The changing pay transparency landscape
Pay transparency laws now cover a significant proportion of employers in the United States. Previously, employers had no obligation to disclose pay information when advertising job opportunities, could ask applicants what they earned in their previous jobs during salary negotiations, and generally treated compensation information confidentially. In recent years, however, many states and localities have enacted laws banning employer inquiries about prior pay and prohibiting retaliation against employees who discuss their compensation or the compensation of others. Additionally, some states, such as California, Connecticut, Maryland, Nevada, and Rhode Island, require employers to provide compensation ranges to job applicants upon the applicant’s request or automatically when making a job offer.
Moreover, new pay transparency laws that go even further have popped up in Colorado, California, Washington, New York City, and elsewhere, and more are coming, including a New York State law slated to go into effect in September 2023. These laws are often written very broadly to cover an employer with as few as one employee in the jurisdiction and require employers to disclose specific types of information about compensation in job advertisements for any jobs that could even potentially be performed within the jurisdiction, either in-person or remotely. Some of the new laws require covered employers to disclose a good faith pay range for each advertised job, whereas others also require disclosure of information about other compensation and benefits, such as bonuses, commissions, and health insurance. Some of the new laws also require employers to disclose internal promotion and transfer opportunities, and the pay associated with these opportunities, to current employees. And some states (California and Illinois) require certain employers to submit their pay data to the state. Other pay transparency bills are pending in Massachusetts, Pennsylvania, and South Carolina, and more legislation is expected.
Consequences for employers
Employers with a either a physical presence or remote employees in any of these jurisdictions need to consider how the pay transparency laws apply to them. Failure to comply may result in an administrative enforcement action or private lawsuit. Some jurisdictions impose significant civil penalties for noncompliance with pay transparency requirements—for example, up to US$10,000 per violation in California and Colorado, and up to US$250,000 per violation in New York City.
Covered employers will need to establish and maintain pay ranges for their jobs if they have not already done so. Employers should consider the potential consequences of disclosing their pay ranges, which may include employee morale issues when some employees discover they are being paid at the low end (or below) a posted range, or potential pay equity lawsuits when employees believe pay differentials within the organization are due to a protected characteristic such as race, ethnicity, or sex.
Action items
Employers should consider taking the following steps to comply with pay transparency requirements:
- Consult with counsel to determine if you are covered by one or more state or local pay transparency laws. Remember that you may have obligations under some of these laws even if you have only one remote employee working in the jurisdiction.
- If you are covered, determine how you are going to comply. For example, are you going to comply only in specific jurisdictions where a pay transparency law applies to you, or will you take a uniform approach and disclose pay ranges in all job postings nationwide?
- Decide whether to conduct an internal pay equity review or other evaluation of compensation to identify inconsistencies that may create employee morale issues or potential legal exposure.
- Consider an external pay study, given that competitors will have increased visibility into your pay practices.
We will be hosting a webinar on March 7, 2023, to discuss these laws and their implications, along with recent compensation-related developments for government contractors and public companies. Please consider registering using this link.
For more information regarding how pay transparency may impact your workplace, please contact the Hogan Lovells lawyer with whom you regularly work.
Authored by Michael DeLarco, George Ingham, Tao Leung, Amy Folsom Kett, and Saydee Schnider.
