Equal pay for equal work has been required for many years, but, as of late, this rather static requirement has become the focal point of regulators, state and local governments, and activists. In order to achieve equality in compensation, the efforts are becoming increasingly creative with new pushes for transparency, privacy, and/or disclosures. Financial services firms are often the target and should not only be aware of these innovative measures and requirements but also consider what proactive actions to put in place.
Eliminating Pay Secrecy
The National Labor Relations Board made it clear years ago that “employees” (as defined under the National Labor Relations Act) could not be restricted from discussing the terms and conditions, including compensation, of their employment, based on their rights to engage in “concerted activities for the purpose of collective bargaining or other mutual aid or protection.” Yet, many employers continue to have policies or agreements, or informal rules, which restrict employees from doing so. Recently, there has been a concentrated effort to prevent employers from designating employee compensation as “confidential” and/or restricting discussion of it. For example, in connection with the former administration’s determination to eradicate equal pay impediments in the workplace, in a 2014 executive order, then-President Barack Obama prohibited federal contractors from retaliating against employees who talk about their salaries or other compensation information.
A number of states and localities that have been passing their own equal pay laws have been addressing pay secrecy as well. Such states include the following:
- California: The California Fair Pay Act, which became effective as of January 1, 2016, takes pay secrecy head on. It not only restricts policies that prevent employees from discussing their own compensation but also prevents them from prohibiting an employee from disclosing the employee’s own wages, discussing the wages of others, inquiring about another employee’s wages, or aiding or encouraging any other employee to exercise his or her rights under the law.
- Connecticut: Connecticut’s Act Concerning Pay Equity and Fairness (“Connecticut Act”) prohibits an employer from (i) barring employees from disclosing or discussing the amount of his or her wages or the wages of another employee of such employer that have been disclosed voluntarily by such other employee, (ii) inquiring about the wages of another employee of such employer, or (iii) requiring employees to sign documents waiving their rights under the Connecticut Act or taking actions against employees. The Connecticut Act does note, however, that it will not be construed to require any employer or employee to disclose the amount of wages paid to any employee.
- New York: New York State recently enacted the Achieve Pay Equity Act (“APEA”), which modified the existing equal pay law in a number of respects. One particular change bars an employer from prohibiting an employee from “inquiring about, discussing, or disclosing” the employee’s wages or the wages of another employee. However, the APEA specifically provides for limitations. The APEA states that employers may maintain, in a written policy, reasonable workplace and workday limitations on the time, place, and manner for inquiries about, discussion of, or the disclosure of wages. Also, the APEA provides that no employee is required to discuss his or her wages with another employee, and employees who have access to other employees’ wage information as a result of their job duties (e.g., human resources staff) may be limited in the disclosure of such information by their employer.
Prior Compensation: Don’t Ask, Don’t Tell
Another focus of equal pay activists has been on employers’ asking employees for their current pay information to be used in determining their pay rates. Opponents to this practice claim that it perpetuates wage gaps for women that may “follow” women from job to job. Massachusetts is the first state to take the issue head on and prohibit employers from seeking information about applicants’ compensation history in the hiring process. The Massachusetts equal pay law, which becomes effective in 2018, bars employers from asking about an applicant’s salary history on an application or during interviews for employment. Pursuant to the law, after an offer of employment with compensation terms has been negotiated and made, a prospective employer may seek or confirm a prospective employee’s wage or salary history.
Activist Investors Turn Their Sights to Wall Street
In an effort to push for pay equality, activist investors have begun to exert pressure on large financial institutions to disclose compensation information. Such investors have already filed proposals with a number of large financial services institutions, such as Citigroup, Bank of America Corp., and Wells Fargo & Co. The investors are demanding that these institutions publish statistics about the race and gender of employees, as well as compensation information. Last year, activist investors took similar initiatives with respect to large technology firms, the majority of which complied with making public pay gap information and taking steps to close any gaps.
What Employers Should Do Now
In light of this increased focus on pay information, policies, and procedures, employers should do the following:
- Undertake pay audits to determine any disparities and the genesis of such disparities. Pay audits should be conducted with legal counsel to maintain the information in a privileged manner as much as possible.
- Thoroughly review their pay-setting policies and procedures. If you are a Massachusetts employer, take specific steps to ensure that pay information is not improperly requested through the hiring process. While most states and localities do not prohibit an employer from asking employees for their pay histories, relying solely on such information for setting starting pay may lead to pay inequities.
- Determine appropriate compensation ranges based on factors other than pay history—such as market conditions, job requirements, experience, and skills, among other things.
- When providing raises or determining bonuses, consider and document an employer’s rationale for compensation decisions in order to defend against any claims of inequity based on gender or another improper reason.
- Consider training managers not to restrict (or appear to restrict) employees from discussing wages in compliance with applicable local laws. Managers may be unfamiliar with the new focus on prohibiting pay secrecy and could be improperly handling such matters.
- Review their policies and agreements as they relate to sharing pay information to make sure that they are compliant with applicable laws, contain non-retaliation provisions, and direct employees to avenues for complaints.
A version of this article originally appeared in the Take 5 newsletter “Five Employment Issues Under the New Administration That Financial Services Employers Should Monitor.”