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OFCCP Issues Final Rule to Promote Pay Transparency

on Thursday, 24 September 2015 in Labor & Employment Law Update: Sarah M. Huyck, Editor

In April 2014, we published an article regarding Executive Order 13665, which prohibited federal contractors from retaliating against employees who discuss their compensation. On September 10, 2015, the OFCCP announced its Final Rule to Promote Pay Transparency, which implements the Executive Order. The rule goes into effect on January 11, 2016.

Under the rule, federal contractors and subcontractors may not fire or otherwise discriminate against employees or applicants for discussing, disclosing, or inquiring about their compensation or that of another employee or applicant. “Compensation” means “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.”

The final rule amends Executive Order 11246, and applies to federal contracts and subcontracts “entered into or modified on or after [January 11, 2016] that exceed $10,000 in value.” Consequently, contractors who enter into new contracts, or who modify, extend, or renew existing contracts after that date, are subject to the new rule.

Employer Defenses

The rule establishes two types of defenses that contractors can use against allegations of discrimination. The first defense allows the contractor to prove that it would have taken the same adverse action against the individual in the absence of the employee’s protected activity—the “work rule defense.” Specifically, the contractor must show that it disciplined the employee for violation of a consistently and uniformly applied policy—a policy which does not prohibit individuals from discussing their compensation. With that said, the final rule makes clear that this defense is only a partial defense; the contractor must still establish that the pay disclosure was not a motivating factor in the disciplinary decision.

Secondly, a contractor’s actions will not be deemed to be discriminatory if the employee has access to the compensation information of other employees/applicants as part of such employee’s essential job functions and disclosed the compensation in a scenario which was not in response to a formal complaint, charge, investigation, or other proceeding. This is referred to as the “essential function defense.”

Notice to Employees

Contractors must incorporate the nondiscrimination provision into their Employee Handbooks, and must post notice of the new protections electronically, or on company bulletin boards.

Equal Opportunity Clause

The final rule also revises the Equal Opportunity Clause to include the new nondiscrimination provision. Beginning on January 11, 2016, contractors must include the revised EEO Clause in all federal contracts and subcontracts that require such clauses. The clause must now say:
The contractor will not discharge or in any other 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.

What Do You Do Now?

Beginning January 11, 2015, contractors should begin including the revised EEO clause in their contracts, update their handbooks and bulletin boards to include the required notice, and train managers so they do not discipline individuals for discussing their compensation.

Kelli P. Lieurance

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