The Office of Federal Contract Compliance Programs has issued a new rule effective as of January 11, 2016. The purpose of this new rule is to promote “Pay Transparency” by requiring that certain information be included in covered federal contracts and subcontracts. The Final Rule requires that the equal opportunity clause included in covered federal contracts and subcontracts be amended to 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.
The new rule also requires that federal contractors who have contracts of $10,000 or more in a year add a new nondiscrimination provision into their existing employee manuals or handbooks and disseminate the nondiscrimination provision to employees and to job applicants. In addition, contractors must add language that defines key terms including compensation, compensation information, and essential job functions.
The specific wording of the nondiscrimination provision is prescribed by the director of OFCCP and is available on the OFCCP website.
These new requirements are intended to help alleviate the pervasive disparity in pay between men and women. The pay gap between men and women has not changed in 10 years. Women are only making 77 cents for each dollar earned by men in comparable jobs, a difference that can’t be fixed with a college degree. Recent women graduates make 82 cents to every dollar earned by their male counterparts. The Lilly Ledbetter case of 2007 highlighted the need for greater openness with regard to pay discussions between employees. Lilly worked for Goodyear Tire and Rubber as a manager for many years. In her lawsuit against her former employer, Ms. Ledbetter claimed that she earned significantly less (40% less) than her male counterparts at the company due to sex discrimination. She argued that pay secrecy prevented her from knowing of the pay disparity until after the 180 day time limit for filing a claim was past.
Although her claim was dismissed by the Supreme Court as “time barred”, the case itself won national attention when President Obama signed the “Lilly Ledbetter Fair Pay Restoration Act” into law. The purpose of the Ledbetter Act was to “fix” the Supreme Court’s decision in Ledbetter v. Goodyear Tire & Rubber and extend the time limits for filing a claim under Title VII. However, the Lilly Ledbetter Act also introduced the much broader discussion on pay and the necessity for employees to discuss pay in order to achieve pay equity.
Again in 2014, in an effort to address the issue of pay transparency, President Obama signed Executive Order 13665, Non-Retaliation for Disclosure of Compensation Information, which prohibits federal contractors from discharging or discriminating in any way against employees or applicants who inquire about, discuss, or disclose their own compensation or the compensation of another employee or applicant.
There are two broad categories that may not be protected under the final rule, and which employers can use to defend against alleged violations of the pay transparency rule.
- First, the essential job functions defense allows that inquiries, discussions, or disclosures of compensation information that employees obtain through their essential job functions are not protected under the final rule. So, an HR Manager whose essential functions allow access to compensation information has an obligation to protect the confidentiality of that information. The HR Manager’s disclosure of such information to an unauthorized person would not be protected by the new pay transparency rule, and so the company could discipline or fire the HR Manager for the breach of confidentiality.
- Second is the general or workplace rule defense, which allows contractors to defend against alleged violations of the pay transparency rule so long as that defense is not based on a rule or policy that prohibits employees or applicants from discussing or disclosing compensation information. This defense could apply, for example, in situations where a contractor disciplines an employee for a violation of a consistently and uniformly applied workplace rule. Under the general workplace rule defense, a contractor could issue a verbal warning to an employee or employees who exceed their break time even if they stayed too long on their break because they were discussing compensation.
Federal Contractors should update their employee handbooks and obtain new posters as soon as possible in order to comply with the new law.
Additional information can be found at: