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Pay Transparency Final Rule Prohibits Covered Federal Contractors/Subcontractors From Discriminating Against Applicants and Employees Based on Compensation Discussions

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Final Rule on Pay Transparency now in effect

On January 11, 2016, the Office of Federal Contract Compliance Programs’ (“OFCCP)” Final Rule implementing the Pay Transparency Executive Order 13665 took effect. The Final Rule prohibits covered federal contractors/subcontractors from discriminating against job applicants and employees who inquire about, discuss, or disclose their own compensation or the compensation of another applicant or employee. These new regulations could have significant implications for covered federal contractors/subcontractors, and all covered employers should update their policies and postings to reflect the new regulations.

E.O. 13665 was issued by President Obama in April 2014 as an effort to promote pay transparency among federal employers and to prohibit pay secrecy policies and practices. Pay transparency helps level the playing field for women and people of color and provides employers with access to a more diverse pool of qualified talent from which to select their employees. Under the OFCCP’s Final Rule, job applicants and employees have the right to inquire about, discuss, or disclose their own compensation or that of other applicants or employees. Consequently, covered contractors/subcontractors cannot discipline, harass, demote, terminate, deny employment to, or otherwise discriminate against such job applicants or employees who exercise this right. Notably, the Final Rule does not require covered employers to provide job applicants or employees with compensation information for other applicants or employees.

There are two broad categories of employee discussions that may not be protected under the Final Rule and thus where an employer could discipline or otherwise take adverse action against an employee.

  1. The Final Rule provides a covered employer with a defense to an employee’s charge of discrimination if an employee discloses or discusses information that the employee obtained through his or her essential job functions when (a) access to compensation information is necessary to perform that function or another routinely assigned business task, or (b) the function or duties of the position include protecting or maintaining the privacy of employee personnel records.

  2. The Final Rule provides a defense for covered employers when an employee’s compensation inquiry violates a consistently and uniformly applied workplace rule, so long as the rule does not generally prohibit workplace compensation disclosures.

If the OFCCP were to determine that a covered federal contractor/subcontractor violated the non-discrimination provisions of the Final Rule, the aggrieved individual would be entitled to be placed back in the same position he or she would have been in if the discrimination had not occurred. Such relief could include hiring, promoting, or reinstatement of employment and/or receipt of back pay, front pay, or a pay raise. In addition, the OFCCP could seek to have the employer debarred or removed from consideration for future federal contracts or have the employer’s current contracts or contract modifications cancelled.

Now that the Final Rule implementing the Pay Transparency Executive Order is effective, covered federal contractors/subcontractors must revise their Equal Employment Opportunity (“EEO”) clauses in federal contracts consistent with the Final Rule. The Final Rule, however, does not preclude covered contractors/subcontractors from continuing to cite to 41 CFR 60-1.4 to incorporate by reference the Executive Order 11246 EEO clause into their contracts and subcontracts. Covered federal contractors/subcontractors should revise their EEO policies, including in employee handbooks, and must post the new non-discrimination provision either electronically or in conspicuous places at their worksites. All covered contractors/subcontractors are also encouraged to incorporate the new non-discrimination provisions into existing employee training programs.

This article was prepared expressly for OutSolve, LLC by Micala Bernardo, Senior Attorney at Andrews Kurth.

Copyright © 2016. Andrews Kurth. This communication has been prepared by Andrews Kurth for informational purposes and does not constitute legal advice. A past performance or prior result is no guarantee of a similar future result in another case or matter. This information is not intended to create, and receipt of it does not constitute, a lawyer-client relationship. Attorney Advertising.

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