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Posted on Monday, September 28, 2015

Pay Transparency Final Rule Imposes New Obligations on Federal Contractors

The Office of Federal Contract Compliance Programs (OFCCP) recently published a final rule imposing new obligations on federal contractors when it comes to pay transparency. This new rule, which according to the Administration seeks eliminate pay secrecy that can inhibit employees from exercising their rights to seek redress for discriminatory pay practices, is another in a line of several new labor obligations placed on federal contractors.The final rule issued by the OFCCP prohibits contractors from discharging or discriminating against any employee or job applicant because the employee or applicant inquired about, discussed, or disclosed the compensation of the employee or applicant or another employee or applicant. An exception exists for employees that have access to compensation as part of their essential job functions. The rule does not require contractors and employees to disclose such information upon request, but rather prohibits adverse action against those who choose to do so.

The pay transparency final rule also imposes affirmative obligations on federal contractors and subcontractors. Specifically, the final rule requires that the equal opportunity clause included in covered federal contracts and subcontracts state that contractors and subcontractors are prohibited from discharging or discriminating against employees or applicants who inquire about, discuss, or disclose their compensation or the compensation of other employees or applicants. The final rule also requires that federal contractors incorporate a prescribed nondiscrimination provision into their existing employee manuals or handbooks and disseminate the nondiscrimination provision to employees and job applicants.

Federal contractors will need to take affirmative steps in the coming months to comply with this new rule, which goes into effect on January 11, 2016. They must make sure that their subcontracts include the amended equal opportunity clause that includes the prohibition against retaliation or discrimination for discussing employee compensation. Federal contractors must review and amend their policies and practices to avoid any implication that they prohibit or tend to prohibit employees or applicants from discussing pay, as well as update their employee manuals and handbooks to include the prescribed nondiscrimination provision. Federal contractors must also disseminate through electronic and/or physical postings the prescribed provision to their employees and job applicants, and post the updated “EEO is the Law” poster if they enter into or modify federal contracts or subcontracts after the rule goes into effect. Because employees with access to compensation information as part of their essential job functions are excepted from this rule, federal contractors should review job functions and descriptions to determine whether a given position has access to pay information as an essential job function, and amend job descriptions as necessary to reflect that essential function.

Federal contractors should be aware that this new rule may lead to tension in the workplace now that previously confidential compensation information may be disclosed. Not only must employers take the steps necessary to be in compliance with this rule, but they should begin reflecting from an HR perspective how they will deal with the potential impact on employee morale once this rule goes into effect.

Stephanie Wilson is an attorney Berenzweig Leonard, LLP. She can be reached at SWilson@BerenzweigLaw.com.

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