Hunton Employment & Labor Perspectives

Federal contractors and subcontractors may soon be prohibited by the OFCCP from having polices that prohibit employees from talking about their pay and from discriminating against those who do.  On September 17, the Labor Department’s Office of Federal Contract Compliance Programs (OFCCP) published a notice of proposed rule-making (NPRM) concerning pay secrecy policies. The proposed rule, which applies to  federal contractors and subcontractors, prohibits pay secrecy policies and bars companies from discriminating against job applicants and all levels of employees who ask about, disclose, or discuss compensation-related information.  This will not be a surprise to those who follow the rulings under the National Labor Relations Act (NLRA), which provides similar protections.

The proposed rule seeks to implement the mandate of Executive Order 13,665. Signed by President Barack Obama on April 8, 2014, the Executive Order required the Secretary of Labor to propose a rule that would encourage the transparency of compensation information between federal contractors.  This is part of the President’s focus on pay equity.  He wants a free flow of information about compensation so employees know what others are making and can address inequities where appropriate.   As broadly defined in the proposed rule, compensation information refers to “any information related to all aspects of compensation, including but limited to information about the amount and type of compensation as well as decisions, statements, or actions related to settling or altering employee’s compensation.”

The proposed rule extends the pay secrecy protection that already exists under the NLRA. Section 7 of the NLRA grants both unionized and nonunionized employees the right to engage in concerted activities like the discussion of wages. And, Section 8(a)(1) of the NLRA specifies that interference of this right is an unfair labor practice. This NLRA protection, though, applies only to “employees” under the NLRA, which does not include managers, supervisors, or job applicants. The OFCCP’s proposed rule seeks to extend protection to these additional groups of workers.

The proposed rule also would require federal contractors to take several related actions:  to add a bar against pay disclosure discrimination to the mandatory equal opportunity (EEO) clauses included in government subcontracts; to include nondiscrimination statements in employee handbooks; and to discuss the nondiscrimination provision during managerial training programs.

There are two exceptions or possible defenses available to employers under the proposed rule. First, under the general defenses provision, a contractor or subcontractor can still take adverse action against an employee who violates a legitimate workplace rule, such as a rule that prohibits employees from engaging in disruptive behavior at the workplace. Second, under the essential job defense provision, a company can take action against employees who are entrusted with confidential pay information as part of their essential job functions, yet who nonetheless disclose such information.  This would include compensation staff and/or human resources professionals.

The key takeaway for OFCCP-covered employers is to review and revise employee handbooks and company policies.  The long-standing practice of treating pay information as confidential, and asking employees not to share or discuss pay in the workplace, is no longer acceptable.  Language to this effect in company documents could give rise to OFCCP violations during an audit, and/or to an NLRB unfair practice charge.  Also be sure to update EEO/OFCCP subcontract clauses, and to add this topic to training courses for both new and incumbent managers.  Our OFCCP practice team is happy to assist with these efforts.