Today the U.S. Office of Federal Contract Compliance Programs issued its Final Rule implementing Executive Order 13665, which prohibits federal contractors from discriminating against employees and applicants who ask about or discuss compensation. The regulations are effective January 11, 2016.

Which contractors are covered?

The pay transparency requirements will apply to all contractors and subcontractors covered by the non-discrimination and affirmative action provisions of Executive Order 11246, including contractors who are not required to develop written Affirmative Action Plans. Thus, an organization that meets the criteria will be covered if it 

• Has a single federal contract, subcontract, or federally assisted construction contract worth more than $10,000, or

• Has federal contracts or subcontracts that, combined, are worth more than $10,000 in any 12-month period, or

• Has government bills of lading, or

• Serves as a depository of federal funds, or

• Is an issuing and paying agency for U.S. savings bonds and notes in any amount.

The Final Rule will apply to contracts entered into or modified on or after January 11, 2016. Contracts are considered “modified” if there is any alteration in their terms and conditions, including supplemental agreements and extensions.

What conduct is protected?

Employees cannot be disciplined for asking about or discussing their own or other employees’ pay and benefits, and applicants cannot be discriminated against for asking about or discussing employees’ compensation. Specifically, the Equal Opportunity Clause is revised to include the following language:

The contractor will not discharge or any in 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 non-discrimination provision does not apply if the employee has access to the employer’s compensation information as part of his or her job responsibilities. The following language is also included in the revised Equal Opportunity Clause:

This provision shall not apply to instances in which an employee who has access to the compensation information of other employees or applicants as 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.

The OFCCP modified its proposed definition of “essential job functions” in a way that benefits contractors. Under the proposed definition, a contractor would have violated the provision if it had disciplined an employee who had authorized access to compensation information but such access was not a “fundamental” part of the employee’s job responsibilities. Heeding concerns from the contractor community, the Final Rule defines a job function as essential if

(i) the access to compensation information is necessary in order to perform that function or another routinely assigned business task; or

(ii) the function or duties of the position include protecting and maintaining the privacy of employee personnel records, including compensation information.

Thankfully, the OFCCP recognized that the main issue is whether an employee has authorized access to compensation information, rather than the importance of that access in performing the job.

How is "compensation" defined?

Compensation is defined as “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 retirement.”

Compensation information is defined as “the amount and type of compensation provided to employees or offered to applicants, including, but not limited to, the desire of the contractor to attract and retain a particular employee for the value the employee is perceived to add to the contractor’s profit or productivity, the availability of employees with like skills in the marketplace; market research about the worth of similar jobs in the relevant marketplace; job analysis, descriptions, and evaluations; salary and pay structures; salary surveys; labor union agreements; and contractor decisions, statements and policies related to setting or altering employee compensation.”

Do contractors have any defenses to claims alleging retaliation for discussing compensation?

Yes, as long as the defense is not based on a policy that prohibits, or tends to prohibit, employee or applicants from discussing compensation. A contractor can take advantage of this defense by showing that it has consistently and uniformly disciplined similarly situated employees.

In addition, the “essential job functions defense” – which the OFCCP describes as a “complete defense” – provides protection to contractors who take adverse action against an employee who has access to compensation information and discloses the information to individuals who do not otherwise have access to it. However, the employee’s disclosure would still be protected if it was “in response to a formal complaint or charge, in furtherance of an investigation, proceeding, hearing, or action, including an investigation conducted by the contractor, or is consistent with the contractor’s legal duty to furnish information.”

Are contractors required to provide any notice to applicants and employees?

Contractors must use language prescribed by the OFCCP in notifying applicants and employees of their rights. This mandatory language must be included in existing employee handbooks or other manuals, and must be posted electronically or in conspicuous places. The OFCCP will also be updating the “EEO is the Law” poster to include this notice. Presumably, this required language and the updated poster will be provided before the January 11, 2016, effective date.

Stay tuned! Constangy will be offering a webinar to review the requirements of this Final Rule in more detail. Please check your in-box for details, including date and time.

For a printer-friendly copy, click here.



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