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Bar News - April 20, 2016

Labor & Employment Law: Not Business as Usual: Peeling Away the Cloak of Pay Secrecy


No one disputes that employees deserve equal pay for equal work, but pay inequalities still exist in workplaces throughout the United States. Wage disparities occur along both gender and racial lines, and the Women’s Bureau of the US Department of Labor reports that women make 77 cents for every dollar paid to their male counterparts.

The culture at many workplaces discourages employees from discussing pay, bonuses, and other perks. Some employers take it a step further and include confidentiality provisions in employee agreements or handbooks that prevent such discussions. Such pay secrecy policies can perpetuate pay inequalities.

To address this issue, federal and state governments are enacting legislation and regulations aimed at peeling away the cloak of secrecy surrounding employee compensation to bring inequities to light hoping that discovery will lead to remediation. The changes are resulting in new obligations for many employers that require action.

Effective Jan. 11, 2016, the Office of Federal Contract Compliance Programs (OFCCP) of the US Department of Labor issued its final rule in accordance with President Barack Obama’s Executive Order 13665. The OFCCP rule makes it illegal for covered federal contractors and subcontractors (and businesses that provide certain services to the government) to discharge or otherwise discriminate against employees and job applicants for discussing, disclosing, and inquiring about their compensation or the compensation of others. The rule defines compensation broadly, and it includes, but is not limited to, salary, wages, overtime pay, shift differentials, bonuses, commissions, paid-time off, allowances, insurance benefits, retirement benefits, profit sharing plans, and stock options.

Unlike the National Labor Relations Act, which is enforced by the National Labor Relations Board (NLRB) and protects covered, non-supervisory employees from retaliation for discussing wages or working conditions with coworkers as part of a concerted activity to improve them, the OFCCP rule has broader application and protects supervisors, managers, agricultural workers, and employees of rail and air carriers. The rule applies to employers who enter into or modify an existing contract or subcontract on or after Jan. 11, 2016.

There are two notable defenses available to employers faced with a claim that they violated the OFCCP rule – the “essential job function” defense and the “workplace rule” defense. Under the first, inquires, discussions, or disclosures of compensation that employees obtain through their “essential job functions” are not protected communications. For example, a human resources professional cannot claim protection under the OFCCP rule if he or she shared compensation information related to other employees with a third party. That said, the human resources professional is protected in disclosing his or her own salary information, in disclosing compensation information of other employees to management to call attention to perceived pay disparities, in disclosing compensation information in connection with an internal complaint procedure, and in disclosing compensation information obtained through means other than the employee’s “essential job functions.”

The second defense allows covered employers to discipline employees for violating a consistently and uniformly applied workplace rule, even if the employees were engaged in a protected communication. For example, assume an employer has a policy allowing employees a one-hour lunch break. A group of employees return late from lunch because they were comparing information about annual bonuses. The employer may discipline the employees for violating the lunch-break policy as long as the policy is uniformly and consistently enforced and the discipline is consistent with discipline for prior violations. The fact that the employees violated the lunch-break policy because they were engaged in a protected communication does not insulate them from discipline for violating policy.

Related State Laws

In addition to the OFCCP and the NLRB, many states are stepping up protections for employees. Some states are tightening the protections of their equal pay laws. Others are proceeding with pay-secrecy legislation or legislation prohibiting prospective employers from inquiring about applicants’ prior salary histories so that prior discriminatory pay practices do not follow employees as they move to other employers.

New Hampshire was in the initial wave of states to enact statutes protecting employees from discipline for discussing their wages and benefits. Last year, the New Hampshire Legislature enacted two statutes, RSA 275:41-b and RSA 275:38-a, to foster pay transparency.

RSA 275:41-b prohibits employers from imposing as a condition of employment that employees refrain from disclosing their wages or signing a waiver that purports to deny employees the right to disclose their wages, salary, or paid benefits. Both RSA 275:41-b and RSA 275:38-a prohibit employers from discharging or discriminating against employees for inquiring, discussing, or disclosing wage information.

New Hampshire’s law contains a similar “essential job function” defense as the OFCCP rule. Some state laws contain limitations on employees’ rights to discuss coworkers’ wages without their consent, but New Hampshire does not.

Salary Disclosure Requirements

As of now, employers are not required to disclose salary information to the government, but that may soon change. The Equal Employment Opportunity Commission (EEOC) has announced a proposed revision to its Employer Information Report (EEO-1) that would collect pay data and hours worked from employers with more than 100 employees, to allow the EEOC and the OFCCP to identify and address pay discrimination.

Employers should take note that things are not business as usual. Employers should review, among other things, their handbooks, policies, and employment agreements with employment counsel to ensure that they comply with the new federal and state laws. They should also train supervisors and managers on the pay transparency protections and display the required federal and state posters.

In addition, employers covered by the OFCCP rule should update their equal opportunity clause in their federal contracts and subcontracts, and purchase orders. The new rule also requires federal contractors to include a prescribed “pay transparency nondiscrimination provision” in their manuals and handbooks, and post the provision electronically or in a conspicuous place available for applicants and employees. In addition, contractors are required to use the OFCCP supplement to the “EEO is the law” poster, along with the current EEO poster, while the OFCCP and the EEOC work to update the poster to reflect changes in several regulations.

Terri Pastori

Terri L. Pastori counsels and represents employers and employees in all aspects of their employment relationships. She started her own firm in Derry, NH, after working in large law firms in Manchester and Boston.

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