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Equal pay is the hot employment law topic of the year so far, in no small part because of the efforts of President Barack Obama.
In furtherance of the Obama administration’s focus on pay disparity and objective of pay equity, the Office of Federal Contract Compliance Programs (OFCCP) and the Equal Employment Opportunity Commission (EEOC) have recently implemented and proposed rules that significantly impact both federal contractors and other employers.
So, it pays for employers to be in the know on both sets of regulations.
OFCCP’s Pay Transparency Regulations
First, if you are a federal contractor or subcontractor, it is important to familiarize yourself with the OFCCP’s final pay transparency regulations. Pay transparency is a first essential step on the way to pay equity because it helps inform women and minorities about pay disparities.
Following the National Labor Relations Board’s lead on protecting employees’ right to discuss confidential wage issues, the OFCCP issued its pay transparency regulations on Sept. 11, 2015. The rule was effective Jan. 11, 2016, and implemented President Obama’s Executive Order 13665.
This executive order prohibits federal contractors and subcontractors from discharging or discriminating against employees because they inquire about, discuss or disclose their compensation or the compensation of their fellow employees. “Compensation” refers to any payments made to an employee including salary, wages, bonuses, commissions, paid vacation, holiday pay, stock options, profit-sharing, and other benefits or wages given. The scope of these protections extends to supervisors, managers and others not protected by the provisions of the National Labor Relations Act. The rule also extends these protections to job applicants.
In addition to the nondiscrimination provisions, the OFCCP rule includes a posting requirement for covered federal contractors and subcontractors. As of Jan. 11, 2016, the following pay transparency statement is to be posted either electronically or in conspicuous places for employees and applicants:
Pay Transparency Policy Statement
The contractor will not discharge or in any other manner discriminate against employees or applicants because they have inquired about, discussed, or disclosed their own pay or the pay of another employee or applicant. However, employees who have access to the compensation information of other employees or applicants as a part of their essential job functions cannot disclose the pay of other employees or applicants to individuals who do not otherwise have access to compensation information, unless the disclosure is (a) in response to a formal complaint or charge, (b) in furtherance of an investigation, proceeding, hearing, or action, including an investigation conducted by the employer, or (c) consistent with the contractor’s legal duty to furnish information.
The scope of Executive Order 13665 has some practical business-related limitations. To be clear, employers are not obligated to share compensation information, and the rule does not limit an employer’s right to use otherwise valid general confidentiality agreements not covering these protected communications. Employees with access to confidential information as part of their job, such as a payroll or benefits administrator, may be barred from revealing such information.
The final rule applies only to federal contracts entered into or modified on or after Jan. 11, 2016, with an employer that:
Without regard to federal contractor status, more than a dozen states make it unlawful for employers to discipline or discharge employees for comparing or discussing their compensation with each other (including California, Colorado, Connecticut, District of Columbia, Illinois, Louisiana, Maine, Michigan, Minnesota, New Hampshire, New Jersey, Oregon and Vermont).
Proposed EEO-1 Report Changes
In addition to the OFCCP’s final pay transparency regulations, employers with 100 or more employees, contractors and subcontractors alike are the target of an EEOC proposed rule that focuses on promoting equal pay for women and people of color through increased employee pay level disclosure. The EEOC, in conjunction with the OFCCP, has proposed expanding the scope of the EEO-1 Report to include pay level information. (Federal contractors and first-tier subcontractors with 50 or more employees and a prime contract or first-tier subcontract of $50,000 or more file the EEO-1 Report with the EEOC annually. So do other private-sector employers with 100 or more employees.)
The EEO-1 Report includes information concerning the makeup of the employer’s workforce. This information is broken down by race, ethnicity, gender and job category.
The EEOC’s proposal would expand the EEO-1 Report to require disclosure of aggregate pay data and hours worked. Specifically, employers would tabulate and report the number of employees whose W-2 earnings for the prior 12-month period fall within any one of 12 pay bands (pay ranges) and the aggregate hours worked in that band. The proposal sets the implementation date for the increased reporting requirements as beginning with the September 2017 report. The notice period for comments ends April 1, 2016.
As a practical matter, employers should expect that EEO-1 Reports showing significant pay disparities based on a protected classification may lead to federal regulatory investigations and may be used to bolster individual charges or complaints of pay discrimination filed by employees. For example, as part of the Federal Contractor Selection System, the OFCCP currently uses the results of the EEO-1 Report as one of the factors in the neutral electronic selection of contractors for a compliance review. Similarly, the EEOC has said that the pay-band approach lends itself not only to comparing individual employees (within-job-category variation) but also “support[s] the agencies’ ability to discern potential discrimination” in across-job-category variation and overall variation. The pay-band approach, however, does not include legitimate variables affecting employee pay—such as differing responsibilities between individuals with the same or similar job titles, education levels, other experience, and seniority. Accordingly, even with the pay-band approach, challenged employers could find themselves spending significant time and resources explaining the nondiscriminatory bases for employee pay rates.
As a result of the increased emphasis on pay equity, employers should confirm their policies in writing. When administering these policies, they should be sure to comply with the applicable federal and state laws concerning employee discussion of wages. They should regularly review pay practices and wages among similar positions and EEO-1 job groups. In addition, covered federal contractors and subcontractors should ensure that they have distributed the Pay Transparency Policy Statement.
Leslie Selig Byrd and Amber K. Dodds are attorneys with Bracewell in San Antonio.
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