hollow-circle-right cancel

President Obama Signs Two New Compensation Directives Affecting Federal Contractors

On April 8, 2014, on National Equal Pay Day, President Barack Obama signed two new compensation-related initiatives affecting Federal contractors and subcontractors.

Overview of article. On April 8, 2014, on National Equal Pay Day, President Barack Obama signed two new compensation-related initiatives affecting Federal contractors and subcontractors: 1) a Presidential Memorandum to the U.S. Secretary of Labor entitled, "Advancing Pay Equity Through Compensation" ("Presidential Memorandum" or "the Memorandum"); and 2) an Amendment to Executive Order 11246 entitled, "Non-Retaliation for Disclosure of Compensation Information" ("Executive Order" or "the Order").

At a White House National Equal Pay Day event, President Obama said that the Presidential Memorandum directed the U.S. Department of Labor ("DOL") to issue a rule within 120 days of the date of the Memorandum requiring Federal contractors and subcontractors to submit to the DOL summary data on the compensation paid their employees, including data by sex and race. The Executive Order, which is effective immediately, prohibits Federal contractors from taking retaliatory actions against workers who divulge with each other their compensation information. The Executive Order provides that within 160 days of the date of the Order, the DOL Secretary shall propose regulations to implement the Order's requirements.

Presidential Memorandum

In the Presidential Memorandum, President Obama stated that: "while working women have made extraordinary progress over the past five decades since the enactment of the Equal Pay Act of 1963, they still earn only 77 cents for every dollar that a man earns" and "for African-American women and Latinas, the pay gap is even greater." The President also stated that although Federal law prohibits compensating men and women differently for the same work, "effective enforcement of this mandate . . . is impeded by a lack of sufficiently robust and reliable data on employee compensation, including data by sex and race."

The Presidential Memorandum directs the DOL Secretary, within 120 days of the date of the Memorandum, to propose a rule that would require Federal contractors and subcontractors to submit to the DOL summary data on the compensation paid their employees, including by sex and race. In doing so, the DOL Secretary is to consider approaches that:

  • maximize efficiency and effectiveness by enabling the DOL to direct its enforcement resources toward entities for which reported data suggest potential discrepancies in worker compensation, and not toward entities for which there is no evidence of potential pay violations;
  • minimize, to the extent feasible, the burden on Federal contractors and subcontractors and in particular small entities, including small businesses and small nonprofit organizations; and
  • use the data to encourage greater voluntary compliance by employers with the obligations of Federal pay laws and to identify and analyze industry trends.

The Memorandum further states that:

  • to the extent feasible, the DOL should avoid new record-keeping requirements and rely on existing reporting frameworks to collect the summary data;
  • in developing the proposal, consider independent studies regarding the collection of compensation data; and
  • the Memorandum does not create any right or benefit by any party against the United States, its agents or employees, or any other person.

Amendment to Executive Oder 11246

The Executive Order entitled, "Non-Retaliation for Disclosure of Compensation Information," states that:

  • When employees are prohibited from inquiring about, disclosing, or discussing their compensation with fellow workers, compensation discrimination is much more difficult to discover and remediate, and more likely to persist.
  • Such prohibitions (either express or tacit) also restrict the amount of information available to participants in the Federal contracting labor pool, which tends to diminish market efficiency and decrease the likelihood that the most qualified and productive workers are hired at the market efficient price.
  • Ensuring that employees of Federal contractors may discuss their compensation without fear of adverse action will enhance the ability of Federal contractors and their employees to detect and remediate unlawful discriminatory practices, which will contribute to a more efficient market in Federal contracting.

In recognition of these concerns, President Obama amended Section 202 of Executive Order 11246 of September 24, 1965, as amended, to include the following new paragraph:

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 Executive Order includes other provisions, including that nothing in the Order is to be construed:

  • to limit the rights of an employee or applicant provided under any law; and
  • to prevent a Federal contractor covered by this order from pursuing a defense, as long as the defense 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 or applicants;

Further, this Order states that it is not intended to, and does not, create any right or benefit, enforceable at law or in equity by any party against the United States, its departments, officers, employees, or agents, or any other person. The Order shall become effective immediately, and shall apply to contracts entered into on or after the effective date of the rule to be promulgated by the DOL under Section 3 of the Order. The Executive Order provides that within 160 days of the date of the Order, the DOL Secretary shall propose regulations to implement the Order's requirements.

Observations

These two new actions by President Obama constitute a continuation of his use of the Executive power to address employee compensation issues affecting Federal contractors and subcontractors. In February 2014 President Obama signed the new Executive Order 13658 establishing a minimum wage for Federal contractors and subcontractors. The Executive Order the President signed this week is consistent with the National Labor Relations Board's position that workers engage in protected concerted activity under the National Labor Relations Act when they discuss with each other the terms and conditions of their employment, including their compensation.

The effect of the Presidential Memorandum will become clearer when the rule is issued later this year. At this time, Federal contractors are required to provide compensation data to the DOL's Office of Federal Contract Compliance Programs ("OFCCP") during compliance evaluations. The OFCCP did not move forward with its planned action for a compensation data collection tool which was the subject of a 2011 Advance Notice of Proposed Rulemaking. However, in 2013, the OFCCP rescinded its earlier guidance pertaining to its methods of investigating possible pay bias. The agency then issued its Directive 307 announcing that the OFCCP would review compensation for the purpose of deciding if pay discrimination existed through Title VII principles on a case-by-case basis.

We will keep readers apprised of new information regarding the rule expected to be issued under the Presidential Memorandum, as well as the regulations expected to be issued under the Executive Order, and will review any specific new obligations of Federal contractors and subcontractors pertaining to these two new directives.

Ready to Collaborate with OutSolve?

Give us a call at 888.414.2410

Let's Get Started