Government Contractors Must Now Comply With New Pay Transparency Rule

On January 11, 2016, the final rule implementing President Obama's Executive Order on Pay Transparency goes into full effect. Federal contractors and subcontractors with over US$10,000 in federal contracts or subcontracts entered into or modified on or after January 11, 2016, will need to be in immediate compliance. This Advisory briefly summarizes what the pay transparency rules mean for government contractors and outlines the steps that should be taken going forward.

No Discrimination Against Employees and Job Applicants for Discussing or Disclosing Compensation Information

The final rule prohibits contractors and subcontractors from discharging or discriminating against any employee or job applicant because such employee or applicant has inquired about, discussed, or disclosed the compensation of the employee or applicant or another employee or applicant. While such a general obligation already exists under the National Labor Relations Act (but only with respect to non-supervisory employees) and some state/local laws, the final rule applies to most federal contractors and subcontractors and protects all employees. In addition, the final rule imposes new posting requirements: contractors and subcontractors must incorporate an updated non-discrimination provision into their employee handbooks or manuals, include it in all subcontracts, and must disseminate the non-discrimination provision to employees and applicants by either posting it electronically or posting it conspicuously in the workplace.

There are two possible defenses to this anti-retaliation/anti-discrimination requirement. First, employers may take legitimate employment actions against employees who improperly disclose compensation information where the employee has access to the compensation information of other employees or applicants as part of his or her essential job functions. In other words, while most employees can freely discuss compensation information with their co-workers, a Human Resources or Payroll employee with access to personnel information as part of their job may be disciplined for improperly disclosing compensation information that they learned by virtue of their position.

Second, employers may discipline employees for violating a consistently and uniformly applied company policy that does not prohibit or tend to prohibit employees or applicants from discussing or disclosing compensation information. Thus, for example, an employee who is late to return from lunch can still be disciplined (pursuant to a uniformly applied policy) even if they happened to have been late because they were discussing compensation-related issues with co-workers. This defense is not a "complete defense" however, and the contractor would still need to establish that the pay disclosure was not a motivating factor in the disciplinary decision.

Next Steps and Action Items for Contractors

1. Review and make sure all employee handbooks contain the following required pay transparency nondiscrimination provision:

The contractor will not discharge or in any other manner discriminate against employees or applicants because they have inquired about, discussed, or disclosed their own pay or the pay of another employee or applicant. However, employees who have access to the compensation information of other employees or applicants as a part of their essential job functions cannot disclose the pay of other employees or applicants to individuals who do not otherwise have access to compensation information, unless the disclosure is (a) in response to a formal complaint or charge, (b) in furtherance of an investigation, proceeding, hearing, or action, including an investigation conducted by the employer, or (c) consistent with the contractor's legal duty to furnish information.

2. Disseminate the new nondiscrimination provision to employees and job applicants by posting it electronically and/or in a conspicuous place in the workplace where it can be seen by employees and applicants. A printable one-page version can be downloaded here.

3. Look out for a new "EEO is the Law" poster with updated language, which the Office of Federal Contract Compliance Programs will post on its website once it is available. In the interim, companies must post an interim supplement/insert to the poster, which can be downloaded here.

4. Review and make sure that all subcontracts entered into or modified after January 11, 2016, contain a newly revised equal opportunity clause (41 C.F.R.§ 60-1.4), which now includes the nondiscrimination provision. Alternatively, contracts may continue to incorporate 41 CFR 60-1.4 by reference without any further changes.

5. Review and make sure all employee handbooks, confidentiality agreements, employment agreements/offer letters, and other workplace policies do not improperly restrict employees from discussing or disclosing compensation information by having overly broad confidentiality or non-disclosure provisions.

6. Train managers on the law to avoid discriminating against employees for discussing compensation information, keeping in mind that "compensation" is defined broadly to include any payments made to an employee or offered to an applicant, 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 benefits.

© 2016 Arnold & Porter LLP. This Advisory is intended to be a general summary of the law and does not constitute legal advice. You should consult with counsel to determine applicable legal requirements in a specific fact situation.