On January 29, the Biden administration announced several policy initiatives aimed at addressing pay transparency and equity, including a proposed rule issued by the Department of Defense (DOD), General Services Administration (GSA), National Aeronautics and Space Administration (NASA), and Office of Federal Procurement Policy (OFPP).

The proposed rule would prohibit contractors from seeking and/or considering the compensation history of job applicants when making personnel and employment decisions in connection with a government contract and require contractors to disclose compensation details in job advertisements. The proposed rule continues a trend where the Biden administration leverages its authority under the Federal Property and Administrative Services Act (FPASA) to influence procurement policy, in this case, to promote gender pay equity.

Prohibits Considering Compensation History

First, the proposed rule prohibits contractors from seeking and considering the compensation of job applicants when making employment decisions when recruiting and “hiring for any position to perform work on or in connection with the contract.”  In addition, contractors must notify applicants of this requirement in any job posting or as part of the application process. The proposed rule states that “[c]ompensation history bans have been found to reduce pay gaps that have been shown to disadvantage certain populations, including women, workers of color, and workers entering the labor market during recessions.”

Mandatory Pay Transparency

Second, the proposed rule requires contractors 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 of subcontractor, the compensation to be offered to the hired applicant, for any position to perform work on or in connection with the contract.” This disclosure must include the salary or wages, the applicable pay scale for the position, a range of compensation for others working similar jobs, or the amount the company has budgeted for the position.

In addition, the proposed rule suggests the term “compensation” to be fairly all-encompassing, including “any payments made to, or on behalf of, an employee or offered to an applicant as remuneration for employment, including but not limited to salary, wages, overtime pay, shift differentials, bonuses, commissions, vacation and holiday pay, allowances, insurance and other benefits, stock options and awards, profit sharing, and retirement.”

Complaint Process

The proposed rule not only imposes additional requirements and prohibitions on federal contractors but also creates a process for job applicants to file complaints when contractors do not comply with the rule. These applicants may “submit a complaint to the central collection point of the agency that issued the solicitation or awarded the contract or order.” The applicant has 180 days from the date the alleged violation occurred to submit a complaint.

Potential Problems

The proposed rule’s prohibition on seeking an employee’s compensation history stands at odds with other federal obligations, which require quite the opposite. Federal Acquisition Regulation (FAR) 52.222-46, entitled Evaluation of Compensation for Professional Employees, requires proposed compensation levels to “reflect a clear understanding of work to be performed and should indicate the capability of the proposed compensation structure to obtain and keep suitably qualified personnel to meet mission objectives.” Under FAR 52.222-46, agencies must compare the compensation of incumbent employees to the proposed compensation provided in the other offeror’s proposals to ensure price realism.

However, compliance with the proposed rule would likely make contractors noncompliant with FAR 52.222-46, as contractors would need to look at past compensation levels to ensure their proposed labor rates were equal to or greater than those rates paid to contractors performing on the incumbent contract. Similarly, Service Contract Act Standards require contractors to pay unionized labor at the same rates as they were paid under the predecessor contract.  This would be hard to do if contractors were prohibited from inquiring into what previous compensation levels looked like. There are a number of other similar laws making the proposed eventual application unclear.

Consternation over Procurement Act Authority

The authority granted to the president under the FPASA is a frequent topic of litigation. The FPASA authorizes the president to prescribe policies necessary to “provide the federal government with an economical and efficient system . . . [p]rocuring property and nonpersonal services, and performing related functions including contracting.”

The scope of presidential authority has been consistently revisited by the courts. Most recently, in Mayes v. Biden, the Ninth Circuit split with the Eleventh, Fifth, and Sixth Circuits, finding that the contractor vaccine mandate falls squarely within the president’s authority under the FPASA.

The proposed rule provides several reasons for why the Biden administration believes the new requirements would promote the “economy, efficiency, and effectiveness” in federal contracting; however, it may not be enough to convince the courts. The proposed rule argues that a compensation history ban and salary transparency would reduce employee turnover rate, boost productivity, and lower recruiting costs. While these arguments are buttressed by studies and other citations, the scope of presidential authority under the FPASA is currently unsettled. Litigation is likely making its application unclear.

Going Forward

The proposed rule follows long-standing efforts from the Biden administration to leverage the federal contracting community to advance its social priorities. This proposed rule places additional requirements and prohibitions on contractors related to requesting compensation history and pay transparency, but how it will be ultimately applied is unclear, given conflicts with existing laws and uncertainty over the scope of presidential authority under the FPASA. Contractors may submit written comments on the rule until April 1, 2024, and these issues and concerns will most likely be raised. The Bass, Berry & Sims GovCon team will continue to follow this rulemaking and update our readers with any new developments.

If you have any questions about the proposed rule, please contact the author.