions on disclosing compensation information that is protected by the Rule.1
    Additionally, contractors should expect continued scrutiny from OFCCP regarding compensation practices and pay inequalities. OFCCP’s existing affirmative action plan rules require contractors to review their compensation practices for any pay disparities, and make adjustments as needed.  Internal or external legal counsel can provide advice concerning methods for conducting compensation reviews to maintain their confidentiality.  Contractors should also be prepared to respond effectively to OFCCP requests for compensation information during compliance reviews and to investigate and respond to any complaints from employees regarding compensation discrimination.