Pay equity trends in the workplace: What businesses don't know can (and will) hurt them

In 2021, Equal Employment Opportunity Commission (EEOC) Chair Charlotte Burrows issued a stern warning to businesses: Eliminating pay discrimination across gender and race would be “front and center” for the agency. But, given the existence of federal pay equity laws that have been on the books for almost sixty years, accompanied by the enduring refrain of “equal pay for equal work” without much meaningful progress, the concept of equal pay seemed more theoretical than realistic, leaving many to wonder whether serious progress was actually on the horizon.

As it turns out, although progress in pay equity reportedly slowed during the pandemic, pay equity efforts have exploded recently, particularly at the state level. Here’s what businesses need to know.

States pick up the pace

Frustrated with the lack of progress at the federal level, most states have enacted their own pay equity laws. Some expanded the scope of jobs that can be considered when comparing pay (from “equal work” to work that is “substantially similar” or of “comparable character”). Other states like Maryland went further by prohibiting employers from “providing less favorable employment opportunities” based on gender or race while also narrowing the list of factors employers may consider when setting pay.

Some states also restrict the information employers can request on applications and during the interview process, passed pay reporting laws, or enacted “wage secrecy” bans to prohibit employers from attempting to silence employees from discussing pay information with coworkers.

The list of states’ equal pay efforts is much longer, much to the consternation of small and large businesses alike. But some efforts have garnered more attention than others.

Beware of asking about salary history

One significant trend in the pay equity landscape began in 2016 with salary history bans. Nearly 30 states and localities enacted bans prohibiting businesses from requesting salary history information from job applicants or using that information to make hiring and compensation decisions. Other jurisdictions, like New York City, Hawaii and Kansas City, go a step further by punishing employers who search public records for an applicant’s pay history.

Advocates for these bans argue that salary history is not always an objective measure of an applicant’s value, particularly if prior employers, whether consciously or unconsciously, undervalued labor or paid less based on unfair biases. In other words, these bans are needed to help curb the perpetuation of wage gaps and historical discrimination.

Show them the money

Pay transparency laws represent the most recent trend aimed at closing the gap. Colorado started the trend in 2021 by requiring businesses to include compensation ranges in all advertised jobs, including remote positions and internal “promotional opportunities.” Similarly, New York City’s new law, effective in November, will require businesses to post the “good faith” pay range in all internal and external job postings as well as internal promotion and transfer opportunities. Washington recently passed a law requiring the disclosure of compensation information in job postings, and New York State passed its own pay transparency law, which now awaits the governor’s signature. To nobody’s surprise, California legislators also introduced a pay transparency bill with similar job posting disclosure obligations.

Other jurisdictions require the disclosure of pay information during the application and hiring process, although not in job postings. For example, Cincinnati and Toledo, Ohio, and Maryland require businesses to provide compensation ranges to applicants upon request, whereas Connecticut, Nevada and Rhode Island require businesses to proactively provide that information during the application or hiring process.

Plaintiffs are getting in on the pay equity action

Recent high-profile settlements also reflect the increased focus on pay equity. In June, Fox News reportedly agreed to pay former host Melissa Francis $15 million to resolve her pay equity claims, while U.S. Soccer and several female players agreed to settle their pay equity dispute for $24 million. And, not to be outdone, in June, Google reportedly agreed to pay $118 million to settle a pay equity lawsuit. Many other pay equity lawsuits are being reported at the state and federal level nationwide.

Because pay equity (and other employment-related) lawsuits are on the rise, businesses need to review their EPLI coverage. In addition to being very costly to defend, such lawsuits run the risk of high jury verdicts and statutory penalties, not to mention damage to a company’s reputation and the negative impact on employee morale, recruiting and retention.

Businesses can tackle the risk (and close the gap)

The news isn’t all bad. There are some steps businesses can take to stay out of the pay equity crosshairs.

For starters, businesses should understand their legal obligations. Those operating in jurisdictions with salary history bans should review their job applications to ensure compliance in all jurisdictions in which they operate. Businesses should also train internal recruiters and hiring managers on what they can – and, more importantly, cannot – ask job candidates. Furthermore, given the patchwork of state laws, and to avoid the administrative burdens and reduce compliance risks, businesses operating in multiple jurisdictions should consider utilizing one uniform application that complies with the most restrictive state law.

Businesses operating in states with pay transparency laws should also revise job postings to include compensation information or be prepared to provide that information during the recruiting process. The proliferation of remote jobs further complicates compliance with these laws, so businesses should consult with legal counsel. On a related note, businesses should also consider preparing a plan for handling the inevitable employee relations issues that will arise when current employees see pay disclosures in job postings for roles similar to their own.

Read more: Employers, prepare for wage transparency laws

Last but certainly not least: Businesses should conduct a voluntary pay audit to identify pay disparities, particularly those businesses operating in states with pay transparency laws that will require businesses to publicly disclose pay information. Conducting an audit is intense and time-consuming. However, when done correctly, conducting an audit will help companies identify troubling pay practices, remedy gaps, and may provide safe harbor protections in some states. A word of caution, though: To minimize the risk of unwanted disclosure of audit results, businesses should work with legal counsel so that the process is protected by the attorney-client privilege. Further, businesses should be ready, willing and able to act on the results. There’s no faster way to walk into a costly lawsuit than to conduct a pay audit and then sweep the results under the rug.

The bottom line is that businesses need to take pay equity seriously. Doing so will not only minimize legal risk but can also help businesses attract – and keep – good employees.

Kelley Barnett is a labor and employment attorney for AmTrust Financial Services.