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OFCCP proposes rule to prohibit reprisals against federal contractor employees and applicants who discuss pay

September 17th, 2014  |  Cynthia L. Hackerott

Pursuant to the provisions of an executive order (EO) signed by the President earlier this year, the OFCCP has published proposed regulations to prohibit federal contractors and subcontractors from discharging or otherwise discriminating against employees and applicants for talking about pay. The proposal was announced by the agency on September 15, 2014, and the Notice of Proposed Rulemaking (NPRM) was published in the Federal Register on September 17 (79 FR 55712-55742). The public has until December 16 to submit comments.

EO 13665. To mark “Equal Pay Day” on April 8, 2014, President Obama signed EO 13665 (79 FR 20749-20750), entitled “Non-Retaliation for Disclosure of Compensation Information.” Section 2(b) of EO 13665 amends Section 202 of EO 11246 by adding the following provision:

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

EO 13665 also requires the Department of Labor (DOL) to propose, within 160 from the date it was signed, regulations to implement its requirements. Accordingly, the OFCCP’s proposal was submitted to the Office of Budget and Management (OMB) for review on July 21, 2014, and on September 11, the OMB approved it for publication.

Proposed rule. If finalized, the proposal will amend the OFCCP’s regulations at 41 CFR Section 60-1 that implement EO 11246. The proposed rule would apply to all federal contractors with contracts entered into or modified on or after the effective date of the rules that exceed $10,000 in value.

Changes to equal opportunity clauses. The current regulations at § 60-1.4 enumerate the basic equal employment obligations of federal contractors in a clause required to be included in all federal contracts. The NPRM would amend this clause to include the requirement that federal supply and service contractors (§ 60-1.4(a)(3)) and federal construction contractors (§ 60-1.4(b)(3)) 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, except where the disclosure was carried out by an employee who obtained the information in the course of performing his or her essential job functions.

The proposal provides that contracting agencies may either incorporate the equal opportunity clauses by reference or expressly include it in government contracts and modifications thereof if not included in the original contract.

This prohibition in no way compels employees to share compensation information with others, the OFCCP explains in the NPRM. Rather, it simply protects those who choose to do so from discrimination by their employer. The proposed amendment to the equal opportunity clauses would generally protect employees who reveal compensation information but would not protect employees who disclose compensation information that they had access to as part of their essential job functions. This exception allows contractors to take adverse action against employees who have access to compensation information pursuant to their work duties (e.g., human resources professionals) and disclose that information to other individuals who do not otherwise have access to such information, unless the 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.

Defenses. The proposal would create a new provision at § 60-1.35 entitled, “Contractor Obligations and Defenses to Violation of the Nondiscrimination Requirement for Compensation Disclosures.” This new provision would provide employers with two defenses to alleged violations of the nondiscrimination obligation for employees who inquired about, disclosed, or discussed compensation: one based on enforcing rules against disruptive behavior; and the other based on the essential functions of the person’s job. Specifically, proposed § 60-1.35(a) and (b), respectively, would establish a general defenses provision and an essential job functions defense provision.

The proposed defenses provisions would allow contractors to pursue a defense as long as that defense is not based on a rule, policy, practice, agreement or other instrument that prohibits employees or applicants from discussing or disclosing their compensation or that of other employees consistent with the provisions in the equal opportunity clauses in § 60-1.4.

In the NPRM, the OFCCP notes its concern that contractors’ legitimate workplace rules, policies and practices such as those related to maintaining discipline in their workplaces and protecting their businesses be consistently and uniformly applied and narrowly defined to ensure they do not unnecessarily prohibit, or tend to prohibit, employees or applicants from inquiring about, discussing or disclosing their compensation or the compensation of other employees or applicants. As such, the OFCCP invites comments on how to harmonize contractors’ enforcement of legitimate workplace rules with the rights of applicants and employees to discuss, disclose, or inquire about compensation.

Dissemination. Proposed § 60-1.35(c) would also require federal contractors to incorporate a nondiscrimination provision, as prescribed by the OFCCP Director and made available on the OFCCP website, into their existing employee manuals or handbooks, and disseminate the nondiscrimination provision to employees and to job applicants. This dissemination could be executed electronically or by posting the prescribed provision in conspicuous places available to employees and job applicants. The language of the provision would be based on the language in Section 2(b) of EO 13665 and will be prescribed by the Director of OFCCP “to ensure consistency of message and clarity of purpose,” the agency explains in the NPRM.

Manager training. For those contractors that provide manager training or meetings, the OFCCP is considering making it a requirement that they include nondiscrimination based on pay in their existing manager training programs or meetings. As for other contractors, the agency would encourage them to adopt this as a best practice for minimizing the likelihood of workplace discrimination. Thus, the OFCCP is seeking comments on the feasibility of requiring contractors with manager training programs or meetings to include a regular review of the nondiscrimination provision. It is  particularly interested in the cost associated with including a review of the provision in existing manager training programs or meetings.

Definitions. In addition to the proposal amending the existing equal opportunity clauses in § 60-1.4 to include the nondiscrimination provision in EO 13665, the NPRM also proposes to define key terms used in EO 13665 that are incorporated into the proposed rule. Specifically, the proposal would change the list of relevant definitions at § 60-1.3 by adding the following three definitions:

(1) The definition of the term “compensation” would include payments made to an employee, 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. This definition aligns with the definition OFCCP uses in the context of compensation discrimination investigations, the agency notes.

(2) The OFCCP proposes to define “compensation information” by adopting the definition used by agency in existing guidance. Accordingly, the definition would cover any information related to all aspects of compensation, including, but not limited to, information about the amount and type of compensation as well as decisions, statements, or actions related to setting or altering employees’ compensation. This proposed definition is meant to be broad enough to cover any information directly related to employee compensation, as well as the process or steps that led to a decision to award a particular amount or type of compensation.

(3) The proposed definition of “essential job functions” would include the fundamental job duties of the employment position held by an individual. The term does not include the marginal functions of the position. A job function may be considered essential for any of several reasons, including but not limited to the following: (a) the function may be essential because the reason the position exists is to perform that function; (b) the function may be essential because of the limited number of employees available among whom the performance of that job function can be distributed; and/or (c) the function may be highly specialized so that the incumbent in the position is hired for his or her expertise or ability to perform the particular function.

Other updates. In addition, the NPRM would delete the outdated reference to the “Deputy Assistant Secretary” in §60-1.4(d) and replace it with the “Director of OFCCP.” The proposal also includes changing the title of §60-1.4(d) to “Inclusion of the equal opportunity clause by reference” and making a conforming change in the text.

Justification for proposal. According to an OFCCP “Fact Sheet” on the proposed rule, a pay gap between men and women persists today, despite the existence of laws protecting workers from gender–based compensation discrimination for more than five decades.

“While research has found that many factors contribute to the wage gap, such as occupational preferences, pay discrimination remains a significant problem, especially for the working poor and the middle class,” the fact sheet states. “Among the possible contributing factors is the prevalence of workplace prohibitions against discussing compensation. Strictures against revealing compensation can conceal compensation disparities among employees, making it impossible for an employee to know he or she is being underpaid compared to his or her peers.”

“Workers cannot solve a problem unless they are able to identify it. And they cannot identify it if they aren’t free to talk about it without fear of reprisal,” said OFCCP Director Patricia A. Shiu. “Pay transparency isn’t just good for workers. It’s good for business. Fairness and openness are great qualities for a company’s brand.” Director Shiu, along with DOL Women’s Bureau Director Latifa Lyles, has also posted a blog regarding the proposal.

For more information, the OFCCP has created a resource page about the proposal on its web site at www.dol.gov/ofccp/PayTransparencyNPRM.