The President’s Executive Order on Non-Retaliation for Disclosure of Compensation Information: How it will affect federal contractors and their employees

by Joseph M. Creed
April 11th, 2014

On April 8, 2014, President Barack Obama signed an Executive Order prohibiting federal government contractors from retaliating against employees for disclosing their own or other employees’ salary information. This post will explore the implications of this new Executive Order for federal contractors and their employees.

What is the purpose of the new Executive Order?

Many employers, including government contractors, prohibit their employees from discussing or disclosing salary and compensation information with one another. Such policies often make good business sense from an employer’s perspective by giving employers freedom to compensate employees as they see fit without creating tension and dissention among employees regarding their salaries. However, these policies also make it more difficult for employees and the federal government to detect discrimination.

Current federal law, the Equal Pay Act of 1963 and the Lilly Ledbetter Fair Pay Act of 2009, prohibits employers from discriminating against employees in the payment of wages on the basis of their sex. Federal law also prohibits any form of discrimination on the basis of race, color, religion, sex (pregnancy), national origin,[1] disability[2], and age[3]. These laws can be difficult to enforce if employers have policies prohibiting employees from disclosing salary and compensation information to each other, as many employers do. As explained in the Executive Order, “[w]hen employees are prohibited from inquiring about, disclosing, or discussing their compensation with fellow workers, compensation discrimination is much more difficult to discover and remediate, and more likely to persist.”

The purpose of this Executive Order is to prohibit federal contractors from terminating or taking other adverse actions against employees for disclosing salary and compensation information, with the goal of expanding enforcement of federal equal pay and anti-discrimination laws.

How will the new Executive Order affect federal contractors?

The President’s Executive Order amends the longstanding Executive Order 11246. EO 11246 was first enacted by President Lyndon Johnson in 1965 on the heels of the Civil Rights Act of 1964 in an effort to eradicate discrimination by federal contractors. EO 11246 is implemented through the Federal Acquisition Regulation (FAR), a set of federal regulations that govern all aspects of federal contracting.

EO 11246 currently requires that federal contracts include, among other things, provisions mandating that “the contractor will not discriminate against any employee or applicant for employment because of race, color, religion, sex, or national origin,” and requiring contractors to take certain affirmative actions to prevent discrimination. The new Executive Order amends EO 11246 to add the following provision: “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.”

Contractors and employees of contractors will want to take note of several important aspects of this new law:

  • It applies not only to current employees, but also to applicants for employment;
  • It allows employees and applicants to inquire about, discuss, or disclose their own compensation information;
  • It also allows employees and applicants to inquire about, discuss, or disclose the compensation information of other employees or applicants;
  • It prohibits employers from terminating or “discriminating” against employees and applicants because they inquired about, discussed, or disclosed compensation information, effectively precluding standard employer policies that prohibit employees from disclosing their compensation information to one another;
  • It contains an exception for employees who have access to compensation information as part of their duties; employers may still prohibit these employees—such as accounting and human resources personnel—from disclosing compensation information, unless it is done as part of an EEO complaint process or investigation.

Does the new Executive Order apply to all federal contracts and contractors?

Generally, the required EEO provisions must be incorporated into all prime and subcontracts valued at more than $10,000. The FAR provides that this requirement does not apply directly to contracts of less than $10,000. However, if the aggregate value of all of a contractor’s prime and subcontracts during the last 12 months exceeds $10,000, the required EEO provisions must be incorporated into the contract. It is anticipated that, since the new Executive Order amends EO 11246, the $10,000 requirement will apply to it as well.

Under the FAR, there are other exemptions from the requirement to include EEO provisions in a contract. Any contractor with questions about whether EEO provisions must be included in a contract, or whether an exemption applies, should consult with counsel.

What happens if a federal contractor violates provisions of the new Executive Order?

The Secretary of Labor has authority to enforce the provisions of EO 11246. A contractor who violates EEO provisions in a contract can be subject to a variety of sanctions. Under the FAR, the Secretary of Labor has discretion to publish the name of the contractor, report violations to the EEOC or Department of Justice for investigation and further proceedings, and in egregious cases direct that the contract be cancelled or even that the contractor be prohibited from entering into further contracts.

What rights does an employee have if a federal contractor violates provisions of the new Executive Order?

EO 11246 does not necessarily provide an employee with a direct cause of action. If a contractor violates the new Executive Order by terminating or retaliating against an employee for inquiring about, discussing, or disclosing compensation information, the employee can make a complaint to the Secretary of Labor. Beyond that, the employee may have a claim against the contractor for violation of federal equal pay or anti-discrimination laws. Any employee who believes his or her rights have been violated should consult with an attorney immediately.

When does the new Executive Order take effect?

Although the new Executive Order itself took immediate effect, its provisions do not apply to current contracts. The Executive Order directs the Secretary of Labor to propose regulations to implement the Order within 160 days. The provisions of the Executive Order will apply to contracts entered into after the effective date of those regulations.

 

[2] The Americans with Disabilities Act of 1990, and the Americans with Disabilities Act Amendments Act of 2008, 42 U.S.C. § 12101 et seq.

[3] The Age Discrimination in Employment Act of 1967, 29 U.S.C. § 621 et seq.

Joe Creed is an attorney in Joseph, Greenwald & Laake’s Civil Litigation and Labor & Employment Groups. He is a knowledgeable advisor and skilled advocate for federal employees in all aspects of employment law. He is the author of “Employment Rights of Federal Employees,” a chapter in the Maryland Employment Law Deskbook.

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