On September 10, 2015, the Office of Federal Contractor Compliance Programs issued the final regulations relating to pay transparency for employees working for federal contractors and subcontractors with a contract of at least $10,000. The final rule implements Executive Order 13665 and will cover employers that enter into a new federal contract modifying existing covered federal contracts on or after January 11, 2016. The final rule:

• Expands the required equal opportunity clause to be included in covered federal contracts and subcontracts to indicate that the employer must refrain from discharging or otherwise discriminating against employees or applicants who inquire about, discuss or disclose their compensation or the compensation of other employees or applicants. An exception exists where the employee or applicant makes the disclosure based on information obtained in the course of his or her essential job functions. For example, an employee in human resources who has access to sensitive compensation information of others within an organization may have a duty to protect this type of information from disclosure if such information was obtained through the performance of his or her job.

• Broadly defines compensation, consistent with the OFCCP Directive 2013-03 relating to compensation systems and practices. Compensation encompasses salary, wages, overtime, shift differential, bonus, commission, vacation and holiday pay, allowances, insurance and other benefits, stock options and awards, profit-sharing and retirement.

• Provides employers with the following two defenses to an allegation of discrimination: (1) A general defense based on the enforcement of a “workplace rule that does not prohibit the discussion of compensation information” and (2) a specific defense based on the fact that the essential functions of the job held by the individual releasing the information precluded its release.

Under the new rule, covered contractors are required to:

• Refrain from discharging, or in any other manner discriminating against, employees or applicants because they have inquired about, discussed or disclosed their own pay or the pay of another employee or applicant (subject to the essential function defense noted above).  If employers have not already revised their workplace policies consistent with similar National Labor Relations Act guidance, employers should ensure that their policies do not restrict employee or applicant discussions of compensation.

• Federal contractors must incorporate into the non-discrimination provision in their existing employee manuals or handbooks a Pay Transparency Policy Statement as mandated by the OFCCP and must disseminate the updated policy to employees and job applicants.