Starting on January 1, 2023, the world’s fifth-largest economy will adopt new pay transparency measures, as California’s SB 1162 will require employers with 15 or more employees to include salary or hourly wage ranges in all job postings.
Previously, employers were only required to provide an applicant with a pay range upon reasonable request. Now, overly broad job descriptions with wide pay ranges will no longer suffice. Instead, before posting a job, employers will need to ensure that the job description adequately justifies the range that is being offered for the experience level expected.
The new law also requires covered employers to provide existing employees with the pay scale for their current positions upon request. Again, this requires employers to take the initiative to ensure that the objective and subjective components of the position are sufficiently specific to justify the pay range. Skimping on due diligence in this regard may lead to an Equal Pay Act claim.
Documentation is important as employers must maintain job title and compensation records for each employee for the duration of their employment and for three years after their departure. The law also mandates disclosure of the pay scale if it will be used by a third party to post, publish or advertise a job posting.
Under SB 1162, the state’s labor commissioner will have the authority to investigate complaints alleging violations of the provisions. Upon finding a violation, the commissioner may order a covered employer to pay a civil penalty between $100 to $10,000 per violation. The law also provides a private right of action for an individual to seek injunctive and other relief. While the civil penalty may prove a great enough deterrent to force compliance, the bill essentially creates an opportunity to gather direct evidence of broader Equal Pay Act violations in circumstances where true discrepancies exist, thereby increasing liability potential for employers even further.
Additionally, on or before the second Wednesday of May each year, California will now require any private employer with 100 or more employees to submit an annual pay data report to the California Civil Rights Department. This report must disclose the median and mean hourly rates within each listed job category, broken down by race, ethnicity and sex. Further, any private employer with 100 or more workers hired through labor contractors like temporary staffing agencies must submit a separate pay data report for these workers. Failure to file the required reports could result in penalties of $100 per employee for an initial violation and up to $200 per employee for any subsequent violation.
Pay Transparency Laws in Other Jurisdictions
California is the latest to enact a pay transparency law, but it is hardly the only state or local government to mandate such disclosures in recent years. New York City and the states of Colorado and Washington have already enacted salary range disclosure requirements. New York’s state legislature also passed a pay transparency law in June that is awaiting the governor’s signature. If signed, the law could go into effect next year. Other states like Connecticut, Nevada and Rhode Island have adopted laws requiring pay transparency during the hiring process, and Connecticut, Rhode Island and Maryland require disclosure upon an applicant’s request.
Colorado was the first state to pass such a law, which went into effect in January 2021 with the specific goal of helping to close the gender wage gap. The law requires notable additional measures to that end. For example, employers must notify employees of promotion opportunities and must keep record of all employees’ job descriptions and pay histories during employment and for two years after. It also prohibits employers from asking about a job applicant’s pay history, as this has been shown to significantly perpetuate pay disparities.
With the significant shift to work from home arrangements around the COVID-19 pandemic, Colorado’s enactment of this new law led some companies to try to avoid the disclosures by improperly excluding remote applicants from Colorado.
According to statistics published by the Colorado Department of Labor and Employment, three local companies were fined in 2021 for violations of the Pay Transparency Act. The fines ranged from $6,500 to $34,000 and amounted to an average of $500 to $1000 per violation. Should any of these violations lead to subsequent litigation, it is important to note that one consequence of failing to keep pay history data is the potential for an adverse jury instruction at trial that permits the jury to infer that the “failure to keep records can be considered evidence that the violation was not made in good faith.”
Will Federal Law Follow Suit on Pay Transparency?
At some point, federal law will likely follow the states’ lead on this issue. Pay transparency is at the forefront of many discussions surrounding workplace equality in the United States, and is firmly on the radar at the highest levels of government. Indeed, President Biden issued an executive order in 2021 that established the White House Gender Policy Council. The goals and strategies articulated in the order included, in part:
- Closing gender gaps in the workforce and strengthening women’s labor force participation
- Strengthening laws prohibiting wage discrimination on the basis of gender, race and other characteristics, and increasing resources for enforcement
- Promoting pay transparency by taking steps to increase analysis of pay gaps on the basis of gender, race and other factors
- Pursuing policies to eliminate reliance on prior salary history in compensation decisions
A corollary order was issued in March 2022 to promote pay equity and transparency within the federal workforce and among federal contractors. In essence, this requires private companies to be transparent about employees’ compensation in order to be eligible to perform government work.
Risk Mitigation in Transparency Jurisdictions
Employers need to take steps now to ensure they have clear job descriptions that match the compensation ranges in the locations in which they are hiring. They should also audit internal and external pay data to eliminate the risk of Equal Pay Act claims from current employees. Additional compliance training for management and human resources personnel is likely necessary as well.
Managing the resulting risks extends beyond the organization itself. Insurance carriers should be inquiring about a company’s practices in this regard when making underwriting decisions as an employer is a liability risk if it is not aware of or addressing these issues proactively. Corporate counsel needs to prepare for the ramifications of these violations and the litigation that could result.
Transparency is not just a “trendy” topic, as state and federal legislatures are beginning to make clear. Employers, employees, job candidates, insurance carriers and their respective legal counsel have much to consider as salary disclosures and other employment equity measures go into effect.