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Government Contractor Compliance & Regulatory Update

President Takes Executive Action Over Pay Equity By Federal Government Contractors

Posted in Discrimination

Today, in connection with “Equal Pay Day” ceremonies at the White House, President Obama issued an Executive Order and a Presidential Memorandum aimed at ensuring that employees of Federal government contractors and subcontractors are not discriminated against with regard to compensation on the basis of race, color, religion, sex, or national origin.

The Presidential Memorandum directs the Secretary of Labor to propose rules requiring Federal contractors and subcontractors to submit to the Department of Labor (DOL) summary data on the compensation paid to their employees by sex and race.  The rules must be proposed by August 6, 2014.  President Obama expects the rules to enable DOL to direct enforcement resources toward entities for which reported data suggest potential discrepancies in worker compensation.

These rules have been under consideration since at least August 10, 2011, when DOL issued an Advance Notice of Proposed Rulemaking (ANPRM) requesting input on the design and implementation of a new compensation data collection tool.  According to the Presidential Memorandum, DOL received “extensive responses” to its request and now has “ample information from which DOL can develop a tool that will enhance the effectiveness of its enforcement.”  The President instructed DOL to promulgate rules that will (1) “maximize efficiency and effectiveness;” (2) “minimize, to the extent feasible, the burden on Federal contractors and subcontractors” to comply; and (3) “encourage greater voluntary compliance by employers with federal pay laws and to identify and analyze agency trends.”

Together with the Presidential Memorandum, President Obama issued an Executive Order directed at Federal government contractors and subcontractors.  The Order prohibits retaliation against any employee or applicant for employment because that employee or applicant inquires about, discloses, or discusses compensation information.  The prohibition applies whether the applicant or employee discloses his own compensation information or that of another applicant or employee.  However, the prohibition generally does not apply when an employee with access to compensation information as part of that employee’s essential job functions discloses that information to an individual who does not have the information.  The Order is effective immediately.  However, the Secretary of Labor is required to issue implementing regulations by September 15, 2014, and the Order will apply to contracts entered into on or after the effective date of those rules.

Today’s Executive Order comes on the heels of a string of other executive orders directed at the employment practices of Federal government contractors.  In February, President Obama issued an executive order that will increase the minimum wage of Federal contractor and subcontractor employees to $10.10 an hour.  Executive orders have also recently been used to require Federal contractors and subcontractors to try harder to retain workers when a federal service contract changes hands, to police suppliers for signs of human trafficking, and to issue new affirmative action rules requiring contractors to hire more veterans and persons with disabilities.

In light of today’s Executive actions, Federal government contractors and subcontractors should carefully reevaluate their compensation policies, structures and equity.  We suggest that federal contractors and subcontractors take the following steps:

  • Because the compensation information will be filed with the DOL, it is more important than ever to undertake a privileged pay systems and equity analysis;
  • Contractors should reexamine their jobs and job lines and their compensation policies and bands so that the compensation ranges in jobs and bands are tight and consistent;
  • To the extent that outliers are identified in this process, they may need to be reassigned or transferred to a new job (or a new level of the same job);
  • In jobs and salary bands where there is adverse impact, contractors need to be prepared to identify the factors that explain the differences (e.g., years of experience, seniority, specialization, education) and/or offer a multiple regression analysis;
  • Contractors would not want to “blindly” offer the averages anticipated by the Executive Order without undertaking a careful analysis of their compensation policies, structures and equity; and

If this does result in a modification of their compensation structure, they may need to amend their AAPs (job groups and compensation analyses)