FAR council issues proposed rule prohibiting government contractors from inquiring about pay history and requiring salary disclosure

On January 30, 2024, the FAR Council published a proposed rule intended to (1) prohibit contractors and subcontractors from seeking or considering the compensation history of job applicants and (2) require contractors and subcontractors to disclose in job advertisements the compensation to be offered to applicants.

The proposed rule has far-reaching applicability. As drafted, the requirement will be included in all contracts which exceed the $10,000 micro-purchase threshold and must be flowed down to all subcontracts to be performed in the US. Moreover, the requirements extend to “any position to perform work on or in connection” with a government contract, including for commercial products and services.

The government explains that this language is intentionally broad. In fact, the rule expressly encourages contractors to extend the requirements to positions that do not squarely fall within the rule “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.”

With respect to the compensation history prohibition, the proposed rule prohibits federal contractors and subcontractors from:

1. “Seek[ing] 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”
2. “Requir[ing] disclosure of compensation history as a condition of an applicant's candidacy”
3. “Retaliat[ing] against or refuse to interview or otherwise consider, hire, or employ any applicant for failing to respond to an inquiry regarding their compensation history”
4. “Rely[ing] on an applicant's compensation history (i) as a criterion in screening or considering the applicant for employment or (ii) in determining the compensation for such individual at any stage in the selection process”, and
5. Violating the above prohibitions “even if an applicant for employment volunteers their compensation history without prompting at any stage in the recruitment and hiring process.”

With respect to pay transparency, the rule would require contractors and subcontractors to disclose, “in all advertisements for job openings placed by or on behalf of the Contractor for any position to perform work on or in connection with the contract,… the compensation to be offered to the hired applicant.”

The disclosure “must indicate the salary or wages, or range thereof, the Contractor in good faith believes that it will pay for the advertised position, and may reflect, as applicable: the Contractor's pay scale for that position, the range of compensation for those currently working in similar jobs, or the amount budgeted for the position.”

The disclosure must also “include a general description of the benefits and other forms of compensation applicable to the job opportunity.”

In addition, as part of the job announcement or through application process, contractors must ensure that applicants are made aware of these prohibitions and requirements by providing a written statement (the language of which is provided in the rule) notifying applicants the rule’s requirements, as well as the method by which an applicant may submit a complaint alleging contractor violations to the applicable federal contracting agency. Complaints must be submitted within 180 days of the date the violation occurred, and, once received, contracting agencies will “view the complaint, consult with the complainant as necessary to confirm the complainant is a covered applicant, and take action as appropriate.”

As described in a statement from President Joe Biden, the proposed rule is meant to “adopt commonsense policies that will help pay millions of workers fairly, close gender and racial wage gaps, and yield tangible benefits for the federal government and federal contractors.” The proposed rule also follows an increasing number of states enacting laws which address the two primary areas in the proposed rule – prohibiting employers from requesting historical compensation information and requiring pay transparency.

Implications of the proposed rule

First, in connection with a discernable trend aimed at eliminating pay discrimination, nearly half of all US states have enacted laws that prohibit companies from requesting salary history altogether, prohibit salary history inquiries before providing an offer, or prohibit the use of salary history. Salary history information can include prior wages, benefits, and/or compensation information. As explained in the proposed rule, “[a]s of August 2023, 22 states have enacted compensation history bans and 10 states have enacted a pay transparency law with their ban.”

Second, states are similarly trending toward requiring pay transparency when promoting open positions. As of January 1, 2024, Hawaii joined California, Colorado, Connecticut, Illinois, Nevada, New York, Washington, Maryland, and Rhode Island as states that have enacted pay transparency laws (in addition to local laws in some jurisdictions). Most recently, the District of Columbia adopted new pay transparency requirements, and more than a half dozen other states and localities are considering enacting such laws. In general, multistate employers are evaluating their approach to salary transparency based on footprint (eg, consistent approach that satisfies the highest standard versus jurisdiction-specific compliance).

Comments on the proposed rule are due by April 1, 2024.

Should you have questions about compliance with the salary ban or pay transparency requirements of the proposed rule, please contact the authors or your DLA Piper relationship attorney.