On April 8, 2014, the President signed an Executive Order prohibiting federal contractors from retaliating against employees who choose to discuss their compensation. The President also issued a Memorandum instructing the Secretary of Labor to establish new regulations requiring federal contractors to submit to the Department of Labor (DOL) summary data on compensation paid to their employees, including data by sex and race. These executive actions were issued on Equal Pay Day, and implement the less drastic provisions of the Paycheck Fairness Act for federal contractors, which failed to advance in the Senate.¹

Executive Order

The President's Executive Order amends Executive Order 11246 to add language prohibiting federal government contractors from discharging or discriminating against employees or applicants because they inquire about, discuss, or disclose their compensation or the compensation of another employee or applicant. However, the Order states that this protection does not extend to employees who have access to the compensation information of other employees or applicants as an essential function of their job and disclose such information to individuals who do not have similar access. The Order also directs the Secretary of Labor to propose regulations to implement these requirements within 160 days.

Presidential Memorandum

The President's Memorandum directs the Secretary of Labor to propose, within 120 days, a rule that would require federal government contractors and subcontractors to submit to the DOL summary data on the compensation paid to their employees, including data by sex and race. 

Over the past several years, the DOL's Office of Federal Contract Compliance Programs (OFCCP) has been developing a new data collection compensation tool that would identify contractors likely to engage in sex- and race-based compensation discrimination.  On August 20, 2011, the DOL published an Advanced Notice of Proposed Rulemaking² (ANPRM) soliciting input from the public on the development and implementation of a compensation data collection tool. The ANPRM drew over 2,000 comments, including several from the employer community questioning the effectiveness of a generic tool for collecting compensation data due to the numerous factors that are taken into consideration when setting individual employee compensation. The comments further expressed concern that the data collection requirement would result in an undue burden to contractors. 

These concerns were validated in a report³ issued by the National Research Council arm of the National Academy of Sciences in August 2012. At the suggestion of the National Equal Pay Task Force created by President Obama, the U.S. Equal Employment Opportunity Commission (EEOC) requested that the National Research Council's Committee on National Statistics assemble a panel to review methods for measuring and collecting pay information by gender, race and national origin from employers for the purpose of administering the equal pay provisions of Title VII of the Civil Rights Act of 1964, as amended. The panel ultimately concluded that the collection of earnings data would be a significant undertaking for the EEOC, as neither it nor the OFCCP had a comprehensive plan regarding the form of data collection. The panel further concluded that a data collection tool could unduly burden employers depending upon the structure of the data collection tool, but that its assessment was limited by the fact that the EEOC and OFCCP had not articulated a plan for using earnings data after collecting it. Accordingly, the panel recommended that the EEOC, the OFCCP and the Civil Rights Division of the U.S. Department of Justice prepare a comprehensive plan for the use of earnings data before initiating any data collection. In conjunction with preparing a comprehensive plan, the panel recommended that the EEOC enhance its capacity to summarize and analyze earnings data and to collect data on rates of pay, not actual earnings or pay bands, in a manner that permits the calculation and measurement of both the average and the variability and spread of pay rates. 

The panel further recommended that the agencies initiate a pilot study to test the data collection tool and the plan for using the data after it is developed. The panel stated that the pilot study should measure the resulting data quality, fitness for use in the comprehensive plan, cost, and burden on the respondents. 

Finally, the panel made recommendations to the EEOC regarding protecting confidential earnings data it would collect, such as implementing appropriate data protection techniques and supporting research for the development of data protection applications. In addition, the panel recommended that the EEOC pursue legislation to increase the ability of the agency to protect confidential data and authorize data sharing among other agencies with legislative authority to enforce antidiscrimination laws.

Interestingly, the President's Memorandum includes detailed instructions to the Secretary of Labor regarding development of a data collection tool which closely track the primary issues raised in the comments to the ANPRM and the National Research Council's findings. In his Memorandum, the President directs the Secretary of Labor to consider approaches that: minimize the burden on federal government contractors and subcontractors when developing the proposed data collection tool; maximize efficiency and effectiveness by enabling the DOL to direct its enforcement resources towards entities for which reported data suggest potential discrepancies in worker compensation, and not toward entities for which there is no evidence of potential pay violations; and use the data collected to encourage employers to voluntarily comply with federal pay laws and to identify and analyze industry trends. The President further instructs the Secretary to avoid new record-keeping requirements and rely on existing reporting frameworks to collect the summary data. Also, as recommended by the National Research Council, the President directs the Secretary of Labor to consider independent studies regarding the collection of data compensation when developing his proposed rules. 

While it is highly likely that the President's instructions to the Secretary of Labor regarding the factors to consider when developing a data collection tool are the result of comments received in response to the ANPRM and the findings of the National Research Council's study, the burden that this new data collection tool will impose upon contractors remains to be seen. Despite the fact that a data collection tool has been on the DOL's agenda for years, little progress has been made toward developing a comprehensive plan prior to issuance of the President's Memorandum.⁴

What Next?

Until the DOL responds to the executive actions, there is not much for federal contractors to do but wait and see. However, to the extent federal contractor/subcontractor employers have policies prohibiting employees from sharing compensation data, they would be advised to consider the implications of the new requirement, review these policies, and determine how best to make the necessary changes to the policies.

Joshua S. Roffman is a Shareholder in Littler's Northern Virginia and Washington, DC offices, and Jade Cobb Murray is an Associate in the Charlotte office. If you would like further information, please contact your Littler attorney at 1.888.Littler, info@littler.com, Mr. Roffman at jroffman@littler.com, or Ms. Cobb Murray at jcmurray@littler.com.