On September 15, 2014, the Office of Federal Contract Compliance Programs (“OFCCP”) released its Notice of Proposed Rulemaking (“Proposed Rule”) implementing President Obama’s Executive Order 13665 (“EO 13665”) banning contractors from taking adverse action against employees and applicants who discuss their pay. When President Obama signed EO 13665 on April 8, 2014, he instructed OFCCP to issue a proposed rule prohibiting federal contractors from discharging or discriminating against employees or applicants who inquire about, discuss, or disclose their own compensation or compensation of other employees and applicants. In a Fact Sheet on the Proposed Rule, OFCCP stated that the purpose of the Proposed Rule is to narrow the pay gap disadvantaging women and minorities by allowing them to discuss their pay and know if they are “being underpaid compared to [their] peers.” OFCCP also believes the Proposed Rule would “reduc[e] pay discrimination and ensur[e] that qualified and productive employees receive fair compensation”, by enabling them to discuss their pay without fear of adverse action.
The Proposed Rule would apply to nearly all federal contracts exceeding $10,000 entered into or modified on or after the effective date.
Changes to Executive Order 11246
The Proposed Rule would amend Executive Order 11246 (“EO 11246”), which prohibits discrimination against and requires affirmative action for women and minorities, in the following manner:
- Add new definitions on compensation, compensation information, and essential job function;
- Add a new provision to the Equal Opportunity Clause requiring contractors to refrain from taking adverse action against employees and applicants discussing their pay or the pay of others;
- Require contractors to disseminate language informing employees and applicants about the requirement prohibiting contractors from taking adverse action against employees and applicants discussing their pay; and
- Add two new defenses for contractors who are charged with violating the Proposed Rule.
The Proposed Rule contemplates adding the following new definitions to EO11246:
- Compensation: The proposed rule defines compensation as “any payment 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 contributions to retirement.”
- Compensation Information: Compensation information means “information pertaining to any aspect 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.”
- Essential Job Functions: OFCCP has defined essential job functions as the “fundamental job duties of the employment position an individual holds” including the “marginal functions” of the position. The Proposed Rule indicates that a job function can be essential for several reasons, including (1) “the reason the position exists is to perform that function”; (2) “the limited number of employees available among who the performance of that job function can be distributed”; and (3) the function is “highly specialized”, such that the incumbent is hired for that function. The Proposed Rule specifically limits this definition to discrimination claims for employees and applicants discussing their compensation.
New Contract Clause
The Proposed Rule updates the Equal Opportunity Clause (“EEO Clause”) that must be included in all covered prime contracts and flowed down to covered subcontracts. The specific provision added to the EEO Clause states:
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.
The EEO Clause can still be incorporated by reference into federal contracts and subcontracts by citing to the 41 C.F.R. § 60-1.4(a) for supply and service contracts or 41 C.F.R. § 60-1.4(b) for federally assisted construction contracts.
Dissemination of Nondiscrimination Provision
The Proposed Rule requires contractors and subcontractors to disseminate the nondiscrimination provision to employees and applicants by the following two methods:
- Incorporating the nondiscrimination provision prescribed by OFCCP into existing employee manuals and handbooks; and
- Electronically or physically posting the nondiscrimination provision in conspicuous places available to applicants and employees (e.g., intranet and the company website).
The nondiscrimination provision will be similar to the new language in the EEO Clause and will be posted by OFCCP on its website after the final rule is issued. OFCCP is also contemplating requiring contractors who conduct manager training programs or meetings to include a regular review of the nondiscrimination provision in those trainings and meetings.
Defenses to Discrimination Claims
The Proposed Rule establishes the following two defenses for contractors to defend against allegations of discrimination for discussing compensation:
- Enforcing Rules Against Disruptive Behavior: Contractors will not violate the Proposed Rule if the contractor can show that it would “have taken the same adverse action in the absence of the employee’s or applicant’s protected activity” so long as the discipline is not based on a “rule, policy, practice, agreement, or other instrument that prohibits employees or applicants from discussing or disclosing their compensation or the compensation of other employees and applicants.”
- Certain Employees Excluded: Contractors will not violate the Proposed Rule if they take adverse action against an employee who discloses compensation information if (1) the employee has access to that information as part of the employee’s essential job functions (e.g., HR professionals); (2) the employee disclosed to another employee or applicant who did not have access to that information; and (3) the disclosure was not in response to a formal complaint or charge or in furtherance of an investigation, proceeding, hearing, or action.
Publish and Comment
The Proposed Rule will be published in the Federal Register on September 17, 2014. Interested parties will have until December 16, 2014 to submit comments.