OFCCP Announces Proposed Rule Barring Contractor Pay Secrecy Policies, Retaliation

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By Jay-Anne Casuga

Sept. 15 — The Labor Department's Office of Federal Contract Compliance Programs Sept. 15 announced a proposed rule under Executive Order 11,246 that would prohibit federal contractors and subcontractors from maintaining pay secrecy policies and from discriminating against employees and applicants who discuss, disclose or inquire about compensation.

“Workers cannot solve a problem unless they are able to identify it,” OFCCP Director Patricia A. Shiu said in a statement. “And they cannot identify it if they aren't free to talk about it without fear of reprisal.”

According to a notice of proposed rule-making (RIN 1250-AA06) scheduled for publication in the Sept. 17 Federal Register, contractors must incorporate the new nondiscrimination requirement into their employee manuals or handbooks, as well as disseminate it to employees and applicants.

Additionally, the OFCCP said, the proposal would establish two defenses that contractors may use against allegations of pay secrecy violations—one based on legitimate workplace rules and the other based on the essential functions of an employee's job.

The OFCCP's proposed rule implements the mandates of Executive Order 13,665, which President Barack Obama signed in April 2014.

Its provisions would apply to covered federal supply and service contracts and federally assisted construction contracts worth more than $10,000 and entered into or modified on or after the effective date of a final rule.

Expanding NLRA Protections, Changing ‘Culture.'

Management attorneys told Bloomberg BNA Sept. 15 that the OFCCP's proposal would expand pay secrecy protections that already exist under the National Labor Relations Act, which applies to both unionized and nonunionized workplaces.

Section 7 of the NLRA gives employees the right to engage in concerted protected activities, which includes the discussion of wages. Furthermore, NLRA Section 8(a)(1) makes it an unfair labor practice for an employer to “interfere with, restrain or coerce employees” in the exercise of their Section 7 rights.

Leigh M. Nason, an attorney with Ogletree Deakins in Columbia, S.C., and chair of the firm's Affirmative Action/OFCCP Compliance Practice Group, said Sept. 15 that the NLRA doesn't apply to supervisors and managers. As such, the OFCCP's proposal would extend pay secrecy protections to those employees.

Mickey Silberman, an attorney with Jackson Lewis in Denver who leads the firm's Affirmative Action-OFCCP Practice Group, told Bloomberg BNA Sept. 15 that the proposed rule also would extend those protections to job applicants.

“There is an open question as to whether applicants are protected by the NLRA,” Silberman said.

If the OFCCP's proposal is finalized, he said, then contractors will for the first time have a clearly established obligation not to discriminate against applicants who inquire about compensation or ask other employees about their pay.

Silberman posited a hypothetical in which a job applicant asks an employer to provide salary information for the employees who currently hold the sought-after position as well as their starting pay.

The OFCCP's proposed rule wouldn't require employers to share that pay data with the applicant, he said. However, under the proposal, the applicant would be able to discuss compensation information directly with the employees and there could be no adverse action from the employer, he said.

If the OFCCP's proposal is finalized, Mickey Silberman of Jackson Lewis said, then contractors will for the first time have a clearly established obligation not to discriminate against applicants who inquire about compensation or ask other employees about their pay.

“This proposed regulation is designed to encourage a change in the culture in corporate America to allow employees and applicants to freely share sensitive pay information for the first time,” he said.

These potential implications from the proposal, Silberman said, should compel employers to think carefully about their policies and practices, and to consider retraining their recruiters, managers and employees to ensure that the employer doesn't run afoul of the regulation, if finalized.

Attorneys Also Discuss Technical Burdens

Nason and Silberman also touched upon the potential cost burdens associated with the proposal's technical obligations.

In the NPRM, the OFCCP estimated that the total first year cost would be “$85 per contractor company.” Silberman said the agency “significantly underestimated” that cost.

Nason added that the potential costs of the proposal—coupled with the additional burdens from President Obama's other 2014 executive orders and the OFCCP's recent updates to its rules pertaining to veterans and individuals with disabilities—may result in small contractors no longer being able to afford to do business with the federal government.

“Instead of increasing wages, as OFCCP claims this rule will do, there may be an increase in folks who are unemployed,” she said.

OFCCP Says Pay Gap Persists

In the NPRM, the OFCCP explained the need for the rule and cited statistics pointing to the continued existence of pay gaps between men and women, and between racial minorities and others, despite the enactment of laws prohibiting pay discrimination.

“Among the possible contributing factors to the enduring pay gap is the prevalence of workplace prohibitions against discussing compensation,” the agency said.

These prohibitions, whether formal or informal, make it “impossible for an employee to know he or she is being underpaid compared to his or her peers,” potentially concealing unlawful compensation disparities, the OFCCP said.

“If compensation remains hidden, employees who are being unfairly paid less because of their gender or race will remain unaware of the problem and will be unable to exercise their rights by filing a complaint pursuant to the Executive Order,” it said.

The OFCCP further observed that pay secrecy policies may impede its enforcement of EO 11,246 during scheduled contractor compliance evaluations.

“While OFCCP typically develops statistical analyses to establish systemic compensation discrimination, interviewing managers, human resources professionals, and employees potentially impacted by discriminatory compensation is also an invaluable way for the agency to determine whether compensation discrimination in violation of [EO 11246] has occurred and to support its statistical findings,” it said. “Therefore, the accuracy of OFCCP's investigative findings depends in part on the willingness of a contractor's employees to speak openly with OFCCP investigators about a contractor's compensation practices.”

Incorporation, Dissemination of Prohibition

According to the OFCCP, the proposed rule would require federal contracting agencies to add a prohibition against compensation disclosure discrimination to the mandatory equal opportunity clauses currently included in government contracts.

The proposal also would require contractors to disseminate the nondiscrimination provision in employee handbooks and manuals, and through electronic or physical postings.

In addition, the agency said it's considering requiring contractors to include discussion of the provision in its existing manager training programs or meetings.

Two Proposed Defenses for Employers

Additionally, the proposed rule would make available a “general defenses provision” and an “essential job functions defense provision” for contractors.

Under the first defense, a contractor won't violate the pay secrecy prohibition if it takes an adverse action against an employee who violates a legitimate workplace rule.

“For example, the contractor may have a rule that prohibits employees from being disruptive in the workplace,” the OFCCP said. “An employee may violate that rule by standing on her desk and repeatedly shouting out her pay.”

If that employee is fired, the contractor “may have a defense to a charge of discrimination if it can demonstrate that she was terminated for being disruptive, not for disclosing her pay.”

The second defense would shield a contractor from liability if it takes an adverse action against “an employee, who is entrusted with confidential compensation information of other employees or applicants as part of his or her essential job functions, for disclosing the compensation of other employees or applicants, unless the disclosure occurs in certain limited circumstances,” the OFCCP said.

Such an employee could be an individual who works in human resources, it said.

However, such employees still may be protected if they make the disclosure “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 if the disclosure “is consistent with the contractor's legal duty to furnish information.”

The proposal would broadly define “compensation information” as “any information related to all aspects of compensation, including but not limited to information about the amount and type of compensation as well as decisions, statements, or actions related to setting or altering employees' compensation.”

Furthermore, it would adopt the factors that determine whether a job function is essential, as laid out in the Americans with Disabilities Act and Section 503 of the Rehabilitation Act, which the OFCCP also enforces.

To contact the reporter on this story: Jay-Anne B. Casuga in Washington at jcasuga@bna.com

To contact the editor responsible for this story: Susan J. McGolrick at smcgolrick@bna.com

Text of the proposed rule is available at http://op.bna.com/dlrcases.nsf/r?Open=jaca-9nyka3.