The Rise of Pay Transparency Laws and Their Driving Forces

I. Introduction

Women have continuously fought to receive equal compensation to men since making their entry into the workforce. Great strides have been made in achieving equal compensation among the sexes, but as of 2022, the average working woman still make $0.82 for every $1.00 the working man makes on average.¹Stephen Miller, Gender Pay Gap Improvement Slowed During the Pandemic, SHRM (Mar. 15, 2022), https://www.shrm.org/resourcesandtools/hr-topics/compensation/pages/gender-pay-gap-improvement-slowed-during-the-pandemic.aspx. The adoption of pay transparency laws in numerous states serves as a new means of fighting pay discrimination and pay discrepancies between men and women as well as between different races. These laws have gained traction and continue to rise in popularity for various reasons.

II. Background

In 1963, Congress passed the Equal Pay Act. The Equal Pay Act provides that men and women must be compensated equally for equal work.²29 U.S.C. 8 § 206(d). Not only is an equal salary required as “equal pay” under this Act, but the Equal Pay Act also requires equal overtime pay, bonuses, stock options, profit sharing options, vacation and holiday pay, and benefits between men and women.³Id. However, this law has been notoriously underenforced. Due to weak enforcement of the law, Congress attempted to strengthen the requirement for equitable compensation among men and women by proposing the Paycheck Fairness Act in 1977, but the Paycheck Fairness Act was never passed.

While laws at the federal level have failed to properly protect equal pay for equal work, states have made recent strides to promote equitable pay through the construction and adoption of pay transparency laws. Pay transparency laws are laws that allow employees to discuss their compensation with others and inquire into the compensation and benefits of other employees without fear of retaliation or discrimination by the employer.⁴Dep’t of Lab., Pay Transparency Regulations Frequently Asked Questions, https://www.dol.gov/agencies/ofccp/faqs/pay-transparency (last visited July 13, 2022).  These laws are relatively new, with California serving as the first jurisdiction to draft and adopt a pay transparency law in 2018.⁵Christine Hendrickson, Pay Transparency, Pay Equity, Salary History – What’s New for 2022, Bloomberg Law, (Jan. 24, 2022) https://www.bloomberglaw.com/bloomberglawnews/daily-labor-report/X210GMB0000000?bna_news_filter=daily-labor-report#jcite. Over the past four years, numerous jurisdictions have adopted their own forms of pay transparency laws, each with their own nuisances. For example, Colorado’s pay transparency law requires employers to include salary ranges in job postings.⁶Colo. Rev. Stat. § 8-5-101 et seq. (2019). The city of Cincinnati’s pay transparency law, on the other hand, does not require employers to initially post salary ranges for employment positions, but it requires employers to provide job applicants with the pay range of the job for which they applied if the applicant (1) has had an offer of employment extended to them; and (2) the applicant asks for the pay range of that position.⁷Cincinnati, OH., Mun. Code Ch. 804 (2020).

III. Discussion

Perhaps the most apparent impetus for the implementation of pay transparency laws is the desire to reduce and eventually eliminate discrimination in the workplace. Salary secrecy has contributed to the wage gap between men and women and among different races.⁸Jennifer Liu, How Much do Others Make for the Same Job? Here’s Where Employers are Required by Law to Share Salary Ranges When Hiring, CNBC (Jan. 12, 2022), https://www.cnbc.com/2022/01/12/states-and-cities-where-employers-must-share-salary-ranges-when-hiring.html. Because female or minority employees are unaware of how much their male or white counterparts are earning, these employees are unable to meaningfully negotiate for equal pay when discussing salaries and raises.⁹Id. During these pay negotiations, women typically also ask for less due to lack of necessary information.¹⁰Id. Pay transparency laws, therefore, can be seen as a means to decreasing discrimination against women and minorities in the workplace.

Another more discreet reason for the rise of these laws across the country pertains to the COVID-19 pandemic. During and following the financial crisis of 2008, unemployment rates soared, peaking at ten percent in October 2009.¹¹Bureau of Labor Statistics, The Recession of 2007-2009 (Feb. 2012), https://www.bls.gov/spotlight/2012/recession/pdf/recession_bls_spotlight.pdf. Because of the poor state of the employment market, employers had significantly more bargaining power than potential employees.¹²Id. As a result of this disproportionate power dynamic, employers often chose to keep their employees’ wages undisclosed. In doing so, the employer could offer the new employee salaries and wages that were less than what the current employees made in the same or similar positions.¹³Id. However, the job market and employment environment has significantly shifted in response to the pandemic. The pandemic job market instead favors the job applicant over the searching employer. In April 2022, there was an estimated two jobs available for every unemployed worker in the United States.¹⁴Roy Maurer, Job Market Still Growing, Showing First Signs of Cooling, SHRM (June 3, 2022), https://www.shrm.org/resourcesandtools/hr-topics/talent-acquisition/pages/bls-hr-jobs-unemployment-june-2022.aspx. This created a gap of 5.5 million between job openings and available workers.¹⁵Id. Therefore, the power imbalance between employer and employee following the 2008 financial crisis is no longer a factor and has shifted dramatically in the opposite direction.  

Additionally, the pandemic forced minority workers, especially women, out of the workplace due to the initial layoffs and resignations that occurred at the beginning of the pandemic.¹⁶Liu, supra note 8. In order to attract workers back to the workforce, employers must offer these employees equitable compensation and benefits.¹⁷Id. Otherwise, employers run the risk of losing employees to employers who are willing to fairly compensate.

IV. Conclusion

Pay transparency laws cannot be considered a fleeting trend. More states are continuing to propose and adopt their own forms of pay transparency laws. Rhode Island’s pay transparency law comes into effect in January 2023, and South Carolina, Massachusetts, and New York all have pay transparency bills under consideration.¹⁸An Act Relative to Wage Transparency, H.1950, 192nd Ses. (2022) (Massachusetts) (requiring employers to post salary ranges with each job posting); Act to Establish Pay Equity, H. 3138, 124th Ses. (2022) (South Carolina) (prohibiting employers from taking adverse employment actions towards employees and applicants that choose to discuss wages); An Act to Amend the Labor Law, in Relation to Requiring Employers to Disclose Compensation to Applicants and Employees, S. 5598, 2021-2022 Ses. (New York) (requires employers to disclose crucial wage information to employees and applicants). Advances are being made for equal pay at the federal level as well. The Paycheck Fairness Act was introduced by Congress in 2021, and President Biden issued an executive order on March 15, 2022 which promoted pay equity and transparency by prohibiting employers from inquiring into applicants’ salary histories in the hiring process.¹⁹Sarah Platt, White House Focuses on Pay Equity and Transparency, Ogletree Deakins (Mar. 21, 2022) https://ogletree.com/insights/white-house-focuses-on-pay-equity-and-transparency/. While these laws represent significant steps in the right direction for creating an equitable workplace, they are only one means through which equality in the workplace can be achieved. Employees and employers alike must continue to make additional efforts to close the gap.