Proposed Rule Seeks to Mandate Pay Transparency and Ban Using Salary History for Federal Contractors

On January 29, 2024, the Biden administration issued a Proposed Rule that would prohibit federal contractors from seeking and considering compensation history when making employment decisions and require contractors to disclose compensation being offered in job postings. If implemented, the requirements will apply broadly to all federal contracts and subcontracts that are principally performed in the United States and cover all jobs that work on or in connection with a covered contract. Covered applicants and employees can submit complaints of alleged violations to the applicable contracting agency to “take action as appropriate,” and those agencies must forward to the Office of Federal Contract Compliance Programs (OFCCP) any such complaints that also allege discrimination.

Released in recognition of the 15th anniversary of the Lilly Ledbetter Fair Pay Act, the Proposed Rule further implements the policies that the Biden administration announced in its March 15, 2022, Executive Order 14069 to advance pay equity and transparency in federal contracting. It also follows the trend of states passing pay equity and transparency laws requiring businesses to post pay information in job postings and prohibiting use of salary history information. Contractors should consider reviewing their pay equity and transparency practices now in light of the Proposed Rule so they can be prepared to comply should the rule become final.  

Covered Contracts

The Proposed Rule seeks to create a new FAR clause that will be included in all solicitations and contracts that are principally performed in the United States. This includes solicitations and contracts of any dollar amount, including contracts below the Simplified Acquisition Threshold and acquisitions for commercial products and commercial services, including COTS items. The Proposed Rule would require prime and upper-tier subcontractors to flow down the “substance” of the new FAR clauses to subcontractors at all tiers. 

Covered Positions and Individuals

The requirements in the Proposed Rule would apply to the recruitment and hiring for any positions that perform work on or in connection with a covered contract. Contractors are encouraged, but not required, to apply these requirements to all other positions. The protections in the Proposed Rule would apply to “applicants,” which is defined as prospective or current employees applying for a position to perform work on or in connection with a covered contract. The Proposed Rule defines “work on or in connection with the contract” to mean all work called for by the covered contract or work activities necessary to the performance of the contract but not specifically called for by the covered contract.

Pay Transparency Requirements

The Proposed Rule would apply to all job advertisements placed “by or on behalf” of the contractor for any position that works “on or in connection with” the contract. Contractors would be required to provide in all advertisement for covered job openings:

• “Salary or wages, or range thereof,” the contractor believes in “good faith” it will pay for the advertised position, which may include the contractor’s pay scale for the role, the range of compensation paid to current incumbents in that role, or the amount budgeted for the position;
• General description of the benefits and other forms of compensation for the job; and
• If at least half of the expected compensation for the job is comprised of commissions, bonuses, and/or overtime pay, the contractor must specify the “percentage of overall compensation or dollar amount, or ranges thereof, for each form of compensation” that it in “good faith” believes will be paid for the job.

Salary History Ban

The Proposed Rule would prohibit contractors from taking any of the following actions:

• Seeking a covered applicant’s compensation history from any person, whether directly from the applicant, from the applicant’s current or former employer, or through an agent;
• Requiring a covered applicant to disclose his or her compensation history as a condition of the applicant’s candidacy;
• Retaliating against, refusing to interview, or otherwise refusing to consider, hire, or employ any covered applicant for failing to respond to an inquiry regarding their compensation history;
• Relying on any covered applicant’s compensation history:
• as a criterion for screening or considering the applicant for employment; or
• in determining the compensation for such individual at any stage of the selection process; or
• Violating all of the above prohibitions, even if the covered applicant volunteers his or her compensation history without being prompted to do so at any stage in the recruitment or hiring process.

Compensation history means any payments made to, or on behalf of, a covered applicant as remuneration for employment that the covered applicant is currently receiving or has been paid in a previous job. Compensation is defined to cover a broad swath of compensation, including “salary, wages, overtime pay, shift differentials, bonuses, commissions, vacation and holiday pay, allowances, insurance and other benefits, stock options and awards, profit sharing, and retirement.”

Mandatory Applicant Notice

Contractors will also be required to provide all applicants covered by the pay transparency and salary history requirements with the following written notice:

This employer is a Federal contractor or subcontractor. Under 48 CFR (FAR) 52.222–ZZ, Prohibition on Compensation History Inquiries and Requirement for Compensation Disclosures by Contractors During Recruitment and Hiring, Federal contractors and subcontractors may not inquire about or rely on an applicant’s compensation history to screen an applicant for employment or to determine the applicant’s pay for a position on or in connection with a Federal contract or subcontract, even when the information is offered without prompting. The employer must also disclose the compensation for the position in all advertisements for the job opening.

Applicants alleging Federal contractor or subcontractor violations of these requirements:

These applicants may submit a complaint to the central collection point of the agency that issued the solicitation for the Federal contract or awarded the Federal contract or order, as identified at the U.S. Department of Labor website. The complaint must be submitted within 180 days of the date the violation occurred.

The agency that issued the solicitation or awarded the contract or order on which this applicant would primarily work is ______. [Contractor to fill in with appropriate agency name] For applicants supporting multiple agencies, complaints should copy the central collection point of all known agencies to be supported by the applicant's position.

Applicants alleging discrimination on the basis of race, color, religion, sex, sexual orientation, gender identity, national origin, disability, or protected veteran status should file a complaint with the Office of Federal Contract Compliance Programs (OFCCP). If complaints alleging discrimination are submitted to an agency central collection point rather than directly with OFCCP, the complaints will be forwarded to OFCCP. Information on the process for filing a formal complaint of discrimination with OFCCP can be found at the following website.

The notice must be provided to applicants either as part of the job announcement or during the application process.

Enforcement

The Proposed Rule does not provide for a private right of action and contains no specified remedies for violations, but it provides a complaint procedure for alleged violations. An applicant alleging violations of these requirements will have 180 days from the date of the claimed violation to submit a complaint to the central collection point of the agency that issued the solicitation or awarded the contract. Applicants working on contracts for different agencies can submit complaints to all known agencies. Unless the complainant alleges discrimination, the contracting agency must review the complaint, confirm that the complaint is covered, and “take action as appropriate.”

If the complainant alleges discrimination based on the laws enforced by the OFCCP, which includes alleged discrimination based on sex, sexual orientation, gender identity, race/ethnicity, national origin, religion, disability, and protected veteran status, then the contracting agency must send such complaints to the OFCCP to address.

Proposed Comment Period

Interested parties will have until April 1, 2024, to submit comments to the Proposed Rule. After the comment period closes, it is unclear when the Proposed Rule will become final or whether there will be significant or any changes made to it.

Practical Implications

With the growing trend of states passing laws banning companies from using salary history to set pay and laws requiring companies to post pay rates and ranges (and in some cases, benefits information) with their job advertisements, some companies will already have practices in place that comply with various requirements in the Proposed Rule. Complying with pay transparency and salary history bans, however, can often be difficult and require overhauling numerous HR and recruiting processes. Updating those processes can sometimes require significant advance planning or unique considerations from multiple stakeholders.  This is particularly true for contractors that have not implemented practices to comply with state salary history bans or pay transparency laws because they may not currently be covered by (or have operations in states not currently covered by) those requirements. Given that the Proposed Rule contains some unique considerations, contractors should consider reviewing the Proposed Rule in connection with their pay equity and transparency practices so they can be prepared to implement any changes that might be required if and when the rule becomes final.