On April 8, 2014, President Obama signed Executive Order 13665, which amended Section 202 of Executive Order 11246. Exec. Order No. 13665, 79 C.F.R. 20749 (Apr. 11, 2014). The purpose of Executive Order 13665 is to encourage greater pay transparency and openness by prohibiting federal contractors and subcontractors from discharging or discriminating against employees or applicants for discussing, disclosing or inquiring about compensation information. On September 10, 2015, OFCCP issued a Final Rule which applies to covered federal contracts and subcontracts exceeding $10,000 in value that are entered into or modified on or after January 11, 2016. See 80 Fed. Reg. 54934 (Sept. 11, 2015) (to be codified at 41 C.F.R. §60-1). The Final Rule does not, however, become binding until after that date when the contractor signs a new federal contract (or subcontract) or modifies an existing contract. If the employer signed a contract last fall, which is typical, or did so before January 11, 2016, you may not need to come into compliance until your next contract cycle. 80 Fed. Reg. at 54934.
But be careful, particularly about contract modifications, which may have already brought your company into coverage of the Rule.
In the Final Rule, OFCCP asserts that pay transparency is necessary to ensure that qualified and productive employees receive fair compensation. 80 Fed. Reg. at 54954. According to OFCCP, pay transparency permits workers to make informed decisions about their careers and compensation, and may encourage employees to work harder to reach new goals. OFCCP notes that the pay transparency Rule is expected to result in net increased wage payments to employees, as well as corresponding higher costs to employers. By the way, contractors may want to track their costs of compliance with the Rule. OFCCP estimates costs at $85 per contractor! 80 Fed. Reg. at 54940.
II. BREADTH OF RULE – ALL TYPES OF COMPENSATION COVERED – AND MORE!
The Executive Order and Final Rule are intended to permit applicants and employees to share a broad spectrum of compensation data and information. OFCCP has defined “compensation” in its Final Rule to cover 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. 80 Fed. Reg. at 54974-75. This expansive definition of “pay” correlates with new paragraph #19 of the OFCCP’s scheduling letter requesting compensation data from contractors. OFCCP also has defined “compensation information” to include decisions, statements or actions related to setting or altering employees’ compensation. Precisely how this statement will be interpreted is unknown, but presumably employees may also share information they obtain about why or how pay is set at a particular level or in an individual case. Managers need to be cautioned that “private” discussions with employees about compensation thus may be fair game for open discussion.
Taken in concert, EEOC, NLRB and OFCCP have severely restricted employers’ ability to maintain confidentiality of wage information.In essence, this rule tracks National Labor Relations Board (NLRB) decisions, which have found that employee sharing of pay information is protected concerted activity. Thus, the NLRB has found employer rules prohibiting pay discussion (usually by terming pay to be “confidential information”) or discipline for sharing pay information to be unfair labor practices. Similarly, EEOC has recently on January 21, 2016 issued a draft of enforcement guidance on retaliation asserting that disciplining or retaliating against employees, even senior managers, for discussing pay issues violates Title VII’s anti-retaliation provision. Taken in concert, EEOC, NLRB and OFCCP have severely restricted employers’ ability to maintain confidentiality of wage information. The effects of these new rulings remain to be seen, but clearly the standard in this area is far different from what many employers would prefer.
III. EXCEPTIONS TO PAY TRANSPARENCY
Under the Final Rule, contractors would not be liable for taking adverse action against employees who disclose pay information that they obtain in the course of performing their essential job functions. 80 Fed. Reg. at 54948. This exception to pay transparency is aimed at employees who have access to compensation information pursuant to their work duties and disclose that information to other individuals who do not otherwise have access to such information. Examples would include Human Resources personnel with access to compensation information and managers who make compensation decisions.
This exception has limitations. Employees would be able to disclose pay information in response to a formal complaint or charge, in furtherance of an investigation, proceeding or hearing, or as part of the contractor’s legal duty to furnish information. Moreover, employees would be permitted to share information they receive through means other than performing their essential job functions, such as in discussions with colleagues. Finally, employees would be permitted to disclose pay information in the course of pursuing their own possible compensation discrimination claim or to raise possible disparities in the compensation of others to a manager.
Covered contractors also would be permitted to enforce rules against disruptive behavior or other legitimate workplace rules that do not violate Executive Order 13665. OFCCP provides the examples of an employee yelling about his pay while standing on a desk; an employee repeatedly asking a co-worker about pay when the co-worker has indicated that he or she does not want to discuss pay; or employees overstaying a break period while discussing pay. In some respects, these defenses may afford greater protection to employers than may be recognized by the NLRB or EEOC.
IV. REQUIRED CONTRACTOR ACTIONS TO PROMOTE PAY TRANSPARENCY
Under the Final Rule, covered contractors and subcontractors are required to incorporate Executive Order 13665’s prohibition on retaliation against applicants and employees for inquiring about, disclosing or discussing pay information into existing employee handbooks and manuals, and to disseminate this nondiscrimination provision to applicants and employees via electronic or physical postings. 80 Fed. Reg. at 54948. While OFCCP did not require contractors to incorporate management training on the Rule into their existing manager training programs or meetings, it would certainly be prudent for contractors to train supervisors on the new Rule.
The Final Rule also requires that the equal opportunity (EO) clause included in covered contracts be amended to note 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. Consistent with existing practice, OFCCP FAQs state that this may be done by reference to the EO clause.
Despite the potential adverse effects, compliance with OFCCP’s Rule may not be that big a deal, given the existing NLRB and EEOC policies covering similar ground. Moreover, you do not have to retain counsel to draft a compliant handbook policy – OFCCP has done it for you!
So, add the policy statement as necessary and provide your contractual EO clause, and you are in technical compliance. However, we also recommend advising your managers and supervisors about the implications of OFCCP’s Pay Transparency Rule. Given the breadth of the Rule, you may also need to reconsider how you handle, and protect, critical pay decisions and information. At a minimum, you will want to take advantage of the Rule’s exception, and make sure that Human Resources personnel and executives are advised not to disclose information that comes to them as part of their job duties. Beyond that, you need to be sure your files and pay information and studies are truly secure.
Realize, too, that many persons are reluctant to discuss their pay, so while not highly desirable, this new Rule probably does not mean it will be open season on all pay decisions all the time. Nevertheless, employers will have to get used to a more free-flowing discussion of pay issues than has existed so far.