Efforts to improve pay equity by making salary amounts less secretive also heighten the risk of pay discrimination lawsuits for employers, including businesses operating in California or New York where salary disclosure bills await the governors’ signatures.
Those California and New York bills, like an existing law in Colorado and others taking effect soon in New York City and Washington state, would require companies to include a salary amount or range in job ads.
The measures are aimed at combating the gender pay gap and other forms of pay discrimination. Women workers in the US are estimated to receive 80 cents for every dollar that men of similar educational levels get paid.
Publicizing the pay ranges for new positions will let a company’s current employees see how their salaries compare—possibly leading some to conclude they’re being underpaid, perhaps confronting their bosses or ultimately pursuing legal action.
Employment attorneys urge businesses to prepare by evaluating pay scales, making adjustments where needed, and identifying the legitimate business reasons for differing pay amounts.
“A job may have a similar title, but the pay difference may be based upon someone’s number of years of experience or perhaps there are different levels of a particular position, some that require different duties,” said Lisa E. Dayan, an employment lawyer with Davis Wright Tremaine LLP in New York.
“If an employer cannot articulate those types of reasons for difference in pay, they could be at risk for some type of a discrimination claim,” she said. “And that’s what the laws were, in part, designed to address.”
Push for Transparency
Beyond the laws requiring pay ranges in job ads, states including Connecticut, Maryland, and Nevada require employers to give job candidates salary information during the hiring process or upon request. In a similar vein, roughly 20 states ban employers from requiring job applicants to share their previous salary history.
Each measure aims to give workers more negotiating power and help fight pay discrimination, in part by sparing women and workers of color from unknowingly accepting lower salaries than their White, male colleagues. The California legislation also revises requirements that employers report average pay data to the state based on race, ethnicity, and sex.
“We know salary range transparency is a really important tool to avoid gender and racial wage gaps at the outset,” said Samone Ijoma, an attorney and fellow focused on workplace justice at the National Women’s Law Center. These new laws ensure “employees have that information and don’t have to go into negotiations at a deficit.”
Breaking the Secrecy Culture
Silence around individual salaries has long been a norm in the workplace. But pay transparency laws are proliferating alongside a cultural movement toward more open discussion of pay, including with strangers via social media. This gives workers power in negotiating fair pay while also giving employers incentive to ensure their pay practices aren’t discriminatory, Ijoma said.
Robert J. O’Hara, of Epstein Becker & Green PC, echoed that pay range data could spark conversations about compensation between current employees. While that data could be used to bolster discrimination claims, he said it might not fully explain why a certain salary was offered to a new worker.
“It depends on the level of granularity of the data,” O’Hara said. “It will potentially give you an indication of where you fit within the organization’s pay structure.”
Companies are beginning to be more open with salary information in job ads, even where it isn’t required by law.
Setting Up Guardrails
To help prevent workplace infighting and court actions, employment attorneys said businesses must prepare to articulate to a current worker why a new employee is getting a higher salary. It’s also key for companies to conduct annual salary audits and retool or establish uniform procedures to analyze the factors they use to determine pay bands, they added.
“There might be no intent to discriminate in any way, but the reality is that there weren’t necessarily any guardrails in place to set pay bands or a uniformity of factors that help drive” salary decisions, said Lynne Anne Anderson, a labor and employment partner and chair of Faegre Drinker’s pay equity team.
“The audits are great because you will figure out what you’re doing and why, and make any necessary changes, so you understand what factors are driving your compensation decisions. When you get to a point where you have to post [a salary range], you can answer in a way that’s accurate and consistent,” Anderson added. “If you provide an answer that’s not accurate, even if it’s not motivated by discrimination, a plaintiff will say, ‘That answer is inaccurate, so I’m going to assert it’s a pretext for discrimination.’”
“Companies would have to show their work—how did we get to this. And be prepared to explain it to anyone when asked,” said Theresa A. Mongiovi, a principal at Post & Schell PC. “They have to look at their pay audits, be more specific on how they arrived at a pay band, how they’re doing bonuses and be prepared to have these conversations with employees, especially in this market, to ensure an employee just doesn’t go to another employer.”
On top of the litigation risk, employers also face a possible hit to employee morale.
Companies should conduct regular audits for compliance with equal pay laws, “but also to hopefully head off any dissension in the ranks about positions being paid differently,” said Roger Trim, an employment lawyer with Ogletree Deakins Nash Smoak & Stewart PC in Colorado.
Companies also could face high turnover, with the labor market still reeling from the consequences of the Covid-19 pandemic.
“The war for talent has heated up dramatically over the years and hasn’t reached its crisp yet, so the pressure is on and you usually entice people with pay,” O’Hara said.
As more states and cities adopt salary disclosure laws, multi-state employers must consider a nationwide strategy for complying with each law and ensuring their pay practices are equitable, said Monica Snyder Perl, employment lawyer at Fisher Phillips LLP in Boston.
That might mean opting to follow the most stringent job-posting requirements, which so far appears to be Colorado, she said.
The Colorado law requires not just pay amount but also benefits information in job ads. It also requires employers to give notice of all promotional openings to their Colorado employees.
Penalties for not complying with salary disclosure laws vary. In the Colorado and New York City laws, as well as the New York state legislation, workers can complain to a city or state agency if employers fail to provide the information required in job ads, and the agency can order the company to pay damages or civil penalties. Under the California legislation, workers could file lawsuits in addition to complaints with the labor commissioner.
“The risks of getting this stuff wrong are pretty significant given the link between pay transparency and retaining their employees,” Snyder Perl said. “Once this stuff is made public, there isn’t going to be anything companies can really hide behind.”