On January 30, 2024, the Federal Acquisition Regulatory Council (“FAR Council”) proposed a new “Pay Equity and Transparency in Federal Contracting” rule for government contractors.  The proposed rule intends to increase race and gender equity for employees of federal prime contractors and subcontractors by prohibiting them from requesting and relying on certain information about job applicants’ compensation history and requiring contractors to disclose compensation rates in job announcements for certain positions.  These requirements would apply to all prime contracts and subcontracts – including for commercial products and services – where the principal place of performance is within the United States, regardless of dollar amount or tier.  The proposed rule is the latest in a number of steps the Biden Administration has taken to address discriminatory pay practices in federal procurement and contracting since announcing an Executive Order on Advancing Economy, Efficiency, and Effectiveness in Federal Contracting by Promoting Pay Equity and Transparency in March 2022. 

The proposed rule’s potential impact and implications for contractors — as well as opportunities to submit comments on the issue — are discussed below.

Purpose, Notice Requirements, and Applicability of the Proposed Rule

The proposed rule contains two parts: (1) a ban on requesting and using applicant and employee compensation history; and (2) compensation disclosure and pay transparency requirements.  According to the proposed rule, compensation history bans and pay transparency have historically been shown to “promote pay equity by closing pay gaps, which leads to increased worker satisfaction, better job performance, and overall increased worker productivity.”  The proposed rule seeks to achieve these goals through a new Federal Acquisition Regulation (“FAR”) clause that would incorporate these two requirements into all federal government contracts.

Compensation History Ban

The proposed FAR clause would prohibit prime contractors and subcontractors from seeking an applicant’s compensation history when making employment decisions about personnel working on or in connection with a government contract.  The requirement would prohibit contractors from seeking this information either directly or indirectly from applicants, requiring disclosure of compensation history as a condition of an applicant’s candidacy, or retaliating against an applicant for failing to respond to an inquiry regarding their compensation history.  The clause also would restrict contractors from relying on an applicant’s compensation history even if the applicant volunteered the information themselves during the hiring process. 

Compensation Disclosure Requirements & Pay Transparency

The proposed rule would require prime contractors and subcontractors to disclose the compensation and benefits offered for any position performing work on or “in connection with” a federal contract.  The proposed rule defines “in connection with the contract” to mean any work “called for by the contract or work activities necessary to the performance of the contract but not specifically called for by the contract.”

Solicitations or advertisements for job openings posted by or on behalf of a contractor would be required to include the salary, wages, or range of pay, and a general description of the benefits that the contractor expects to provide for the advertised position.  The salary and wage rates also would need to include the contractor’s pay scale for the position, as well as the range of compensation for those currently employed in similar roles or the amount budgeted for the position. 

Which Contracts Are Covered Under the Proposed Rule?

These requirements would be applicable for all solicitations and contracts — regardless of dollar amount.  This means that the requirements would apply to acquisitions at or below the Simplified Acquisition Threshold (“SAT”) and to acquisitions for commercial products and services, including Commercially Available Off-the-Shelf (“COTS”) items. 

Notice Requirements

Covered contractors would be required to provide prospective job applicants with notice of their rights to not provide compensation history and to receive compensation disclosure information in job announcements or during the hiring and application process.  The proposed FAR clause provides specific language employers must include in job postings, along with a “fill-in” portion where a contractor may inform the applicant of the agency that issued the solicitation or has awarded the contract so that applicants may report instances of non-compliance.   

Enforcement

Under the proposed rule, if a contractor is non-compliant, complaints may be filed with a Department of Labor-identified point of contact at the agency that issued the solicitation or awarded the contract within 180 days from the date the violation occurred.  The contracting agency would be required to review the complaint, consult with the complainant as necessary, and take action as appropriate. 

Uncertainty Regarding Scope

The potentially broad application of the proposed rule may be a point of concern and confusion for contractors.  As drafted, the proposed rule will apply to all federal contracts, flowing down the supply chain and impacting both prospective employees of contractors and those working “in connection” with a federal contract.  Absent further guidance from the FAR Council as to the meaning of working “in connection” with a federal contract, the true scope of the proposed rule’s applicability remains an open question. 

In the proposed rule’s notice, the FAR Council argues that limiting applicability too narrowly could result in confusion and disparate approaches to equitable pay practices among government contractors.  The FAR Council has requested public comment, however, regarding: which entities would be considered covered prime contractors and subcontractors (including small businesses); the scope of contracts included under the proposed rule; and the parameters of the proposed compensation history ban and disclosure requirements.  These requests suggest the FAR Council may be open to limiting the scope of the rule.  Interested parties are invited to submit comments on the proposed rule, and have until April 1, 2024, to do so. 

Conclusion

As drafted, the proposed rule has the potential to impact a wide range of government contracts, though the precise scope remains unclear.  Covington’s Government Contracts and Employment teams will continue to monitor the proposed rule, including any revisions or clarifications that the FAR Council provides, and we remain available to clients who may have questions or are interested in submitting a public comment for the FAR Council’s consideration. 

Tags: Compliance, Employment, FAR, Proposed Rule, Supply Chain, Supply Chain Management
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Photo of Scott A. Freling Scott A. Freling

Scott is sought after for his regulatory expertise and his ability to apply that knowledge to the transactional environment. Scott has deep experience leading classified and unclassified due diligence reviews of government contractors, negotiating transaction documents, and assisting with integration and other post-closing…

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Tom Plotkin advises companies on a broad range of ESG issues with a focus on social responsibility, including business and human rights, equity and civil rights, and external engagement and brand reputation.

As a member of Covington’s Business and Human Rights practice, Tom…

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