On Jan. 30, 2024, the FAR Council issued a proposed rule promising to require contractors and subcontractors to (1) disclose, in job announcements, compensation that they are willing to offer a successful applicant and (2) prohibit them from either seeking or considering information about the compensation history of applicants when making employment decisions.

The proposed rule contemplates a new clause, at FAR 52.222-ZZ titled “Prohibition on Compensation History Inquiries and Requirement for Compensation Disclosures by Contractors During Recruitment and Hiring,” that will apply to all solicitations and contracts, including those related to any acquisitions at or below the Simplified Acquisition threshold and for commercial products and commercial services, such as Commercially Available Off-the-Shelf (COTS) items. The clause will, however, apply only to solicitations and contracts where the principal place of performance is in the United States and its outlying areas (e.g., territories).

Once incorporated, the requirements of that clause would apply to both contractors and, based on the scope of its flow-downs provision, subcontractors at any tier and mandate the following:

Pay Transparency Requirements

• Call for Extensive Salary Disclosures in Ads: Any advertisements for job openings involving work on or in connection with a government contract must disclose the compensation to be offered to the hired applicant for any position to perform work on or in connection with the contract. The disclosure must indicate the salary or wages, or range thereof, that 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.

• Benefits, Commissions, Bonuses, and/or Overtime Pay Must Also Be Disclosed: The disclosure must also include a general description of the benefits and other forms of compensation applicable to the job opportunity. Where at least half of the expected compensation for the advertised position is derived from commissions, bonuses, and/or overtime pay, the contractor must specify the percentage of overall compensation or dollar amount, or ranges thereof, for each form of compensation, as applicable, that it in good faith believes will be paid for the advertised position.

• Apply Regardless of the Source of the Ad: The requirements, as proposed, will apply to any advertisements placed by or on behalf of the contractor or subcontractor.

Compensation History Ban

• Broad Prohibition on Any Inquiries About Prior Compensation: The proposed requirements would prohibit contractors and subcontractors from seeking an applicant’s compensation history, either orally or in writing, from any person, including the applicant and others (e.g., current or former employer or agent). The proposed policy would also ban covered entities from requiring the disclosure of compensation history as a condition of an applicant’s candidacy or retaliating against or refusing to interview or otherwise consider, hire, or employ any applicant for failing to respond to an inquiry regarding their compensation history.

• Broad Prohibition on Any Consideration of Prior Compensation: Furthermore, contractors and subcontractors will be prohibited from relying on an applicant’s compensation history as a criterion in screening or considering the applicant for employment or relying on an applicant’s compensation history in determining the compensation for such individual at any stage in the selection process. These prohibitions will apply even if an applicant for employment volunteers their compensation history without prompting at any stage in the selection process.

Notice & Complaint Process

• Notice: Covered entities must provide any applicants that are covered by the prohibitions and disclosure requirements described above with a notice of their rights as either part of the job announcement or application process. Specific language for the notice is provided in the new clause, along with a fill-in that the contractor must use to inform the applicant of the agency that issued the solicitation or awarded the contract so that applicants know which agency should receive any complaints of noncompliance.

• Complaints: The proposed policy provides that an applicant for a position covered by the proposed policy may submit a complaint relating to the contractor’s noncompliance with the new clause to a central collection point of the agency that issued the solicitation or awarded the contract or order. The complaint must be submitted within 180 days of the violation. The text of the new clause provides a link to where the list of agency central collection points is posted.

Takeaways

The proposed rule follows the release of a patchwork of laws mandating similar conduct throughout at least a significant portion of states.¹ The rule, in fact, notes that as of 2023, there are at least 22 states that already have their own bans on considering compensation history and another 10 states that have enacted a pay transparency law with their ban. At least some contractors may, therefore, already be subject to similar requirements in their states of operation.

Those contractors, and others potentially facing future laws covering the same requirements, should remember that their compliance with the rules imposed by the federal government may not satisfy all of the obligations imposed by their jurisdictions, or, alternatively, may require more than their other obligations.

While the FAR Council may still face some push-back to the implementation of this rule, and the future of any policy issued at this stage in the election cycle faces some uncertainty, those supporting the federal government should certainly be prepared for the potential that these proposed requirements may make their way into the regulations in the relatively near future.

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¹ https://www.americanprogress.org/article/quick-facts-about-state-salary-range-transparency-laws/#:%EF%80%A1:text=These%20laws%20create%20an%20environment,are%20penalized%20more%20than%20men; see also https://www.hrdive.com/news/salary-history-ban-states-list/516662/ (both cited by the proposed rule).