On January 29, 2024, the Biden administration announced a series of pay equity and transparency initiatives. One initiative comes in the form of a proposed rule to amend the Federal Acquisition Regulation (FAR) to (1) prohibit contractors and subcontractors from seeking and considering information about job applicants’ compensation history when making employment decisions for certain positions and (2) require contractors and subcontractors to disclose the compensation to be offered to the hired applicant in job announcements for certain positions. The FAR proposal, however, poses the potential for confusion and compliance issues because it appears to conflict with existing requirements for federal contractors to propose realistic labor rates and pay employees certain minimum wages.
While the exact scope of the Federal Acquisition Regulatory Council’s proposal has yet to be determined, federal contractors and subcontractors should be mindful of the proposed changes and consider how to address any conflicts that may arise.
Comments on the proposed FAR rule are due on or before April 1, 2024.
The New Rule
The proposed FAR rule has three main parts.
First, it would prohibit employers performing federal contracts or subcontracts principally within the United States from seeking compensation information from job applicants or, more specifically:
- “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”
- “Requir[ing] disclosure of compensation history as a condition of an applicant’s candidacy” or
- “Retaliat[ing] against or refus[ing] to interview or otherwise consider, hire, or employ any applicant for failing to respond to an inquiry regarding their compensation history”
Second, the rule would prohibit such a contractor or subcontractor from “[r]ely[ing] on an applicant’s compensation history (i) [a]s a criterion in screening or considering the applicant for employment or (ii) [i]n determining the compensation for such individual at any stage in the selection process.”
Third, the rule would require such contractors and subcontractors to “disclose the compensation to be offered to the hired applicant” 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” a covered agreement. This means “the salary or wages, or range thereof, the Contractor in good faith believes that it will pay for the advertised position” as well as “a general description of the benefits and other forms of compensation applicable to the job opportunity[.]” It may reflect “the contractor’s or subcontractor’s pay scale for that position, the range of compensation for those currently working in similar jobs, or the amount budgeted for the position.”
In short, covered contractors and subcontractors would no longer be permitted to inquire about or use an applicant’s pay history when making hiring or salary decisions. This prohibition extends to both direct and indirect inquiries, be that via requiring disclosure of an applicant’s compensation history or retaliating against an applicant who does not respond to inquiries about their past pay. It appears that even where applicants volunteer their compensation history on their own, contractors may not rely on such history in making pay decisions. Federal contractors and subcontractors also must disclose salary, wages, or ranges thereof when making job postings or in solicitations.
The Council’s proposal also provides an enforcement mechanism for the new policy, allowing applicants to submit complaints if a contractor or subcontractor is noncompliant, which will be directed to the agency that issued the solicitation or awarded the contract or order. The proposal further permits the agency to consult with the complainant and “take action as appropriate.” The proposal requires contractors to provide applicants notice of their rights in this regard, mandating that a specific provision be listed in the notice and the soliciting or awarding agency be named, so the applicant knows where to direct complaints. The proposed clause will also have a flow-down requirement for all subcontracts at any tier to be performed in the United States or its territories.
The Apparent Conflicts
What may complicate matters for contractors and subcontractors is the apparent breadth of the proposed rule’s prohibition against seeking or considering prospective employees’ compensation history, as existing federal contracting rules require contractors and subcontractors to do just that.
An example is FAR 52.222-46, Evaluation of Compensation for Professional Employees, a clause that is intended to ensure price realism in proposals. When this clause applies, proposals that envision “compensation levels lower than those of predecessor contractors for the same work” will be evaluated to determine if the proposal is suggesting unrealistically low pricing that will disrupt contract performance (emphasis added). Where requirements are performed under an existing contract and then recompeted, this provision requires agencies to compare the incumbent contract’s professional compensation and the proposal’s professional compensation to ensure the latter is realistic in light of the former. Indeed, bid protests have been sustained where agencies failed to perform this evaluation. See Guidehouse LLP, Jacobs Tech., Inc., B-420860.1 et al., Oct. 13, 2022, 2022 CPD ¶ 257.
It is currently unclear how contractors should approach compliance with FAR 52.222-46 if the proposed pay equity rule goes into effect as written. The plain text of the proposed rule prohibits “[r]ely[ing] on an applicant’s compensation history … [i]n determining the compensation for such individual at any stage in the selection process.” Taken literally, this seems to prohibit an incumbent contractor seeking award of a recompeted contract from checking to make sure that its proposed labor rates for the recompete are equal to or greater than the rates paid to employees under the incumbent contract. Yet, FAR 52.222-46 contemplates the contractor performing just such an analysis.
Similarly, for non-professionals, the Service Contract Labor Standards implemented at FAR Subpart 22.10 require contractors hiring a unionized workforce to pay them at the rates included in the predecessor contractor’s collective bargaining agreement (CBA) for the same work. See also 29 C.F.R. § 4.163 (Department of Labor’s implementation of this aspect of the Service Contract Act of 1965). Specifically, FAR Part 22.1002-3 requires contractors to pay wages and fringe benefits “at least equal to those contained in any bona fide collective bargaining agreement entered into under the predecessor contract.”
It is likewise unclear how contractors should address compliance with this obligation and the proposed FAR rule as drafted. For instance, suppose an offeror intends to hire the incumbent contractor’s staff and believes that the relevant workforce is subject to a CBA that did not appear in the solicitation, and so requests that the contracting officer provide the CBA. Would that constitute “[s]eek[ing] an applicant’s compensation history, either orally or in writing, directly from any person,” which is prohibited under the proposed rule? Alternatively, if the contracting officer has already provided offerors with the CBA so that they can accurately price their labor costs, would using the CBA as the basis for making offers of employment to the incumbent contractors’ employees constitute impermissibly “[r]ely[ing] on an applicant’s compensation history … [i]n determining the compensation for such individual at any stage in the selection process”? It cannot be that successor contractors are both prohibited from using a prospective employee’s prior compensation to make a hiring or salary decision, yet are also required to ensure they pay a prospective employee at least the salary paid under the predecessor contractor’s CBA.
The portion of the proposed new FAR rule requiring disclosure of salary ranges does permit the contractor to base compensation on its “pay scale for that position, the range of compensation for those currently working in similar jobs, or the amount budgeted for the position.” Perhaps a contractor could interpret this language to mean that—notwithstanding the plain text of the prohibitions discussed above—comparison to incumbent labor rates is appropriate when setting the salary range generally, even if it is not permissible later when actually selecting the employee. But as written, the rule is not clear in this regard, and government officials might object that using a prospective employee’s prior compensation to set the “budget” that then dictates the salary negotiated during their “selection” creates an exception that swallows the rule.
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While it is unclear how the FAR Council will reconcile the proposed rule with existing realism and minimum wage rules, it is apparent that the proposed rule would introduce significant changes to federal contractor and subcontractor hiring, employment, and salary-setting practices. The rule is yet to be fully finalized, and contractors are encouraged to read its full text and follow the notice-and-comment process as it unfolds. The opportunity to comment on the FAR proposal runs until April 1, 2024. Venable will continue to report on implementation of the proposal and further guidance, if and when they become available.