Federal Contractors Beware: Presidential Directives Require the Department of Labor to Watch Your Pay Practices

In 2009, President Obama signed into law the Lilly Ledbetter Fair Pay Act, which, among other things, extended the statute of limitations for claims against an employer accused of paying an employee less based on her sex. Moving forward on what the President has stated is a main second term agenda item for him, on April 8, 2014, he issued an Executive Order and a Presidential Memorandum that the White House contends will allow employees of federal contractors to more forcefully litigate claims of unequal pay based on sex. The employers that will be covered by the Executive Order are federal contractors, federally-assisted construction contractors, and subcontractors who do over $10,000 in government business in one year.

The Executive Order, entitled “Non-Retaliation for Disclosure of Compensation Information,” amends existing Executive Order 11246, and prohibits federal contractors from retaliating against employees or applicants who discuss their compensation or seek information about their compensation from the employer. The Order reads in pertinent part: “The contractor will not discharge or in any other manner discriminate against any employee or applicant because such employee or applicant has inquired about, discussed, or disclosed the compensation of the employee or applicant or another employee or applicant.” In other words, a federal contractor cannot take any adverse employment actions against an employee or applicant who seeks any information regarding his or her pay vis-à-vis other employees or applicants.

“The Executive Order and the Presidential Memorandum could fundamentally shift the way that federal contractors pay their employees and the information that employees and others have concerning pay, race, and sex in the workplace.”

This provision does 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.

The new Executive Order is effective immediately, but it directs the Secretary of Labor to issue implementing regulations within 160 days.

Even more interesting than the Executive Order, the President also issued a Presidential Memorandum entitled “Advancing Pay Equality Through Compensation Data Collection.” The Memorandum instructs the Secretary of Labor to establish new regulations within 120 days that would require federal contractors to submit to the Department of Labor “summary data” on compensation paid to employees, including race and sex. The Memorandum instructs the Department that the purpose of the new regulations should be to encourage compliance with equal pay laws and to target enforcement more effectively by focusing efforts where there are grave discrepancies. The Presidential Memorandum also directs the Department of Labor to avoid, to the extent feasible, new record-keeping requirements and to rely instead on existing reporting frameworks to collect the summary data.

The Executive Order and the Presidential Memorandum could fundamentally shift the way that federal contractors pay their employees and the information that employees and others have concerning pay, race, and sex in the workplace. While the new Department of Labor regulations are yet to be drafted and released, the Presidential Memorandum will likely have a ripple effect through the federal contracting world, where comprehensive data on race, sex, and pay has often been difficult to find and review.

Arent Fox’s Labor & Employment Group will continue to monitor updates in this area. Please contact the authors of this alert or any member of the Group with questions.