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Ending Pay Secrecy in Government Contracts: New OFCCP Proposed Rule

September 18, 2014

On September 17, 2014, the U.S. Department of Labor’s (DOL) Office of Federal Contract Compliance Programs (OFCCP) published a proposed rule on pay transparency for federal contractors and subcontractors, in response to President Obama’s April 8, 2014 Executive Order addressing retaliation for disclosing compensation information.  The Executive Order, which we discussed in a prior alert, along with DOL’s recently proposed data collection requirements, is part of a wider effort to foster greater transparency about compensation and combat pay discrimination among federal contractors.

The proposed rule implements Executive Order 13665 and amends the Equal Opportunity Clause of Executive Order 11246, 41 CFR Part 60–1, to include a requirement that each contracting or administering agency include a provision in its government contracts and federally assisted construction contracts that contractors must not discharge or otherwise discriminate against employees or applicants who inquire about, discuss, or disclose their compensation or the compensation of other employees or applicants.  Contractors are required to include the same provision in all their subcontracts and purchase orders to alert subcontractors and vendors to their obligations; the provision may be included by reference.  

The proposed rule includes an exception for an employee who has access to others’ compensation information only by virtue of her essential job functions and discloses information to another employee or applicant who does not have access to that information, unless the disclosure was made in response to an investigation, formal complaint, or other legal proceeding or duty.  Additionally, contractors may continue to enforce rules against disruptive behavior, as long as the rules or policies do not discourage discussion of compensation information, are uniformly applied, and are not enforced in retaliatory manner.

The rule also mandates that federal contractors include the nondiscrimination provision in their existing employee handbooks and share the nondiscrimination provision with their employees and applicants.  The rule includes definitions of compensation (defined broadly to include bonuses, stock options, commissions, wages, vacation pay, and other benefits), compensation information, and essential job functions, and will apply to all contracts entered into or modified on or after the final rule’s effective date. 

OFCCP’s proposed rule is aimed in part at employer pay secrecy policies, driven by concerns about such policies’ effect on gender-based and other forms of pay discrimination.  OFCCP hopes that by dispelling secrecy around compensation, OFCCP will be able to better investigate pay discrimination, federal contractors will be less likely to be subject to baseless accusations of pay discrimination, and contractors’ employees will be able to more easily uncover and seek resolution of unwarranted pay disparities. 

The proposed rule will be open for public comment until December 16, 2014.