In recognition of the 15th anniversary of the Lilly Ledbetter Fair Pay Act, on January 29, 2024, the Biden administration announced a proposal that would prohibit federal contractors from using a job applicant's prior salary history when hiring and require federal contractors to post the expected salary range in its job postings. 

Background and Executive Order on Advancing Economy, Efficiency, and Effectiveness in Federal Contracting by Promoting Pay Equity and Transparency

On March 15, 2022, President Biden issued Executive Order 14069 (the E.O.), "Advancing Economy, Efficiency, and Effectiveness in Federal Contracting by Promoting Pay Equity and Transparency." The E.O. did a number of things aimed at eliminating discriminatory pay practices that inhibit the economy, efficiency, and effectiveness of the federal workforce and the procurement of property and services by the federal government.  

President Biden's E.O. also directed the Federal Acquisition Regulatory (FAR) Council, in consultation with the Secretary of Labor and the heads of other executive departments and agencies, to consider issuing proposed rules to promote economy, efficiency, and effectiveness in federal procurement by enhancing pay equity and transparency for job applicants and employees of federal contractors and subcontractors. In particular, the E.O. directed the FAR Council to "specifically consider whether any such rules should limit or prohibit Federal contractors and subcontractors from seeking and considering information about job applicants' and employees' existing or past compensation when making employment decisions." 

On January 30, 2024, the FAR Council published a proposed rule, Pay Equity and Transparency in Federal Contracting, to implement the directives of the E.O. The period for public comment ends April 1, 2024. 

FAR Council's Proposed Rule on Pay Equity and Transparency in Federal Contracting

The proposed rule establishes a government-wide procurement policy that would: 

1. Prohibit contractors and subcontractors from seeking and considering information about job applicants' compensation history when making employment decisions about personnel working on or in connection with a government contract
2. Require contractors and subcontractors to disclose, in all advertisements for job openings involving work on or in connection with a government contract placed by or on behalf of the contractor or subcontractor, the compensation to be offered to the hired applicant, for any position to perform work on or in connection with the contract

The policy would be implemented through the creation of a new FAR subpart 22.XX entitled "Prohibition on Compensation History Inquiries and Requirement For Compensation Disclosures By Contractors" and a new FAR clause at FAR 52.222-ZZ entitled "Prohibition on Compensation History Inquiries and Requirement for Compensation Disclosures by Contractors During Recruitment and Hiring." According to the FAR Council, the rule would promote economy, efficiency, and effectiveness in federal procurement because such initiatives have "been shown to promote pay equity by closing pay gaps, which leads to increased worker satisfaction, better job performance, and overall increased worker productivity-all factors associated with promoting economy, efficiency, and effectiveness of the Federal contractor workforce."

Implementation: Compensation History Ban

For recruitment and hiring of any position to perform work on or in connection with the contract, contractors would be prohibited from:

• Seeking an applicant's compensation history either directly or indirectly
• Requiring the disclosure of compensation history as a condition of an applicant's candidacy
• Retaliating against or refusing to interview or consider, hire, or employ any applicant for failing to respond to an inquiry regarding their compensation history
• Relying on an applicant's compensation history as a criterion for employment or determining compensation, even if the applicant voluntarily disclosed the information. 

Implementation: Compensation Disclosure Requirement

In all solicitations and advertisements for a job opening, contractors would be required to disclose the offered compensation. The disclosure would be required to indicate:

• The salary or wages, or ranges thereof, the contractor in good faith believes it will pay for the advertised position.
• A general description of the benefits and other forms of compensation applicable to the opening. Where at least half of the expected compensation is derived from commissions, bonuses, and/or overtime pay, the percentage of overall compensation or dollar amount, or ranges thereof, for each form of compensation must be specified.

Applicability of the Proposed Clause

The rule proposes to include the new FAR clause 52.222-ZZ in all solicitations and contracts where the principal place of performance will be in the U.S., including acquisitions at or below the simplified acquisition threshold of $250,000, and to acquisitions for commercial products and commercial services, including commercial off-the-shelf (COTS) items. The clause includes language to ensure it will flow down to all subcontracts at any tier if performed within the U.S. 

Although a narrower scope was and will be considered pursuant to comment feedback, the FAR Council explained that limiting the application of the proposed rule could create unintended confusion and ambiguity and would deprive the entire federal marketplace of the benefits the ban and disclosure requirements would provide. Moreover, the FAR Council noted that similar requirements are already present in the commercial marketplace and at the state level with 22 states having adopted a compensation history ban and eight states stated having enacted salary transparency laws. 

Notably, the ban and disclosure requirements would apply to any position to perform "work on or in connection with the contract," defined broadly as "work called for by the contract or work activities necessary to the performance of the contract but not specifically called for by the contract." And the clause would encourage contracts to apply the prohibitions and requirements to other positions, including "to the recruitment and hiring for any position that the Contractor reasonably believes could eventually perform work on or in connection with the contract."

Notice and Complaint Process in the Proposed FAR Clause

The clause would also impose a notice requirement on contractors, mandating that any applicant be advised of the ban and disclosure requirements as part of the job announcement or application process.

Under the new clause, applicants also have the ability to submit a complaint to allege violations of the ban or disclosure requirements to a central collection point of the agency that issued the solicitation or awarded the contract. Complaints must be submitted within 180 days of the date the alleged violation occurred. The relevant contracting agency will review the complaint, consult with the complainant as necessary to confirm the complainant is a covered applicant, and take action as appropriate.

Conclusion

As currently proposed, the rule would have a broad implementation, applying to all federal contracts and subcontracts where the principal place of business is in the U.S. The expansive impact of the rule is reinforced by the clause's applicability to positions to perform "work on or in connection with the contract" which itself is a broadly — and (arguably) ambiguously — defined term (i.e., what constitutes "work activities necessary to the performance of the contract but not specifically called for by the contract"?). It remains to be seen whether the FAR Council will limit the scope of the rule or further clarify what job positions, in relation to a contract, are covered. 

The proposed rule is also silent on the consequences associated with failure to abide by the new obligations. While the rule lays out the complaint process for applicants, it merely states that the contracting agency will "take action as appropriate" but does not otherwise elaborate on potential impacts to the relevant government contract. 

While we wait for a final rule, contractors should work with their Human Resources and Recruitment personnel to prepare for updates to their hiring policies and procedures to ensure compliance with the aforementioned prohibition on compensation history inquiries and compensation disclosure requirements. 

If you have any questions about the proposed rule or how best to prepare, please contact one of the Miller & Chevalier attorneys listed below. 

Scott N. Flesch, sflesch@milchev.com, 202-626-1584

Jason N. Workmaster, jworkmaster@milchev.com, 202-626-5893

Connor W. Farrell, cfarrell@milchev.com, 202-626-5925

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