Pay Transparency Rule for Federal Contractors to go into Effect on January 11

On Monday, January 11, 2016, Executive Order 13665 on pay transparency went into effect. It prohibits covered federal contractors and subcontractors from discharging or otherwise discriminating against employees who inquire about, discuss, or disclose their compensation or the compensation of another employee or applicant. The Office of Federal Contract Compliance Programs (“OFCCP”) has made clear that contractors are not required to disclose compensation information to applicants or employees; rather, voluntary disclosure of such information can no longer be a basis for taking adverse action against any employees choosing to do so.  OFCCP’s implementing rule (the “Rule”) applies to any employer having federal contracts or subcontracts totaling more than $10,000 in any 12-month period, which are entered into or modified after January 11, 2016.

The Rule also contains two exceptions. First, an employee may still be required not to disclose compensation information he or she obtains in the course of performing his or her “essential job functions.” For example, if an employer disciplines an HR employee for disclosing compensation information to others, such adverse action will not amount to discrimination under the Rule. Second, an employer may still discipline an employee for violating a “workplace rule” – even if, during the course of violating the workplace rule, the employee made inquiries or disclosures related to compensation. This may include, for example, a situation where an employee is late because he or she exceeded an allotted break time while discussing compensation. In that case, the employer may take adverse action, as long as the employer consistently and uniformly applied this workplace rule.

Finally, the OFCCP’s Pay Transparency Policy Statement (see Executive Order 13665, Sec. 2)   must be included in employee manuals or handbooks and disseminated to employees on or after January 11, 2016. Contractors and subcontractors with federal contracts or interested in federal projects would do well to review any policies, practices and personnel documents implicated by the Rule and provide training for management and human resource employees in light of the Rule’s requirements.