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Pay Transparency Laws: What Employment Counseling Attorneys (and Their Clients) Need to Know

Issue March/April 2023 April 2023 By Kathleen A. Berney and Sarah E. Ruter
Labor & Employment Law Section Review
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From left: Kathleen A. Berney and Sarah E. Ruter

Introduction

“We are a Massachusetts-based shipping company. We have employees who drive to New York City to pick up packages, employees who live in Rhode Island and commute to work in Massachusetts every day, employees working in a small warehouse in Connecticut, and one remote employee in Colorado — do the New York City, Rhode Island, Connecticut and Colorado pay transparency laws apply to us?” 

This is a mashup of the flurry of questions we received from participants at a recent webinar our firm presented on 2023 “hot” employment law topics. Questions about pay transparency laws far exceeded those about any other topic. One of our biggest takeaways as employment lawyers was that pay transparency laws (“PTL” or “PTLs”) are top of mind for our clients and potential clients, and we should expect questions to keep on coming as more states and localities pass these laws. Clients will need us, and undoubtedly expect us, to help them understand and navigate the legal risks, identify steps for compliance, avoid pitfalls and implement best practices. The goal of this article is to highlight commonalities and differences between and among the patchwork of pay transparency laws and impart basic guidelines and practice tips for counseling attorneys analyzing these laws. 

Background

In January 2021, Colorado’s Equal Pay for Equal Work Act (C.R.S. §8-5-101 et seq.) was the first PTL to require covered employers (defined as those with at least one employee in Colorado) to publish compensation ranges and benefits in job postings, the aftermath of which provides some “lessons learned” for employers. In an effort to avoid disclosing pay ranges, some employers that did not have any employees located in the state began posting for jobs that could be performed remotely anywhere within the United States — except the state of Colorado. The Colorado Department of Labor (DOL), in short order, responded by issuing a notice directed at those employers warning that “remote jobs are clearly covered by the Act’s pay disclosure requirements, regardless of an employer’s expressed intent not to hire Coloradans.” In addition, a Colorado-based software engineer created a ”name and shame” website dubbed Coloradoexcluded.com listing employers that excluded Colorado workers from their job postings, creating publicity and reputational concerns for certain employers. Reprimand by the state’s DOL and being called out on a website as evading wage laws with dubious employment practices are not a good look for any employer! 

Since then, at least some of the shock and awe have worn off for employers as they recognize (or perhaps resign themselves to the fact) that PTLs are here to stay. This “new normal” is driven in part by the demand for transparency by younger Gen Z and millennial workers, a shift in power from employers to workers in a tightened labor market, and the recognition that even if the state in which the employer is based does not have a PTL in effect or on the horizon, PTLs may apply to that employer’s remote employees. As of the writing of this article, eight states (California, Colorado, Connecticut, Maryland, New York (effective 9/12/23), Nevada, Rhode Island and Washington) and seven cities/counties (Toledo, Cincinnati, Ithaca, Jersey City, New York City, and Albany and Westchester counties) have PTLs in effect or going into effect in 2023. 

Prepare for a Massachusetts pay transparency law
in the future  

At this time, Massachusetts does not have a pay transparency law in effect. As a practical matter, the requirements of the Massachusetts Equal Pay Act, M.G.L. c. 149, § 105(b)(i)-(vi) (MEPA), have the effect of encouraging greater transparency in potential pay for many positions, but do not explicitly require the posting of salary ranges or other compensation information. The wheels are, however, in motion for an eventual PTL to be passed in Massachusetts. On Jan. 19 of this year, Bill HD.2814, An Act Relative to Salary Range Transparency, was presented to the Senate and House of Representatives by State Reps. Josh S. Cutler and Brandy Fluker Oakley. The bill would require covered employers (defined as any employer, public or private, that employs 15 or more employees in Massachusetts) to disclose the pay range within the advertising or posting of the position to an employee offered a promotion or transfer to a new position and/or to an employee holding such a position, or to an applicant, upon request.  

Objectives of pay transparency laws  

Similar to equal pay laws, the goal of PTLs is to deter wage discrimination and to attempt to remedy the pay gaps between genders and the even greater gender pay disparities among Black and Hispanic women (according to the U.S. Department of Labor, women are paid, on average, 83 cents to every dollar paid to men. Women of color were paid even less; Black women were paid 64% and Hispanic women (of any race) were paid 57% of what white non-Hispanic men were paid). Generally speaking, in addition to requiring that employers disclose compensation ranges and, in some instances, other compensation and benefits, PTLs prohibit employers from requesting a candidate’s compensation history, prevent employers from relying on compensation history in making job offers, and prohibit discrimination or retaliation against employees who inquire about, disclose or discuss their wages with others — all prohibitions that are already present in the commonwealth through the Equal Pay Act. 

Analyzing pay transparency laws  

As we have swiftly learned, there is no “one size fits all” response to questions about PTLs, and a robust factual and legal analysis is necessary to determine whether a particular PTL applies to a particular employer. Here is a brief overview of the questions you will need to think about and prepare to ask clients when performing a PTL analysis: 

  1. Who is a covered employer? Generally, a covered employer is one that has employees performing work in the state or location where the PTL is in effect, although the total number of employees working anywhere may also matter. Thus, the first step is to determine the employer’s total number of employees working anywhere and the number working in the PTL location as that is defined in the PTL. Under Colorado’s PTL, for example, an employer with at least one current employee working in Colorado, whether remote or in-office, is a covered employer. Under New York City’s PTL, a covered employer is one with a minimum of four employees, at least one of whom works in the city. In California, a covered employer has 15 or more employees working anywhere for the law’s job-posting requirements to apply; however, California employers with 100 or more employees, only one of whom must reside in California, are “covered employers” for California’s PTL reporting requirements. 

  2. Who is a covered employee/candidate? Does the PTL apply to remote workers? Once an employer determines whether they are a covered employer, they must determine which covered individuals (employees/applicants) they must disclose the required information to. An analysis of where applicants or employees live and work, both in person and remotely, is necessary for this determination. For example, if you are advertising for a job that could be performed remotely and the person performing the job could live anywhere, you would need to comply with the New York City PTL because “all or part of the job could be performed in New York City.”

  3. What are the job posting and other disclosure obligations? PTL requirements vary greatly. For example, subject to certain caveats, covered employers in California, Colorado, Washington and New York state must publish salary ranges or hourly rates (minimum and maximum) in job postings. Conversely, Rhode Island, Connecticut, Nevada and Maryland PTLs do not require pay range in job postings. Instead, they vary in requiring pay range disclosure to an applicant after an interview, upon applicant or employee request, or at the time of offer. Some PTLS expressly require disclosure of all compensation (commissions, bonuses, etc.) as well as benefits, such as Maryland, Colorado and Washington, while others are silent on such requirements (California, Connecticut, Nevada, Rhode Island, New York, and the municipalities in Ohio and New York). At this time, only two states, California and the pending New York PTL, address employer reporting and record-keeping obligations, although many employers will include retention of these records as part of their retention policies. 

  4. Risks of noncompliance? Clients may ask what the risks are if they do not comply with pay transparency laws. Eight of the 11 PTLs (California, Connecticut, Rhode Island, Washington, Toledo, Ithaca, and Westchester and Albany counties) expressly provide individuals a private right of action to address alleged violations, while the remainder are either silent on penalties or permit a complaint to be filed with an administrative agency such as the state’s DOL. The range of potential civil penalties for noncompliance range from $100 for a first offense to up to $250,000 for a “willful, wanton or malicious violation” (New York). Under some PTLs, an employer is given a period to ameliorate the violation before civil penalties are imposed. As more states and locations legislate pay transparency laws, employers will also need to be mindful of the reputational risks of violations, as illustrated in the rollout of Colorado’s PTL, which backfired when employers seeking to avoid pay transparency were publicly called out. An employer may unintentionally lose good candidates by seeking to carve out exceptions to exempt themselves from PTLs. Over time, Gen Z candidates and employees may demand this level of transparency from employers around compensation and other employer programs.  

Tips for counseling clients on pay transparency laws

As management-side attorneys, we are confident that most, if not all, of our clients agree that changes are needed to close inequitable pay gaps — yet many employers remain resistant to disclosing wages for a host of reasons. These include fears of revealing confidential company information, of being recognized as paying less than peers, of being driven to increase wages to command talent, of the overall perceived loss of control and power in the hiring process, of the amount of perceived work required, and of the unknown. 

As counseling attorneys, part of our job is to recognize and empathize with these concerns and then pivot to strategizing with our clients about lawful, business-savvy ways to comply. As a starting point, we can remind our clients that pay transparency laws do not vitiate lawful wage differences based on valid reasons such as experience/education/training, seniority, merit, location, production/sales or revenue-based systems of pay, travel requirements and other such factors. These are the permissible articulated factors for differences in pay to employees of a different gender for comparable work under the MEPA. In addition, although there is no denying that PTLs will create work for clients, we can emphasize that auditing current compensation practices and identifying and correcting existing pay discrepancies is already important for Massachusetts employers to ensure compliance with the MEPA. Moreover, given the very tight labor market over the past three years, some employers may have veered outside of their typical compensation ranges to win the war on talent. There is no better time than the present to fix any inequities that have crept in during the pandemic. You can also be very helpful to potential clients who tell you that they are not ready to disclose pay ranges because they do not actually have internal pay scales in place and simply pay what the market demands or what competitors will pay by counseling them on compensation strategies and the steps required for MEPA and pay transparency compliance. Finally, PTLs may ultimately result in more efficient hiring processes, as applicants are aware of pay and benefits from the outset and self-select to apply or pass on applying, saving employers the headache of being on completely different pages as far as compensation when an offer is made.

Although pay transparency laws may highlight for employers the ongoing challenge of wage compression between the wages of incoming employees and longtime employees, this too provides counseling attorneys the opportunity to advise clients on getting creative in determining compensation and benefits packages. The trend toward PTLs provides good business opportunities for counseling attorneys to be there with present and future clients at each step in the process, from determining pay scales, identifying and correcting existing pay discrepancies, and updating job positions with pay scales, benefits and compensation; to updating policies and procedures and existing job descriptions; to training HR and managers. 

Kathleen A. Berney is an associate at Boston-based law firm Hirsch Roberts Weinstein, where she counsels employers in all aspects of the employment life cycle. Her practice also includes training, employment litigation and collective bargaining. Berney chairs the Massachusetts Bar Association’s Paid Family Medical Leave Work Group, and she is a member of the MBA’s Labor & Employment Section Council. Berney is also the vice president of the Boston chapter of the International Network of Boutique Law Firms (INBLF) and an INBLF board member.

Sarah E. Ruter practices employment law at Boston-based firm Hirsch Roberts Weinstein. She counsels small and large businesses, schools and educational programs, and nonprofit organizations in recruiting, hiring, employee handbooks and documentation, performance improvement plans, and terminations. Ruter also provides manager and employee trainings and litigates employment cases both in court and before various administrative agencies.