Pay Transparency Rule Does Not Apply to HR in All Situations

By Allen Smith Sep 14, 2015
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In yet another rule applying to federal contractors, the U.S. Department of Labor (DOL) clarified that its freshly minted pay transparency regulations do not protect HR professionals when acting as guardians of compensation information.

The rule mandates that federal contractors let their employees discuss their pay, but carves out a defense, allowing contractors to discipline HR professionals for discussing compensation that they learn about in the performance of their essential job functions, such as in payroll. However, in some circumstances, HR is protected by the pay transparency rule.

Unearthing Pay Disparities

“Today’s equal pay rule will arm millions of women with additional tools to combat discriminatory pay practices,” said Fatima Goss Graves, senior vice president for programs at the National Women’s Law Center in Washington, D.C., in a news release, which noted that federal contractors employ nearly one quarter of the U.S. workforce.

“Approximately one-third of private-sector employers require employees to keep the amount they are paid secret and prohibit them from sharing this information with their co-workers,” Graves observed. “As a result, too many workers never find out that they are being paid less than they should be and the pay discrimination they face never gets challenged.”

In 2014, President Barack Obama issued Executive Order (E.O.) 13665, promoting pay transparency and openness, and encouraging workers and job applicants to share information about compensation without fear of discrimination. The thinking was that the more pay transparency, the likelier it would be that women and minority groups would discover pay inequities that might otherwise remain hidden.

For example: Lilly Ledbetter didn’t learn about pay discrepancies between male colleagues and herself until after decades at her job at Goodyear Tire and Rubber Co. because of her company’s policy forbidding employees from discussing pay with co-workers, according to the Department of Labor. She brought a pay discrimination claim that failed before the Supreme Court because of untimeliness, but then inspired the Lilly Ledbetter Fair Pay Restoration Act of 2009. That law was the first piece of legislation Obama signed and made it easier for plaintiffs to bring forth older pay discrimination claims.

Pay gaps persist because of pay secrecy policies, the DOL asserted in a release accompanying the final rule. “Assuming that she works every year between ages 25 and 65, the typical woman will have lost $420,000 over her working lifetime because of the earnings gap, based on median annual earnings for full-time, year-round workers at age 25 and above in 2013,” the DOL stated.

Wage gaps also persist among various racial groups. “At the beginning of 2015, median weekly earnings for African-American men working at full-time jobs totaled $680 per week—only 76 percent of the median for white men, who earned $897 per week,” the DOL noted. “The median weekly earnings for African-American women equaled $611 per week, or 68 percent of the median for white men.”

Rule’s Mandates

The final rule, published Sept. 11, 2015, in the Federal Register,implements E.O. 13665 by:

  • Requiring that federal contractors incorporate a prescribed nondiscrimination provision into their existing employee manuals or handbooks and disseminate the nondiscrimination provision to employees and to job applicants.
  • Mandating that the equal opportunity clause included in covered federal contracts and subcontracts be amended to note that federal contractors and subcontractors must refrain from discriminating against employees or applicants who inquire about, discuss or disclose their compensation or the compensation of others.
  • Providing employers with two defenses to an allegation of pay transparency discrimination: an essential job functions defense and a workplace rule defense.

The prescribed nondiscrimination provision must state: “The contractor will not discharge or in any other manner discriminate against any employee or applicant for employment because such employee or applicant has inquired about, discussed, or disclosed the compensation of the employee or applicant or another employee or applicant. This provision shall not apply to instances in which an employee who has access to the compensation information of other employees or applicants as a part of such employee's essential job functions discloses the compensation of such other employees or applicants to individuals who do not otherwise have access to such information, unless such disclosure is in response to a formal complaint or charge, in furtherance of an investigation, proceeding, hearing, or action, including an investigation conducted by the employer, or is consistent with the contractor's legal duty to furnish information.”

Essential Job Functions Defense

The essential job functions defense applies to HR professionals, who may be disciplined for discussing compensation if part of their job is, for example, in payroll or benefits. “If the employee making the disclosure to others had access to the information as a part of carrying out the essential job functions of the position of payroll administrator or benefits administrator, the contractor may be justified in taking adverse action based on that disclosure,” the rule’s preamble says.

Federal contractors should look at job descriptions of HR professionals in payroll and clarify that access to pay information is an essential function of the job, recommended David Goldstein, an attorney with Littler in Minneapolis.

However, this defense would not apply when an HR professional pursues his or her own possible compensation discrimination claim or if he or she raises possible disparities involving the compensation of other employees to management or while using the contractor’s internal complaint process.

“Without this distinction, employees with essential job functions access, who primarily work in human resources departments and who are predominantly women, would receive less protection than other employees who learn of possible compensation disparities in a similar manner,” the preamble to the rule states.

Workplace Rule Defense

The workplace rule defense refers to policies the employer might have that the employer could cite in disciplining an employee for talking about salary, but this is a narrowly tailored defense. The workplace ruledefense may include, for example, the DOL’s absurd example of disciplining someone who stands on a desk and repeatedly shouts his or her salary.

The department would not definitively provide more specific examples of this defense, but emphasized that the rule must be enforced uniformly. The DOL would not even add a more specific defense against hacking, such that if an employee obtained salary information through unauthorized access, the employer should be able to discipline the employee for doing so. 

“There are many legitimate workplace rules that contractors may be entitled to enforce,” the DOL said in the preamble. “OFCCP [Office of Federal Contract Compliance Programs] cannot predict the content or the source of any particular rule that a contractor may rely upon in asserting this defense.”

Was the Rule Needed?

Some in the contractor community criticized the Obama administration for imposing yet another requirement.

“Across all the companies I advise, across all the audits I’ve defended, I cannot think of one situation in which a client has had policies that are so inherently and fundamentally nontransparent that we needed a rule like this one to change the course of pay administration in OFCCP-covered work environments,” said Alissa Horvitz, an attorney with Roffman Horvitz in McLean, Va. “The data, facts and statistics on which the OFCCP relied to justify the rule make no distinction between government contractor workplaces and nongovernment contractor workplaces. And yet this administration imposed the new rule on government contractors."

However, Guy Brenner, an attorney with Proskauer in Washington, D.C., said the National Labor Relations Act protected communications about pay anyway. But he cautioned, “Compensation is defined broadly in the rule, and includes stock options, retirement benefits and vacation pay. Managers need to know the full scope of the protected activity to ensure they do not inadvertently violate the rule.”

Allen Smith, J.D., is the manager of workplace law content for SHRM. Follow him @SHRMlegaleditor.

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