Hunton Employment & Labor Perspectives

On September 10, 2015, the Office of Federal Contract Compliance Programs (“OFCCP”) issued a Final Rule implementing last year’s Executive Order 13665, which prohibits federal contractors from discharging, or discriminating against, any employee or applicant who “has inquired about, discussed, or disclosed” either their own compensation information or that of another employee or applicant.

The Final Rule, which takes effect on January 11, 2016, protects employees’ inquiries, discussions, and disclosures of their own pay and benefits and those of others, “if [the employee] obtained that information through ordinary means such as conversations with co-workers.” An exception exists, however, where the employee who makes the disclosure obtained the information in the course of performing his or her “essential job functions” and the disclosure does not fall into one of several exemptions. The exemptions are disclosures made in response to a formal complaint or charge; in furtherance of an investigation, proceeding, hearing or action, including an investigation by the contractor; or disclosures consistent with the contractor’s legal duty to furnish the information.

The Final Rule also defines key terms such as “compensation,” “compensation information,” and “essential job functions” for purposes of Executive Order 13665. Notably, the Final Rule states that “a job function may be considered essential if: 1) the access to compensation information is necessary in order to perform that function or other routinely assigned business task; or 2) the function or duties of the position include protecting and maintaining the privacy of employee personnel records, including compensation information.”

The Final Rule establishes two defenses for contractors – an “essential job functions” defense and a general defense – against employees claiming discrimination under Executive Order 13665. The essential functions defense is, as the name implies, a complete defense in which the employee is not entitled to any protections of the Final Rule if he or she discloses compensation or benefits information obtained in the course of performing essential job functions and the disclosure does not fall into one of the above-mentioned exemptions. The general defense, on the other hand, is based on the contractor’s enforcement of a “consistently and uniformly applied rule, policy, practice, agreement, or other instrument that does not prohibit, or tend to prohibit, employees or applicants from discussing or disclosing their compensation or the compensation of other employees or applicants.” In other words, in disciplining an employee who discusses wages, the contractor must be able to demonstrate a “track record of consistent and uniform application of the workplace rule . . . [and] . . . that it did not discipline the employee or applicant in question more severely under the rule because of the employee’s or applicant’s protected activity.” The Final Rule makes clear that a workplace rule that treated all discussions of pay as disruptive would violate Executive Order 13665. Finally, the Final Rule requires contractors to disseminate a nondiscrimination provision prescribed by the OFCCP regarding employee rights under Executive Order 13665 and to incorporate that provision into handbooks and post it in the workplace.

It will be important for federal contractors to review their handbooks and confidentiality policies to remove any 'pay secrecy' provisions, which until now were fairly common. While the Final Rule only directly affects contractors at the moment, its implementation along with a recent wave of Executive Orders and administrative guidance indicates that pay equity and transparency are priorities for the current administration.