Bloomberg Law
Nov. 14, 2022, 2:00 AM

ANALYSIS: New Laws, Culture Shifts Push Pay Transparency Forward

Dori Goldstein
Dori Goldstein
Legal Analyst

California is the latest state to enact a new type of pay equity law that requires employers to include pay ranges in job descriptions. This follows a larger trend of states and individuals using pay transparency to shrink the ever-present pay gap.

Look for that trend to continue, as state laws and the changing culture around money push conversations about pay into the spotlight in 2023.

Transparency Laws Evolve

California’s recent pay transparency law has been grabbing headlines, but laws aimed at giving employees more power in how they talk about and negotiate their pay are nothing new. Since the passage of the National Labor Relations Act in 1937, both unionized and non-unionized employees have successfully argued that Section 7 protects workers’ right to discuss their wages, and a slew of states have their own laws protecting workers from discrimination or retaliation if they disclose their pay.

Roughly 20 states have gone further to adjust the power imbalance in wage negotiations by banning or restricting the use of salary history during the hiring process.

Pay transparency laws like those in California and Colorado, which require pay ranges in job postings, and laws like those in Connecticut and Nevada, which require the pay range for a position to be disclosed during the hiring process or upon request, force employers to speak first.

What makes these pay transparency laws such game-changers for employers is that the laws will fundamentally alter the way many employers set salary rates. Currently, some employers set a range for a position and stick to it, while others set a range for each candidate. This candidate-focused approach has a lot of benefits for employers—it can give them more flexibility in what candidates they consider, and it can allow them to meet the market of available candidates where it is (something that’s particularly useful right now). But it can also lead to wide variations in pay for a particular job classification, and can result in workers being paid very differently for the same work. Pay transparency laws will force employers to shift to a position-focused approach.

Employers who are already feeling uncomfortable with this type of transparency should brace themselves for more. Not only are more states working on pay transparency laws, but the Securities and Exchange Commission is poised to require specific reporting related to human capital management, potentially including disclosures related to pay.

The Culture Shift

As fast as states are acting to move the needle on pay, the culture around pay is moving even faster. The pandemic, its recovery, and the resulting “worker shortage” have created a new generation of workers who know what they want from a job and aren’t afraid to ask for it.

This mindset is most visible when it comes to talking about pay. Younger workers are dramatically more comfortable sharing their income than their older counterparts. And they don’t just share it with their coworkers—they share it with strangers on the street. They post about it on social media. They share strategies for negotiating pay and for asking for a raise. They offer tips on breaking into different industries.

If employers are feeling safe because pay transparency laws haven’t (yet) come to their state, they shouldn’t: Whether or not it’s in a job posting, employees are discussing, comparing, and assessing their pay.

Turmoil, Lawsuits, and Equity?

Most employers have already felt the effects of the pay transparency movement. It probably helped fuel the great resignation, and the movement will continue to fuel resignations as long-term workers start to discover their recently hired coworkers are being paid more because they were hired in a more competitive job market.

Increased pay transparency will reveal instances of unlawful pay discrimination and will open employers up to more lawsuits. Gender and race pay gaps exist, and bringing them into the light will almost certainly lead to litigation.

But will it close the pay gap? That’s a tougher question. The pay gap is stubborn, but innovative transparency laws and a real culture change are a powerful duo.

Responding to Change

Most employment law issues can be prevented with a clear policy that’s consistently enforced. Addressing pay transparency will require more than just a policy from employers, however.

Instead, employers will need to audit worker pay—both to uncover unlawful discrimination and to reveal unfairness. They will need to take steps to ensure that pay practices are fair, consistent, and nondiscriminatory—even if that means a lot of raises. It’s better for everyone if employers can uncover these issues and address them proactively than it is to battle through lawsuits and resignations.

But with labor costs soaring, giving “a lot of raises” won’t be an option for every employer, especially ahead of what many are predicting will be an economic downturn. There’s no easy answer for employers in that position. Pay audits that reveal discrimination can be used against employers in pay discrimination lawsuits if they fail to remedy the discrimination, but waiting for pay transparency laws to reveal inequities isn’t a great plan either. Conducting pay audits in segments, and realigning job duties to better match pay are two options that could help ease the burden on employers.

However employers choose to proceed, they should prepare to answer questions about pay. Despite the changing culture around transparency, asking for a raise can be scary and emotional for employees. Employers that are sensitive to that will fare best at building and retaining their workforce.

Access additional analyses from our Bloomberg Law 2023 series here, covering trends in Litigation, Transactional, ESG & Employment, Technology, and the Future of the Legal Industry.

Bloomberg Law subscribers can find related content on our In Focus: Pay Equity page.

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