Five Ways a Tight Labor Market Could Affect Equal Pay Claims

Due to the tight labor market in the US today, employees are, for now at least, wielding extraordinarily more bargaining power when negotiating compensation and benefits than at any other period in recent memory.

At the same time, employees are resigning and changing jobs at unprecedented rates. Public awareness of—and interest in—pay equity issues is also increasing. All of these factors lead to an increased likelihood of pay equity litigation.

To ward off claims, employers should regularly conduct pay equity audits that are protected by attorney-client privilege; remedy pay issues by equalizing pay between similar positions; create a salary range for similar positions; closely tie pay differences to the permissible statutory factors; and keep up with the quickly evolving statutory requirements of each pay equity statute.

The current labor market, involving high turnover, increased bargaining power, and intense labor demand could impact equal pay litigation in at least five ways, as follows.

1.Strive to Eliminate Pay Gaps

Employers are in a talent war. Hiring and retaining key employees is top of mind for most employers. The last thing employers need is a self-inflicted wound in the form of negative publicity or social-media chatter about an alleged pay gap.

To boost their recruiting and retention efforts, and to drive positive publicity and social-media attention, savvy employers are touting their progressive pay equity practices. Employers who routinely audit their practices reduce potential pay equity liability while creating goodwill and positive employee perception.

Photo Illustration: Jonathan Hurtarte/Bloomberg Law; Photos: Getty Images

2. Retention Efforts Could Create Liability

In the scramble to retain talent, employers should be mindful of pay equity pitfalls and not accidentally create possible liability through retention efforts.

The burden of proof for equal pay claims is different from typical discrimination cases. For typical discrimination claims, the employee must prove that someone acted with an unlawful intent. But in equal pay litigation, employees need only prove they were paid less than similarly employed co-workers.

At that point, the burden shifts to the employer to show the pay difference is tied to accepted reasons (bona fide factors) enumerated in the governing statute, such as a difference in education or training, seniority, merit/work performance, or other factors consistent with business need.

When attempting to retain employees, employers could inadvertently invite a pay gap claim by offering higher compensation to one employee than to another similarly employed co-worker based on factors that wouldn’t pass muster under the governing statute, and/or without documentation that aligns the reason for the higher compensation with the statute’s accepted reasons.

3.Less Gossip, Fewer Claims

Employee conversations about compensation are key drivers of pay equity claims. That’s why many states’ equal pay statutes, like Washington’s Equal Pay & Opportunities Act, prohibit employers from taking adverse actions against employees for discussing wages.

In the wake of the pandemic, many employees continue to work remotely, which means they have fewer opportunities for informal, in-person “water cooler” conversations about compensation. And many employees may be reluctant to discuss compensation through employer-provided technology with colleagues they’ve perhaps never met in person.

With fewer such conversations come fewer opportunities for employees to determine whether they’re on the wrong side of an alleged pay gap.

4. More Employees Leave for More Pay

Given the tight labor market, some employees whose positions are in high demand and who might otherwise have pursued equal pay claims may find the compensation and benefits offered by a potential new employer to be greater than what they might be owed if they were to prevail in an equal pay claim against their soon-to-be-former employer.

If these potential plaintiffs would end up in a better financial position with a job change than if they subjected themselves to a stressful few years’ worth of litigation, they may be less inclined to litigate equal pay claims.

Plus, employees know they are hurting their former employer just by leaving, and sites like Glassdoor give employees an easy and anonymous platform to air their grievances and generate negative publicity for their employers.

5. Employees Emboldened to Bring Claims

Ordinarily, employees may be dissuaded from litigation for fear of creating a bad reputation for themselves or concern that the discovery process would reveal damaging information about their job performance.

But in the current labor market, employees may feel quite confident about their ability to find a new job, and they may be emboldened to litigate pay equity claims.

If employees feel they have nothing to lose, and they have retained legal counsel willing to fight on a contingency basis, the employee might be willing to bring an equal pay claim against their current employer, knowing they can likely find a new job if the claim and the work environment sour.

The impact of a tight US labor market manifests in many ways. While the market’s impact on equal pay claims is more subtle than its impact on employee compensation, that impact should be noted by employment lawyers and their clients.

This article does not necessarily reflect the opinion of The Bureau of National Affairs, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.

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Christopher T. Wall is a partner and trial lawyer in Stoel Rives’ Seattle office. His practice focuses on class actions, equal pay issues, traditional labor law, trade secret and noncompete litigation, wage and hour, wrongful termination, discrimination, harassment, and retaliation claims.