United States: New OFCCP Changes To Federal Contractor Pay Practices

September was a busy month for federal contractors due to new regulatory requirements. Earlier last month, we told you about  President Obama's new executive order requiring covered government contractors to provide their employees with paid sick leave. Now, the US Department of Labor (DOL) has made it official that (1) government contractors may not discriminate against their employees for discussing their pay or the pay of co-workers; and (2) the minimum wage for employees of federal contractors will increase in 2016.

New pay discrimination rule

In September, the DOL's Office of Federal Contract Compliance Programs (OFCCP) issued a Final Rule implementing Executive Order 13665, which prohibits federal contractors from firing or otherwise disciplining employees or job applicants for discussing their pay or the pay of co-workers. The new rule goes into effect January 11, 2016, and applies to all federal contracts and subcontracts that exceed $10,000 in value.

The new rule amends Executive Order 11246, which prohibits federal contractors and subcontractors from discriminating based on race, color, religion, sex, sexual orientation, gender identity and national origin. The new rule adds employees and applicants who inquire about, discuss, or disclose their "compensation" as a protected category under Executive Order 11246. "Compensation" is broadly defined under the new rule to include "salary, wages, overtime pay, shift differentials, bonuses, commissions, vacation and holiday pay, allowances, insurance and other benefits, stock options and awards, profit sharing and retirement," but does not include "paid leave" or "sick time."

Shifting the burden

The new rule is noteworthy because the OFCCP has chosen to frame the issue as one of anti-discrimination rather than anti-retaliation. In so doing, aggrieved employees will need only to show that their compensation-related discussions were a "motivating factor" for an adverse employment action (the current standard under federal anti-discrimination laws), rather than showing the adverse action would not have occurred "but for" said discussions (the current standard under federal anti-retaliation laws). The OFCCP will also follow the commonly used burden-shifting analysis announced in McDonnell Douglas Corp. v. Green, 411 U.S. 792 (1973) to determine whether violations have occurred.

Defenses available

Covered contractors will have two defenses under the new rule. First, a contractor may pursue a "general defense" by showing that the alleged discriminatory act was based on a violation of a "consistently and uniformly applied company policy," so long as that policy does not prohibit employees or job applicants from discussing or disclosing their compensation or the compensation of other employees or applicants. Second, a contractor may take adverse action against an employee who discloses "compensation information" if the employee has access to "compensation information" as part of his or her "essential job functions," provided, however, that the disclosure was not in response to a formal complaint, charge, or was otherwise part of the contractor's legal obligation to disclose said information. The phrases "compensation information" and "essential job functions" are broadly defined under the new rule.

Takeaways

  • The new rule goes into effect January 11, 2016, and will require future contracts to include a revised equal opportunity clause. Contractors should also include the new nondiscrimination provision in their employee manuals and handbooks, and disseminate the same internally through electronic or physical postings.
  • The new rule expands the protections already available under the National Labor Relations Act (NLRA). The OFCCP's Final Rule extends those protections to management-level employees of federal contractors and subcontractors, as managers and supervisors are generally not within the protections of the NLRA. The new OFCCP rule also applies to information about the amount and type of pay and decisions, statements and actions related to setting or altering employee compensation.
  • The new rule does not require covered contractors to develop and deliver new staff or management training. The OFCCP notes, however, that such "training is considered a best practice."

Minimum wage increase in 2016

The DOL has also announced that the minimum wage for employees of federal contractors will increase in 2016. This new increase comes after President Obama's 2014 Executive Order 13658, which raised the minimum wage for certain employees of covered federal contractors to $10.10 per hour, and the minimum cash wage for tipped employees working on or in connection with covered federal contracts to $4.90 per hour. These changes went into effect in January 2015. The DOL is required to increase these amounts each year to adjust for inflation.

Last week, the DOL's Wage and Hour Division published its official Notice in the Federal Register and announced that the minimum wage for certain employees of covered federal contractors will increase by five cents to $10.15 per hour in 2016, and the minimum cash wage for tipped employees working on or in connection with covered federal contracts will increase to $5.85 per hour. These changes will take effect January 1, 2016, and are based on the adjustment for inflation under the Consumer Price Index, which was only 0.345 percent (the hourly rate for tipped employees is rising more than the inflation index as the result of a prior order requiring that rate to increase by $.95 per year until reaching 70 percent of the minimum wage).

These new requirements for federal contractors are just a small example of the larger movement by the Obama administration to regulate the American workforce through executive orders and federal regulation. Over the past two years, the president has issued a number of executive orders addressing federal contractor practices, including increasing minimum wage standards, expanding federal contractor anti-discrimination policies, and creating new reporting requirements.

The Dentons employment and labor team has followed these developments closely, and is ready to assist you in auditing your current practices or handling any future disputes that may arise.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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