OFCCP Finalizes Pay Transparency Rule

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By Jay-Anne B. Casuga

Sept. 10 — The Labor Department's Office of Federal Contract Compliance Programs Sept. 10 announced a final rule prohibiting federal contractors and subcontractors from maintaining pay secrecy policies and from discriminating against employees and applicants who discuss, disclose or inquire about compensation.

The DOL and supporters of the rule say it will help combat pay discrimination in the workplace, but management attorneys question whether the rule will actually have such effect.

According to the rule (RIN 1250-AA06), which is scheduled for publication in the Sept. 11 Federal Register, a provision barring compensation disclosure discrimination will be incorporated into the mandatory equal opportunity clauses currently included in government contracts. The rule also will require contractors to include similar provisions in employee manuals or handbooks disseminated to employees and applicants.

Additionally, the rule will allow federal contractor job applicants and employees to file complaints with OFCCP if they believe that an employer discriminated against them for discussing, inquiring about, or disclosing compensation information.

Furthermore, the rule will 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 rule implements the mandates of Executive Order 13,665, which President Barack Obama signed in April 2014.

The OFCCP issued its proposed rule last September.

Management attorneys Sept. 10 told Bloomberg BNA that the final rule generally contains few changes from the proposed rule apart from providing clarification regarding how the agency will analyze complaints filed pursuant to the rule, as well as additional guidance on the employer defenses.

The rule's provisions aren't retroactive. They will apply to companies with 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 rule's Jan. 11, 2016, effective date.

DOL, Supporters Say Rule Will Combat Pay Bias

OFCCP Director Patricia A. Shiu in a Sept. 10 statement said the final rule means that pay secrecy practices “will no longer facilitate the pay discrimination that is too often perpetrated against women and people of color in the workplace.”

“Indeed, forward thinking companies that have embraced greater transparency find that it benefits them and their workforce by helping them attract and retain talented workers,” she said. “And research suggests these approaches have a substantially positive impact on society, workers, the workforce, and the economy as a whole.”

Worker advocates, including the National Women's Law Center and the National Partnership for Women and Families, praised the OFCCP's final rule.

“When workers fear retaliation for talking about pay, discrimination too often goes unchecked and workers and families across the country—especially women and people of color—lose critical income that could go toward basic necessities and retirement savings,” Debra L. Ness, president of the National Partnership said in a Sept. 10 statement. “By prohibiting federal contractors and subcontractors from retaliating against employees who choose to discuss their compensation, the department has eliminated a major barrier to fair pay for 28 million workers in this country.”

Fatima Goss Graves, an NWLC senior vice president, applauded the rule, but also observed that federal contractors employ only about one-quarter of the U.S. workforce and that only 12 states currently have laws protecting workers from retaliation for discussing their wages.

“A clear national standard is needed,” Graves said in a Sept. 10 statement, calling on Congress to pass the Paycheck Fairness Act, which would protect more workers from wage disclosure retaliation.

Attorneys Question Need for Rule

David Fortney, a management attorney with FortneyScott in Washington, told Bloomberg BNA Sept. 10 that the OFCCP's rule is “somewhat redundant” given that the National Labor Relations Act, which applies to both unionized and nonunionized workplaces, already provides pay transparency protections.

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.

Fortney said the new rule, however, does expand those protections to managers and job applicants, who don't fall within the NLRA's scope.

John Fox, an attorney with Fox, Wang & Morgan in San Jose, Calif., and a former OFCCP policy official, told Bloomberg BNA Sept. 10 that he doesn't believe the final rule will reduce or materially impact wage gaps between male and female workers.

“There is no evidence that pay transparency rules in the states have reduced or impacted in any way the so-called wage gaps in those states,” he said. “It is significant that this is the first OFCCP document to publicly acknowledge that the so-called wage gap is induced, in part, by occupational segregation, that is, by the choices male and female applicants make about jobs they want and by sex-stereotypical hiring discrimination, and not pay discrimination.”

Alissa Horvitz, a member attorney of Roffman Horvitz in McLean, Va., also told Bloomberg BNA Sept. 10 that the rule likely won't have much effect on pay equity issues.

“Government contractors have been paying attention to pay equity for decades,” she said. “I think they are very careful in making sure that if they’re going to pay people differently, that there are legitimate, nondiscriminatory reasons that they can articulate for those differences.”

Attorneys, Consultant Offer Tips for Contractors

David B. Cohen, a Washington consultant for federal contractors, told Bloomberg BNA Sept. 10 that he believes the majority of federal contractors don't have written policies precluding employee pay discussions.

However, if a federal contractor does have such a policy in an employment handbook or manual, then it should revise its policies to comply with the new rule, said Cohen, who serves as president of DCI Consulting Group and senior vice president of the Council for Corporate Equality.

Fox of Fox, Wang & Morgan pointed out that while the rule will go into effect for contractors that enter into or modify covered federal contracts on or after Jan. 11, 2016, the “vast majority” of federal contractors actually sign or modify those agreements between September and November.

“The day OFCCP’s new rule attaches is basically about a year away,” he said. “Thus, there is plenty of time for contractors to make the needed changes to corporate policies and practices.”

In its proposed rule, the OFCCP said it would consider requiring contractors to include discussion of pay transparency provisions in existing manager training programs or meetings.

The final rule doesn't mandate such training, Horvitz of Roffman Horvitz said.

Nevertheless, Horvitz said contractors should consider providing training on the new rule, especially for employees who deal with interactions involving compensation information, such as recruiters or interviewers.

Fox agreed and said “it would certainly be prudent for contractors to train their supervisors about the new rule.”

However, he pointed to a certain irony in doing so, as such training would “alert the supervisors that they have new legal rights currently enjoyed only by rank and file employees.”

Two Defenses for Employers

Horvitz additionally said contractors should heed the examples provided by the OFCCP regarding the application of the final rule's allotted employer defenses.

The final rule establishes a “general defenses” provision and an “essential job functions” defense provision for contractors.

Under the first defense, the rule provides that a contractor won't be held liable “if the discipline it imposes is for [a] violation 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.”

Horvitz said one of the OFCCP's examples for the general defense involved an employer that has a policy allowing one-hour employee lunch periods. If employees exceed that allotted lunch time even while discussing pay, Horvitz said the OFCCP has stated that employers have a right to enforce the one-hour lunch policy and discipline those employees.

The second defense shields a contractor from liability if it takes an adverse action against an employee whose essential job functions include “access to the compensation information of other employees or applicants” and who discloses such information to individuals who don't otherwise have access to that information outside of proceedings involving a formal complaint or charge or in furtherance of an investigation, proceeding, hearing or action.

Fortney of FortneyScott said the defense could apply to human resources employees. The new rule, he said, “is not a greenlight for them to share clearly confidential information.”

To contact the reporter on this story: Jay-Anne 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 final rule is available at http://op.bna.com/dlrcases.nsf/r?Open=jaca-a28ksw.