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October 12, 2015
Pay transparency: What it is and what it does
By Susan Schoenfeld, JD, BLR Senior Legal Editor

The concept of pay transparency, or allowing employees to discuss their pay and benefits without fear of reprisal, is not a new concept, but it has been a long time coming.

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The issue of nonunion related pay transparency really started to gain attention in 2006 when the U.S. Supreme Court dismissed a case brought by former plant manager at Goodyear Tire, Ms. Lilly Ledbetter. Ledbetter v. Goodyear Tire & Rubber Co., 550 U.S. 618 (2007). In her lawsuit against her former employer, Ms. Ledbetter claimed that she earned significantly less than her male counterparts at the company due to sex discrimination.

Pay transparency and compensationLedbetter’s claim and an earlier decision in her favor was ultimately dismissed by the Supreme Court as being time barred because Ledbetter failed to file her claim under Title VII of the Civil Rights Act within the Act’s 180-day time limit.

Ms. Ledbetter argued that pay discrimination, unlike other forms of discrimination, is harder to detect due to the secrecy surrounding pay and therefore, that she should have been given an expanded time frame for filing her claim.

This argument was rejected outright by the court. However the special nature of pay disparities as often being “hidden from sight” was highlighted by Justice Ginsburg in her dissent. In Ms. Ledbetter’s case, Goodyear kept salaries confidential and employees had only limited access to information regarding their colleagues’ earnings.

Fixing pay secrecy

In 2009, President Obama signed the Lilly Ledbetter Fair Pay Restoration Act (Lilly Ledbetter Act) into law. The purpose of the Ledbetter Act was to “fix” the Supreme Court’s decision in Ledbetter v. Goodyear Tire & Rubber and extend the time limits for filing a claim under Title VII. However, the Lilly Ledbetter Act also introduced the much broader discussion on pay and the necessity for employees to discuss pay in order to achieve pay equity.

Again in 2014, in an effort to address the issue of pay transparency, President Obama signed Executive Order (EO) 13665, Non-Retaliation for Disclosure of Compensation Information, which prohibits federal contractors from discharging or discriminating in any way against employees or applicants who inquire about, discuss, or disclose their own compensation or the compensation of another employee or applicant.

The final rule implementing the EO was published in the Federal Register on September 11, 2015 and is scheduled to take effect on January 11, 2016 for all covered federal contracts entered into or modified on or after the January 11 effective date.

What does the pay transparency rule do?

As its primary purpose, the final rule protects covered federal contractors’ employees’ inquiries, discussions, and disclosures of their own pay and benefits, and similar employee activities related to the pay and benefits of others, if they obtained that information through ordinary means such as conversations with coworkers.

So, for example, if a contractor has a policy that prohibits employees from talking to each other about end-of-the-year bonuses, the policy would be considered a discriminatory action under the Final Rule, as it prohibits employees from discussing their compensation.

Under the final rule, it is not just pay discussions that are protected. The final rule includes a broad definition of compensation, which extends to things like 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.

Do we need pay transparency?

Under the federal National Labor Relations Act (NLRA) and in order to encourage collective action, employers are prohibited from discriminating against employees who discuss or disclose their own.

However, the pay transparency rule actually goes beyond the protections of the NLRA. It extends protections to supervisors, managers (who are not protected by the NLRA) and covers specialized industries such as agricultural workers, and employees of rail and air carriers.

In addition, President Obama and the U.S. Department of Labor’s Office of Federal Contract Compliance Programs (OFCCP) have cited a number of reasons for imposing EO 13665 and the final pay transparency rule on contractors. Among them are:

  • Allowing workers to have a potential way of discovering violations of equal pay laws and seek appropriate remedies.
  • Prohibiting pay secrecy policies contributes to building an economy that works for everyone, and helps make the contractor workforce more efficient.
  • Pay transparency helps level the playing field for women and minorities, and provides employers access to a diverse pool of qualified talent.

Which contractors are affected by the final rule (and when)?

The Final Rule generally applies to any business or organization that is subject to EO 11246, meaning an organization that:

  1. holds a single federal contract, subcontract, or federally assisted construction contract in excess of $10,000;
  2. has federal contracts or subcontracts that have a combined total in excess of $10,000 in any 12-month period; or
  3. holds government bills of lading, serves as a depository of federal funds, or is an issuing and paying agency for U.S. savings bonds and notes in any amount.

The pay transparency rule will apply to covered contracts entered into or modified on or after January 11, 2016, the rule’s effective date. Contracts will be considered to have been “modified” if they contain any alteration in their terms and conditions, including supplemental agreements, amendments, and extensions.

If you are not sure whether the contracts you hold are covered go to the Federal Procurement Data System website to check on the status and amount of your company’s contracts.

This article is the first of three articles on the new pay transparency rule for federal contractors. Look for BLR's upcoming articles:

SusanSusan Schoenfeld, JD, is a Senior Legal Editor for BLR’s human resources and employment law publications. Ms. Schoenfeld has practiced in the area of employment litigation and counseling, covering topics such as disability discrimination, wrongful discharge, sexual harassment, and general employment discrimination. She has litigated numerous cases before the U.S. Court of Appeals, state court, and at the U.S. Department of Labor.

In addition to litigating employment cases in state and federal court, she provided training and counseling to corporate clients regarding employment-related issues. Prior to entering private practice, Ms. Schoenfeld was an attorney with the Civil Rights Division at the U.S. Department of Labor in Washington, D.C., where she advised federal agencies, drafted regulations, conducted inspector training courses, and litigated cases for the Office of Federal Contract Compliance Programs, the Directorate of Civil Rights, and the Mine Safety and Health Administration. Ms. Schoenfeld received her undergraduate degree, cum laude, with honors, from Union College, and her law degree from the National Law Center at George Washington University.

Follow Susan Schoenfeld on Google+

Questions? Comments? Contact Susan at for more information on this topic

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