On January 30, the Department of Defense, General Services Administration, National Aeronautics and Space Administration, and Office of Federal Procurement Policy published a proposed rule, Pay Equity and Transparency in Federal Contracting, that would impose two separate obligations for any position that will perform work on or in connection with a federal contract.

First, it would prohibit federal contractors from seeking and considering information about job applicants’ compensation history when making employment decisions for such positions.

“Compensation history” is defined as “the compensation an applicant is currently receiving or the compensation the applicant has been paid in a previous job.”

The effect of the proposed rule would be to bar federal contractors from:

• seeking an applicant’s compensation history, either orally or in writing, directly from any person, including the applicant or the applicant’s current or former employer or through an agent;
• require disclosure of compensation history as a condition of an applicant’s candidacy;
• retaliate against or refuse to interview or otherwise consider, hire, or employ any applicant for failing to respond to an inquiry regarding their compensation history;
• rely on an applicant’s compensation history:
  • as a criterion in screening or considering the applicant for employment;
  • in determining the compensation for such individual at any stage in the selection process; or
• consider an applicant’s compensation history even if the applicant for employment volunteers their compensation history without prompting at any stage in the recruitment and hiring process.

Fundamentally, the proposed rule would prohibit federal contractors from asking applicants about their past compensation history or determining the amount to pay an applicant based on their prior compensation, such as by increasing their current pay by 10% as an incentive to get them to switch employers.  Instead, federal contractors would have to determine how much to offer in salary or wages without knowing or considering the applicant’s current or past salary or wage rate.

Second, it would require federal contractors to disclose the compensation to be offered to applicants for a position in all job announcements. When disclosing the proposed salary or wage rate for a position covered by the proposed rule, any job posting by a federal contractor or subcontractor would have to:

• indicate the salary or wages, or range thereof, the federal contractor in good faith believes it will pay for the advertised position;
• include a general description of the benefits and other forms of compensation applicable to the job opportunity; and
• where at least half of the expected compensation for the advertised position is derived from commissions, bonuses, and/or overtime pay, specify the percentage of overall compensation or dollar amount, or ranges thereof, for each form of compensation, as applicable, that in good faith it believes will be paid for the advertised position.

The proposed rule would effectively apply to all procurement contracts where the principal place of performance is within the United States, including acquisitions at or below the simplified acquisition threshold, and to acquisitions for commercial products and services, including commercial off-the-shelf items. Federal contractors will also be required to flow down these requirements to their subcontractors.

The proposed rule is expansive with regard to the various job positions it will cover. The proposed rule would apply to any position that involves work “called for by the contract or work activities necessary to the performance of the contract but not specifically called for by the contract.” As such, it would apply to employees of a federal contractor who are:

• working directly on a federal contract, or
• providing administrative or other support to work on a federal contract, such as accounting, human resources, or IT support.

It also applies to both external and internal hires, because current employees of the federal contractor are covered.

The proposed rule includes a process for applicants to submit complaints to the agency regarding violations of the proposed rule, and the contracting agency shall “take action as appropriate.” The proposed rule does not define what “take action as appropriate” means. Any complaints must be submitted within 180 days of the date of the alleged violation.

Federal contractors would also be required to give applicants the following notice of rights:

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 who allege violations of these requirements by a Federal contractor or subcontractor 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 www.dol.gov/​general/​labor-advisors. The complaint must be submitted within 180 days of the date the alleged violation occurred.

The agency that issued the solicitation or awarded the contract or order on which this applicant would primarily work is ______.  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: https://www.dol.gov/​agencies/​ofccp/​contact/​file-complaint.”

The federal government believes that “[c]losing pay gaps is important to the economy, efficiency, and effectiveness of contract performance because it has been shown to increase the satisfaction, commitment, and motivation of employee “and that compensation history bans effectively reduce pay gaps”:

If workers know that Federal contractors base hiring and compensation decisions on workers’ past pay, and in turn, that past pay reflects arbitrary factors, workers may be less likely to seek new positions with Federal contractors because they know that their past pay may hamper their ability to secure a job offer or to receive higher pay. This likely is especially true for workers disadvantaged by current hiring and pay-setting practices. In turn, this effect may limit applicant pools for Federal contractors, thereby reducing the availability of workers with relevant skills and experiences and reducing Federal contractor productivity.

The federal government also claims that “[b]y limiting Federal contractors’ ability to make hiring and compensation-setting decisions based on workers’ past pay, a compensation history ban will more closely align employment decisions with quality factors relevant for the job, thereby improving the quality of the contracting workforce,” and that:

If workers are aware that Federal contractors are making pay setting decisions based on their skills and experiences, rather than their past pay, they likely will be motivated to invest in enhancing their skill sets and gaining relevant experiences. This investment, in turn, will better equip them for employment opportunities within Federal contractor jobs, increasing the quality of Federal contract work and reducing the potential for cost overruns and schedule delays in Federal contracts.

Comments on the proposed rule are due by April 1, 2024, and can be submitted to the Federal eRulemaking portal at https://www.regulations.gov by searching for “FAR Case 2023–021.”

This article summarizes aspects of the law and does not constitute legal advice. For legal advice for your situation, you should contact an attorney.