Proposed Rule Prohibits Federal Contractors From Firing Employees Who Discuss Pay

Federal contractors would have to inform their employees of their right to openly discuss pay in the workplace without fear of retaliation under new proposed rules from the Labor Department.

Firms that do business with the federal government would have to incorporate the new non-discrimination language in their existing employee handbooks and disseminate the information, either electronically or by publicly posting a copy of the requirement, according to draft rules published in the Federal Register. They also would have to include the provision in the existing equal opportunity clause in their contracts. The proposed regulations implement an executive order signed by President Obama in April that protects employees of federal contractors who disclose their pay, or the compensation of other workers, from being fired or otherwise retaliated against by employers.

The proposed rule would apply to all federal contractors that do more than $10,000 worth of business with the government. Approximately 500,000 contractors are registered with the General Services Administration.

The draft regulations do not compel contractor employees to share compensation information with others, but protect those who do from being discriminated against by their employer. The provision would not allow employees who have access to compensation information as part of their job -- for example, human resources employees -- to disclose salary information, except under certain circumstances, including in response to a formal complaint, charge or investigation, or if the employee is pursuing her own compensation discrimination complaint.

“Simply allowing employees to discuss compensation may help bring illegal compensation practices to light and allow employees to obtain appropriate legal redress,” the draft rule said. “Policies prohibiting employee conversations about compensation can also serve as a significant barrier to federal enforcement of the laws against compensation discrimination.”

Outside individuals and groups have 90 days to comment on the draft rules.

The Professional Services Council, the national trade association for contractors, doesn’t have an issue with the policy underlying the executive order, but is concerned with its implementation, said Alan Chvotkin, the group’s executive vice president and counsel. Chvotkin wouldn’t comment on the proposed rule because he hadn’t looked at the 93-page document yet, but predicted the notification process and other administrative responsibilities could be onerous. He said he expected to hear soon from PSC’s members about the proposed rule. “I’m confident that the regulatory burden is likely understated,” he said. 

Chvotkin said PSC includes such non-retaliation language regarding compensation disclosure in its own employee handbook. The executive order would not apply to PSC since it is not a federal contractor.

The Institute for Women’s Policy Research found in a 2012 survey that 51 percent of female respondents and 47 percent of male respondents reported that discussion of compensation was discouraged or prohibited in their workplace. That study concluded barriers to disclosing pay were much more common among private employers than public employers.

Various studies show that women currently earn between 77 cents and 82 cents on the dollar compared to men, depending on how the pay cap is measured. Secrecy surrounding compensation can have “a detrimental impact on business productivity, employee morale and retention, and could drive increased cost related to human resources management,” said the notice in the Federal Register.

The Senate on Tuesday planned to vote on the Paycheck Fairness Act, which would apply the non-discrimination requirement regarding pay disclosures to the entire workforce. This mirrors a strategy the White House pursued earlier this year, when it boosted by executive order the minimum wage for federal contractors to $10.10, while calling on Congress to do the same for all workers.

(Image via Gang Liu/Shutterstock.com)