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Wage Fixing or Flexing? Pay Transparency Laws Create Challenges

March 3, 2022, 9:00 AM

The wage transparency movement creates challenges for employers navigating between laws prohibiting wage fixing and collusion and new regulatory demands for wage transparency.

Federal antitrust law prohibits employers from engaging in anticompetitive wage fixing—an agreement between competing employers to fix or set employee wages—conduct that could artificially suppress employee compensation. At the same time, the movement toward wage disclosure—the impending New York City law among them—creates legal risk as well as employee relations concerns.

While wage fixing is easy to spot, a more subtle and related antitrust problem springs from wage disclosure: the mere agreement among employers to exchange wage information, even if they don’t agree on the actual wage itself, can lead to liability if the information exchange negatively effects wages.

The antitrust laws protect the competitive process. In markets for employees, employers are buyers of employee services and the law requires that they compete for those services without agreeing with each other on wages or other important employee matters. Antitrust can be complex, but even a simple agreement on wages is a violation. Proof can come by the agreement itself without proof of competitive effects. In fact, the federal government has begun prosecuting wage fixing as crimes, an approach that has recently picked up significant momentum.

An agreement between or among employers to exchange wage information, even if employers do not agree on the amount, can be illegal if that exchange resulted in lower wages. If employers have less uncertainty about what a competitor might do, an employer might not be as inclined to aggressively raise wages to attract talent. Information exchange violations require the right market conditions before they are possible—without a relatively concentrated market for employees the exchange won’t have an anticompetitive effect, an element of the antitrust offense.

The Federal Trade Commission and Department of Justice Antitrust Division are laser focused on using the antitrust laws to protect labor markets, making this an especially critical time to focus on these issues. The FTC has even floated the idea of using its rulemaking authority to improve labor markets, an unprecedented expansion of power if it follows through (and survives the inevitable court challenge).

Beware of Inadvertent Information Exchanges

In this atmosphere it’s especially important to know when disclosure laws may lead to inadvertent information exchanges.

The risk of inadvertent wage information exchanges becomes even more complex in light of the growing wage disclosure movement. Some of the new wage transparency laws require employers to publicize wage information—such as estimate wage range estimates— for new positions, transfers, or promotions. These mandatory disclosure laws create business challenges as well as potential legal risk around how employers will use, share, and publicize that information.

Full compensation disclosure might make employment a more competitive environment in some markets as employers attempt to attract and retain the best talent. In fact, wage transparency laws could indirectly foil wage collusion because transparency pulls back the curtain on wage secrecy. But it is hard to predict whether full transparency will be procompetitive, anticompetitive, or competitively neutral, all of which depends on the facts and circumstances of each employment market.

Wage disclosure and use of wage information impacts other competitively sensitive factors in the marketplace. While wages are often set based on a person’s skills, experience, and education, some factors impacting wage-setting are less obvious—perhaps even strategically competitive—such as confidential business strategy, market penetration plans, and other undisclosed business aims that might raise strategic concerns when wage information is disclosed.

Employers might be justifiably concerned about how they publicize wage information because that information might reflect undisclosed business aims. Similarly, employers may need to adjust how they now use published wage information from the marketplace in order to avoid a wage information exchange violation.

Impact on Employee Morale

In addition to these legal and business risks, pay transparency poses other potentially unintended consequences, such as the impact on employee morale. Once compensation information for a position is publicized, then the employee who occupies that position or a similar one might face an involuntary disclosure of highly personal and private information.

Employers cannot ban employees from sharing compensation information under the National Labor Relations Act and some state laws, but what if an employee prefers to keep wage information private?

Here is where pay transparency provides a potentially public platform for some employees as a form of “flexing” as they seize upon publication of their wages as proof of their tangible value in the marketplace. In this sense, an employer-sponsored pay broadcast could indirectly promote the reputation and status of some employees, but at same time create a perception of reputational harm to others. And if other employers agree to use this shared information, the antitrust risk is amplified.

Wage transparency is aimed at leveling the compensation playing field for women and people of color. But these laws may have unintended consequences in addition to legal risk as tension exists between disclosure and anticompetitive outcome.

Until more guidance is forthcoming, employers should review their wage-setting policies—including an analysis of how if at all they use mandatorily disclosed wage information from competitors—to ensure they do not unwittingly trigger unnecessary antitrust risk.

Employers should also consider the employee morale impact as pay information puts some employees on blast—whether or not the employee desires that outcome.

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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Author Information

Joe Miller is co-chair of Mintz’s Antitrust Practice. His experience spans roles in private practice, as a general counsel, and with federal antitrust enforcement agencies. He provides strategic transactional advice and represents clients in government investigations and merger reviews.

Jen Rubin is an employment lawyer at Mintz and co-chairs the firm’s ESG Practice group. She advises clients on wage and hour compliance and litigates employment mobility disputes, discrimination claims, and other disputes arising from the employment relationship.