Over the last several decades, pay secrecy policies have persisted – and even thrived – in the American workplace. Employees who are told not to discuss their compensation with their colleagues rarely question the legality of such a prohibition and, even if they did, are fearful of violating it for fear of losing their job. As a result, pay secrecy policies have long provided a critical advantage to employers during salary negotiations, and prevented employees from assessing how their pay compares to their peers.

Employees' ability to discuss their own compensation and that of their colleagues, one of the elements of “pay transparency,” is seen as a key component of pay equity, and is receiving pressure from many angles and traction at the state level. Times are changing, however, and not just thanks to pay equity advances and the recent #MeToo movement. Instead, a younger generation of American workers is also demanding workplace policies that reflect workplace realities. A recent survey conducted by The Cashlorette found that almost a third (30%) of millennials ages 18-36 have shared their salaries with a co-worker (as opposed to only 8% of baby boomers ages 53-71)¹. As pay secrecy norms disappear, and pay equity measures continue to gain momentum, pay secrecy policies are on their way out – and pay transparency appears to be here to stay.

What is Pay Secrecy?

Broadly speaking, pay secrecy refers to a workplace policy, or set of policies, that discourages or prohibits employees from discussing how much compensation they or other employees make. Sometimes these policies are formally written in handbooks or compensation guidelines. Oftentimes, however, the policies are verbal or implied, and employees are discouraged from discussing compensation matters by their managers or supervisors. Written or not, the policies have a substantial chilling effect: surveys have found that as many as half of all workers report being discouraged or prohibited from discussing compensation information.

NLRB Prohibits Pay Secrecy Policies, But To What Effect?

On the federal level, protections for employees who discuss their pay are not new. Under the National Labor Relations Act of 1935 (NLRA), private-sector employees enjoy the right to engage in “concerted activities for the purpose of collective bargaining or other mutual aid or protection.” As a result, the National Labor Relations Board has long held the NLRA protects the rights of employees to discuss their pay and prohibits pay secrecy policies that discourage or outright forbid employees from doing so.

Significantly, however, the NLRA's protections to not extend to all employees. The NLRA applies only to private employers, and the pay transparency protections apply only to nonsupervisory employees. Additionally, of the workers that do enjoy the law's protections, many do not fully understand their rights or fear what will happen if they try to speak up. The NLRA is not a complete weapon against pay secrecy policies.

Federal Pay Transparency Efforts Offer Mixed Results

Federal efforts to eliminate pay secrecy practices gained significant momentum under the Obama Administration. The very first piece of legislation President Obama signed was the Lilly Ledbetter Fair Pay Act. He also created a National Equity Pay Task Force and called on Congress to pass the Paycheck Fairness Act (discussed in more detail below). In addition, on April 8, 2014, President Obama issued Executive Order 13665 prohibiting federal contractors, subcontractors and federally-assisted construction contractors from discharging or discriminating against any employee or applicant because the employee or applicant inquired about, discussed, or disclosed his or her compensation or the compensation of other employees or applicants.

The following year, the U.S. Department of Labor's Office of Federal Contract Compliance Programs (OFCCP) published a Final Rule revising certain provisions of its anti-discrimination regulations to broadly protect employees who inquire about compensation from discrimination. OFCCP's new regulations, which became effective January 11, 2016, apply to all and apply to all covered contracts entered into or modified as of that date. ²

Federal Legislation Stalls

Other efforts to ban pay secrecy policies nationwide have failed to gain traction. The Paycheck Fairness Act was first introduced in 1997 and has been reintroduced almost a dozen times since, most recently last April. The Act would amend the Fair Labor Standards Act of 1938 to: (1) make it illegal for employers to prohibit employees from inquiring about, discussing or disclosing their own or another employee's wages; (2) prohibit employers from taking any adverse employment action against employees for inquiring about or discussing wages; and (3) bar employers from requiring employees to sign a waiver of their right to discuss their wages.

In 2009, the House of Representatives approved the Paycheck Fairness Act in a bipartisan vote. The Senate, however, failed to move the bill forward and, as a result of subsequent Republican filibusters, the bill has not even made it to the Senate floor for debate. The Act currently has 197 Democratic co-sponsors and only one Republican co-sponsor. As a result, its passage during the current session of Congress is highly unlikely at best.

State Pay Transparency Efforts Gain Momentum

As federal efforts stall in Congress, states are forging their own paths, progressively addressing pay transparency. In the last two decades, seventeen states – including California, Colorado, Connecticut, Delaware, the District of Columbia, Illinois, Louisiana, Maine, Maryland, Massachusetts, Michigan, Minnesota, New Hampshire, New Jersey, New York, Oregon, and Vermont – have enacted legislation that prohibits employers from banning employees from discussing their wages and/or prohibits retaliation against employees who discuss their pay or the pay of others.

The first two state laws to address pay secrecy policies were passed in the 1980s. In 1982, Michigan enacted a law which prohibited employers from doing any of the following: require as a condition of employment non-disclosure by an employee of his or her wages; require an employee to sign a waiver or other document which purports to deny an employee the right to disclose his or her wages; and discharge, formally discipline, or otherwise discriminate against an employee for job advancement on the basis of having disclosed his or her wages. In 1985, California enacted a similar law making it unlawful for an employer to require an employee to refrain from discussing his or her wages, to sign a waiver that purports to prohibit such discussions,³ or to discharge, discipline or discriminate against an employee who discloses his or her wages. Much of the momentum, however, has occurred in the last several years.

Generally speaking, each of the state pay transparency laws provides that it is unlawful for an employer to prohibit employees from discussing their wages and to retaliate against them for engaging in such conduct. For example, amendments to the New York Labor Law, which became effective on January 19, 2016, provide that an employer cannot “prohibit an employee from inquiring about, discussing, or disclosing the wages of such employee or another employee.”⁴ Similarly, the California Fair Pay Act, which became effective on January 1, 2016, provides that “[a]n employer shall not prohibit 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 [such] rights.” Both laws prohibit employers from discharging, discriminating, or retaliating against any employee in light of the exercise of such rights.

Although most of the states protect an employee from discussing his or her own wages, as well as the wages of other employees, Colorado and Michigan only protect an employee's discussion of the former. Further, Connecticut, Maryland, and Minnesota only protect the discussion of another employee's wages if such information was voluntarily disclosed by that employee.

Best Practices

Pay transparency laws undoubtedly pose certain litigation risks for employers. However, employers can – and should – take steps to effectively minimize risk and create a transparent and positive compensation culture.

First, employers should make certain that they include in their policies and handbooks a strong non-retaliation provision stating that, with certain exceptions, no employee will be retaliated against for discussing compensation. Second, employers should review and update their compensation policies and guidelines to ensure that they do not explicitly or implicitly prohibit or discourage employees from discussing wages. Third, employee complaint procedures should be reviewed and employees should be encouraged to ask questions about compensation decisions. Finally, employers should work with outside counsel to proactively conduct an equal pay audit to ensure that compensation decisions are not adversely impacting female or minority employees.

1. The same survey found that a whopping 63% of millennials have shared their salaries with family members and 48% have shared their salaries with friends.
2. The regulations provide contractors with two defenses to an allegation of discrimination: (1) a general defense, which could be based on the enforcement of a “workplace rule” that does not prohibit the discussion of compensation information; and (2) an essential job functions defense excluding instances where non-disclosure of compensation information is part of an employee’s essential job functions.
3. Other states, including Colorado, Connecticut, Delaware, Michigan, Minnesota, New Hampshire, Vermont, Massachusetts, and Michigan, also prohibit employers from requiring employees to sign waivers abrogating their right to discuss their wages.
4. New York’s Labor Law, however, does permit employers to: (1) establish reasonable limitations to the time, place, and manner of such discussions regarding wages if provided in a written policy; (2) prohibit the discussion of another employee’s wages without that employee’s permission in such a written policy; and (3) prohibit employees who have access to the wage information of other employees from disclosing such information to employees who do not have access to such information. Similar carve-outs in District of Columbia, Maryland, Massachusetts, New Hampshire, Oregon, and Vermont have also been enacted.