On January 31, 2024, several U.S. government agencies released proposals and guidance intended to impose new pay transparency and salary history requirements on federal government contractors and subcontractors. These proposals, if put into effect, will subject federal contractors and subcontractors to a set of pay equity regulations that mirror those recently enacted in progressive states such as California and New York.
Proposed FAR clause to implement salary history restrictions
Most significantly, the FAR Council, which consists of the Federal Acquisition Policy Administrator and the heads of the Department of Defense, NASA, and the General Services Administration, published a Proposal to modify the Federal Acquisition Regulation (FAR) to implement a new pay equity clause. Under the new proposal, the new clause would apply to most federal government contracts performed in the United States and its outlying areas, and would also extend to subcontractors at any level. The proposed clause applies to recruitment for any position performed “in connection with” a federal contract, an established standard that covers not only employees who perform the direct services required by the contract, but also support services that are necessary for the performance of the contract.
The proposed FAR provision prohibits several actions in connection with an employer’s use of an applicant’s prior compensation level in prior positions during the recruitment process:
Contractors may not request an applicant’s compensation history from the applicant or the applicant’s former employer, nor require the applicant to disclose his or her compensation history.
Contractors may not retaliate by refusing to interview or hire applicants who do not respond to an inquiry about their compensation history.
Contractors may not rely on an applicant’s compensation history (if known or discovered) as a criterion for evaluating applications or for determining an applicant’s new compensation at the time of hire.
In particular, the prohibition on using prior compensation to set an applicant’s new compensation applies even if the applicant voluntarily discloses his or her compensation in wage negotiations.
The proposed clause would also impose compensation disclosure requirements for contractors’ job advertisements. The clause requires that all job advertisements that relate to or are related to a federal contract must disclose the salary or wage range that the contractor has a good faith belief it will pay for the position. Job advertisements must also disclose a “general description” of the benefits and other types of compensation (i.e., commissions, bonuses, etc.) offered. If more than 50% of the compensation will come from non-wage or salary compensation, then the contractor must specify the percentage of total compensation or the dollar amount of each other form of compensation. Job advertisements must also include a notice of rights under the new FAR clause and information on how to file discrimination claims.
New OFCCP guidance on salary history
Concurrently with the proposed FAR clause, the Office of Federal Contract Compliance Programs (OFCCP) issued Frequent questions Guidance on the use of salary history to set compensation. The guidance does not, at least directly, impose new obligations on contractors, but it does suggest that OFCCP will consider an employer’s use of salary history to set compensation as a potential indication of wage discrimination.
OFCCP’s guidance does not explicitly take the position that contractors may not use or rely on salary history to set compensation. Rather, the guidance states that “the practice may contribute to unlawful discrimination, depending on the specific facts and circumstances at issue.” Nor does the guidance treat the use of salary history data voluntarily provided by an applicant in negotiations as distinct from information collected by or required to be provided by the employer. The guidance suggests that OFCCP may review a contractor’s use of salary history in compliance evaluations as part of its examination of the employer’s broader compensation policies.
The FAR Council is accepting comments on its proposed rule until April 1, 2024, which could result in changes to its scope before it is implemented. Still, federal contractors and subcontractors should review their compensation and hiring practices to identify whether and how wage history data is collected to establish compensation, as even in the absence of these proposals, the use of wage history to establish compensation is a potential vulnerability that can expose an employer to equal pay claims.
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