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More Changes on the way for Federal Contractors


In addition to having to prepare the annual EEO-1 Report, employers who are federal contractors should also be aware of two new developments that will affect their employment practices in coming years. In general, federal contractors are those employers who have entered into a contract to perform a specific job, supply labor and materials, or otherwise sell products and services to a department or agency of the federal government. This includes subcontractors who do business with companies that hold direct contracts with the federal government. The first new development that will affect federal contractors occurred on September 7, 2015, when President Obama signed an executive order that will require federal contractors to provide workers with the opportunity to earn up to seven days of paid sick leave per year. Under the order, employees of federal contractors will be entitled to earn no less than one hour of paid sick leave for every thirty hours worked. Contractors may place a limit on the amount of accrued sick leave, but the limit must not be less than fifty-six hours (i.e., seven days) of sick leave per year. Employees will be allowed to carry over accrued sick leave from year to year and will have a right to reinstatement of any accrued sick leave if they separate from employment but are rehired by their former employer within twelve months. As set forth in the order, paid sick leave may be used for absences covering: (i) an employee’s illness, injury, or medical condition; (ii) leave to obtain diagnosis, care, or preventive care from a health care provider; (iii) provision of care to a child, spouse, domestic partner, or any other family member; or (iv) domestic violence, sexual assault, or stalking. The new sick leave requirement will go into effect for contracts entered into after January 1, 2017.

The second development came on September 11, 2015, when the OFCCP released its final rule discussing pay transparency requirements for federal contractors. The rule implements Executive Order 13665 which President Obama had previously signed. Under the rule, federal contractors may not discriminate or take adverse action against employees or job applicants who inquire about or discuss their compensation or the compensation of other employees or applicants. For example, discussion of how much an employee makes in base salary or earns in bonus compensation is considered protected activity and covered employers may not discipline or otherwise take adverse action against employees for engaging in such conduct. Although the right of employees to discuss their compensation levels has long been protected under Section 7 of the National Labor Relations Act, the new rule imposes a heightened obligation for federal contractors and allows OFCCP to investigate complaints of discrimination on the basis of pay transparency.

If an employee does assert a claim of pay transparency discrimination, OFCCP has provided two general defenses for federal contractors. First, employees may not disclose information they receive through their performance of an essential job function, if otherwise confidential. For example, while an IT Professional could discuss his or her own compensation information, they could not disclose information about other employees’ compensation that is learned through access to otherwise confidential compensation information as part of routine IT maintenance. Second, an employee’s discussion of compensation information does not protect them from discipline for violations of other employer policies. For example, if a contractor has a rule that employees may only take five minute breaks, it could discipline an employee who took a longer break even if the employee spent the longer break period discussing otherwise protected compensation information so long as such policy is otherwise consistently applied. Further, OFCCP has clarified that nothing in the new rule requires contractors to proactively disclose compensation information about what they pay their employees. Thus, while Bob and Joe can talk to each other about how much they each make, the employer doesn’t have to answer Bob’s question about how much Joe makes.

In addition to the above, the new rule will also require federal contractors to make changes to the equal opportunity clause in their federal contracts and subcontracts, as well as include new postings in their workplaces discussing pay transparency. The final rule on pay transparency will affect covered contracts that are modified or entered into on or after January 11, 2016.

As these new obligations show, employers with federal contracts face a maze of compliance issues that can be tricky to navigate. Employers with questions about the new paid sick leave or pay transparency rules or with other questions related to affirmative action and federal contract compliance should contact a member of Koley Jessen’s Employment, Labor and Benefits Practice Group.

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