Pay Transparency Is Here to Stay

Employees’ ability to discuss their own compensation and that of their colleagues is seen as a key component of pay equity.

From its early days, pay equity was a central focus of the Obama administration. The very first piece of legislation Obama signed was the Lilly Ledbetter Fair Pay Act. He also created a National Equity Pay Task Force, called on Congress to pass the Paycheck Fairness Act (a bill focused on pay transparency introduced by then-Senator Hillary Clinton) and issued an executive order prohibiting discrimination by federal contractors against employees who discuss compensation.

Now that a new administration is in place, many predict that it will roll back some of these laws and initiatives.

Equal pay, however, was one of the few issues that both candidates appeared to agree upon during the campaign. President Trump’s daughter Ivanka focused her Republican National Convention speech on equal pay, noting that “in 2014, women made 83 cents for every dollar made by a man.”

Employees’ ability to discuss their own compensation and that of their colleagues, one of the elements of “pay transparency,” is seen as a key component of pay equity and is receiving pressure from many angles and traction at the state level. Employers should be aware, therefore, that for a variety of reasons, pay transparency is here to stay.

On the federal level, protections for employees who discuss their pay is not entirely new. The National Labor Relations Act (NLRA) prohibits employers from discriminating against employees and job applicants who discuss or disclose their own compensation or the compensation of others. But the NLRA applies only to private employers, and the pay transparency protections apply only to nonsupervisory employees.

Through Executive Order 11246, President Obama extended those protections to all employees and applicants of federal government contractors. In addition, beginning on Jan. 1, 2017, federal government contractors are required to provide to workers specific information on their paycheck, including hours worked, overtime hours worked, total pay and any additions or deductions made to employees’ pay.  

It is impossible to predict with any certainty what effect the new administration will have on these new requirements.

Although there may be uncertainty at the federal level, states are forging their own paths, progressively addressing pay transparency. Many states prohibit employers from prohibiting their employees from discussing pay or compensation issues.

Many states also prohibit retaliation against employees who discuss their pay or the pay of others. Other states are taking a slightly different route. For example, last summer, Massachusetts became the first state to enact a law prohibiting employers from asking applicants or employees their salary history. Similar legislation has been introduced in New Jersey, New York City and the District of Columbia.

Private industry is also adopting pay equity initiatives, making transparency a key focus of its initiatives. Last summer, more than twenty-eight companies signed the White House’s Equal Pay Pledge. In their supporting comments on the pledge, several employers specifically recognized the importance of pay transparency and equity.

For example, Buffer, a social media organization, wrote that its commitment to pay transparency, including an “open salary formula” and a “public salary calculator,” worked to “reduce unconscious biases” regarding pay equity.

“Information is power,” they say. Recent news from Hollywood underscores the point. Last year, through emails leaked during the Sony hack, Charlize Theron learned she was earning less than her co-star Chris Helmsworth. She negotiated a deal worth more than $10 million to bring her pay equal to her male counterpart. Last May, Robin Wright of House of Cards demanded a salary equal to her male co-star, Kevin Spacey.

And in December, news broke that Emmy Rossum was negotiating her salary on the Showtime series Shameless. However, Rossum has not merely demanded pay equal to her co-star William H. Macy. She went further, demanding compensation for the time she was paid less than him (“back pay”).

Information about compensation undoubtedly provides power when placed in the hands of employees. Armed with knowledge of colleagues’ pay, female employees are more willing and effective in negotiating their own compensation.

But this knowledge also presents a challenge to employers, who must then provide justifications for pay disparity, including experience, performance and expertise. And knowledge of pay disparities in the workplace may make a disgruntled employee more likely to sue.

So is pay transparency the next big litigation risk for employers? Maybe. But employers can take steps to minimize risk and create a compensation culture that is race- and gender-neutral.

First, employers should make certain their policies state that, with certain exceptions, no employee will be retaliated against for discussing compensation. Second, employers must ensure that those policies are rigorously, and equally, enforced.

Third, employers should consider how transparent they are willing to be. Total transparency may not be appropriate for every employer. Finally, employers are encouraged to work with outside counsel to conduct an equal pay audit to ensure unconscious biases are not impacting or compounding compensation decisions.

Originally published on Corporate Counsel. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.

Contributing Author

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Connie N. Bertram

Connie Bertram is the head of Proskauer Rose’s D.C. Labor and Employment practice and co-head of the firm’s Whistleblowing & Retaliation and Government Contractor Compliance...

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Contributing Author

Amy L. Blackwood

Amy Blackwood is an associate at the D.C. Labor and Employment group at Proskauer Rose. She focuses on whistleblower and retaliation complaints and government contractor...

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