On September 10, 2015, the Office of Federal Contract Compliance Programs (OFCCP), a division of the Department of Labor (DOL), issued a Final Rule protecting employees who "inquire about, discuss, or disclose their own compensation or the compensation of another employee or applicant" from adverse employment actions in the workplace. The so-called "pay secrecy ban" applies to almost all federal contractors that enter into new, or modify existing, federal contract(s) in excess of $10,000 after January 1, 2016.

OFCCP's Reasoning

The Final Rules were promulgated in response to Executive Order 13665, which President Obama issued on April 8, 2014, in an attempt to close the pay gap between men and women, as well as minorities and non-minorities. The new regulations are similar to current enforcement standards being imposed by the National Labor Relations Board, which apply to a business regardless of whether it has a federal contract and regardless of whether it has a union.

Compliance Steps

To become compliant with the Final Rule, on or before January 1, 2016, federal contractors and subcontractors will need to be prepared to take several actions:

  • Amend the EO Clause.The Final Rule requires federal contractors and subcontractors to amend the equal opportunity clause that is incorporated in covered federal contracts and subcontracts. The amendment should include that federal contractors and subcontractors must refrain from discharging, or otherwise discriminating against, employees or applicants who inquire about, discuss or disclose their compensation or the compensation of other employees or applicants. Notably, however, the Final Rule provides an exemption for compensation data that is made available through essential job functions, such as a payroll administrator or other administrator who is tasked with handling employee compensation.
  • Amend Handbooks and Policies. The Final Rule also requires federal contractors to incorporate a prescribed nondiscrimination provision into corporate handbooks, websites and other electronic forums where other policies are disseminated to employees and job applicants.
  • Management Training. In many workplaces, the Pay Secrecy regulations constitute a departure from longstanding, unspoken workplace culture norms regarding the confidentiality of employee compensation. Because of the path-dependent nature of workplace culture norms, employers should be prepared to meet with managers in advance of the effective date of the Final Rule to avoid potential claims of discrimination or retaliation. Likewise, because the Final Rule does not apply to payroll administrators, payroll officials should develop and implement compliance protocol for handling and responding to requests for pay information.

Slight Reprieve - Employer Defenses

The Final Rule provides employers with slight reprieve from the general ban on pay secrecy in the workplace. Specifically, there are two broad categories of inquiries, discussions or disclosures that may not be protected. First, inquiries, discussions or disclosures of compensation information that employees obtain through their "essential job functions" are not protected. Information is obtained as a part of an employee's "essential job functions" if: (1) access to compensation information is necessary to perform that function or another routinely assigned business task, or (2) the function or duties of the position include protecting and maintaining the privacy of employee personnel records, including compensation information. Even still, however, employees with such essential job functions are protected under the Final Rule to the extent that they (a) discuss their own compensation with other employees or (b) discuss possible disparities involving another employee's compensation with a management official or while using the contractor's internal complaint process. Additionally, even if an employee has access to compensation information as part of her essential job functions, he or she may disclose or discuss the compensation of applicants or employees in response to a formal complaint or charge, investigation, proceeding, hearing or action.

Second, the Final Rule provides a defense for contractors in the event that compensation inquiries are made while violating a consistently and uniformly applied workplace rule, so long as that rule doesn't generally prohibit compensation disclosures. For example, an employer may have a rule that prohibits employees from being disruptive in the workplace. An employee may violate that rule by standing on his desk and repeatedly and disruptively shouting out his pay. In this case, the employee may be disciplined for those actions, if he were disciplined for being disruptive and not for disclosing his pay, as long as the employer consistently and uniformly applied the workplace rule. (In this example provided by the DOL, however, it is important to note that disruption policies can easily be deemed overly broad by the NLRB and a violation of the NLRA. We presume, for the purposes of this Rule, that there is no inherent violation of rights regarding protected, concerted activity with which the NLRB would find fault.)

Contact our Firm if you have any questions about the DOL's Final Rule or need assistance incorporating prescribed language into your company's handbook, website or any electronic forum where policies are distributed to employees.