Time for federal contractors to get ready for new pay transparency rule

Federal contractors need to be preparing now for the U.S. Department of Labor’s (DOL) new pay transparency rule, a rule going into effect in January that is likely to present challenges to a number of employers, according to an attorney familiar with its provisions.

“This rule appears to me to be part of the overarching intention of the agency to provide for more defined and broader rights for workers,” Jo Ellen Whitney, an attorney with the Davis Brown Law Firm in Des Moines, Iowa, said after publication of the rule was announced September 10. “Any time we add a section to the law that would broaden coverage or create a new category of discrimination or retaliation, we create employer issues. This is not because employers will violate the law, but because it is uncertain how it will be used to support any potential employee claim.”

The new rule, which was published in the Federal Register on September 11, 2015, will prohibit employers that are covered federal contractors from discharging or discriminating against employees or applicants who inquire about, discuss, or disclose their own compensation or the compensation of another employee or applicant.

The rule will apply to employers entering into new federal contracts or subcontracts or modifying existing covered contracts on or after January 11, 2016. It implements Executive Order 13665, signed by President Barack Obama on April 8, 2014.

Whitney says her concerns about the new rule are twofold. “First, for smaller employers who may not have a dedicated HR department, they may not get a policy publicized or disseminated,” she said. One of the rule’s provisions is that employers post and disseminate a policy explaining workers’ rights to discuss their compensation. “Many small employers may not even have a formal handbook, which makes the educational component more difficult.”

Whitney’s second concern relates to employees fired for poor performance who will soon have “another regulatory ground on which to claim retaliation, which is squarely in the he said/she said category.”

The rule won’t represent a radical change for many contractors since many employers already are covered under the National Labor Relations Act (NLRA). The National Labor Relations Board (NLRB) has made clear that employers covered under the NLRA—unionized or not—can’t prohibit employees from discussing the circumstances of employment such as wages and benefits.

The new rule has a broader reach than the NLRA, however. An FAQ document from the DOL explains that unlike the NLRA, the new rule extends protections to supervisors, managers, agricultural workers, and employees of rail and air carriers.

Dinita L. James, an attorney with Gonzalez Saggio & Harlan LLP in Phoenix, Arizona, said because of its overlap with rights outlined in NLRA Sections 7 and 8, she doesn’t see it as a big change for federal contractors “except in its application to supervisors, managers, and executives.”

“The main thing I am advising federal contractors to do is to review their existing managerial and executive compensation plans, policies, and agreements to make sure they do not have any confidentiality provisions that could be construed as limiting disclosure of compensation and benefits,” James said.

A statement from the DOL says the purpose of the rule is to combat the pay gap between men and women. Currently, women earn 77 cents for every dollar earned by men.

“It is a basic tenet of workplace justice that people be able to exchange information, share concerns, and stand up together for their rights,” U.S. Labor Secretary Thomas E. Perez said in an announcement of the final rule. “But too many women across the country are in the same situation: They don’t know how much they make compared to male counterparts, and they are afraid to ask.”

Rule’s coverage

The DOL’s FAQ explains that the rule protects applicants or employees who make inquiries or discuss or disclose their own compensation or that of another applicant or employee. “This protection would typically apply where the applicant or employee obtains this information through ordinary means, such as conversations with co-workers or an anonymous note from a co-worker,” the FAQ states.

The FAQ also explains that covered contractors are those that hold a single federal contract, subcontract, or federally assisted construction contract in excess of $10,000; have federal contracts or subcontracts that have a combined total in excess of $10,000 in any 12-month period; or hold government bills of lading, serve as depositories of federal funds, or are an issuing and paying agency for U.S. savings bonds and notes in any amount.

Employer defenses

The rule includes two defenses for employers accused of violations: the “workplace rule” defense and the “essential job functions” defense.

The FAQ explains that the workplace rule defense applies to situations in which a contractor disciplines an employee for a violation of a consistently and uniformly applied workplace rule. For example, employees who exceed their allotted break time while discussing compensation can’t be disciplined for the discussion, but they can be properly disciplined for exceeding break time.

The essential job functions defense applies to employees who have access to compensation information and disclose that information to individuals who don’t otherwise have access to it. For example, HR employees may have access to compensation information as part of their essential job functions, but they aren’t protected by the rule if they disclose or discuss compensation information obtained through the performance of their job.

For more information on the new pay transparency rule for federal contractors, see “Pay transparency final rule published.”