Oct 28, 2014

Salaries, Secrecy and Sex Discrimination

The Legal Intelligencer, June 24, 2014.

Pay equity, the notion that pay disparities between men and women should be eliminated, has been a hot topic in the last year, as women have been instructed to “lean in” to advance their careers, Lily Ledbetter has become a household name, and the credo “equal pay for equal work” has become commonplace. Although the campaign for equal pay began decades ago, many Americans are rightly alarmed by the revelation that women, on average, still earn just 77% of the amount that their male counterparts make. White House Nat’l Equal Pay Task Force, Fifty Years after the Equal Pay Act 7 (2013). At that rate, a female employee working full-time must put in 60 extra work days before she will keep pace with the annual earning of her male peers. Ariane Hegewish, et al., Inst. for Women’s Policy Research, Pay Secrecy and Wage Discrimination (2011); Eileen Patten, On Equal Pay Day, Key Facts About the Gender Gap, (last visited May 18, 2014), http://www.pewresearch.org.

One factor that is widely thought to further unequal pay is the relative code of silence that surrounds issues of compensation. In a society in which individuals are reluctant to share the amount that they earn with friends, or even family, it is not surprising that most Americans do not disclose their pay to co-workers or discuss compensation in the workplace.

The silence surrounding pay is not just the result of a deeply embedded social norm or a well-developed sense of modesty, however. Many employees keep quiet because they have been instructed to do so by their employer. The admonitions often take the form of verbal warnings that are issued upon hiring, or which are codified in employee handbooks. Whatever their form, the policies often carry the threat of sanctions for non-compliance. Nationally, approximately 50 percent of employers are thought to have policies that direct employees to keep quiet regarding compensation. Tom Dreisbach, ‘Pay Secrecy’ Policies at Work, (last visited May 18, 2014), http://www.npr.org.

The concern with pay secrecy, however, is not just that employees will run out of topics at the water cooler or company picnic. As Justice Ginsburg observed in her widely cited dissent in Ledbetter v. Goodyear Tire & Rubber Co., 550 U.S. 618 (2007), when compensation is not discussed in the workplace, pay disparities based on sex, “are often hidden from sight.” Ledbetter, 550 U.S. at 649. Many female employees never discover that they are being paid less than their male co-workers, or only do so after years of lost wages. In the interim, female employees lose the opportunity to advocate for equal pay.

Although the end result of pay secrecy policies may often be inequality, employers commonly adopt policies with no intention of enlisting in society’s “gender wars” or hindering their female employees. Instead, many employers advance pay secrecy for completely legitimate reasons apart from sex. Brian O’Neill, Pay Confidentiality: A Remaining Obstacle to Equal Pay After Ledbetter, 40 Seton Hall L. Rev. 1217, 1233 (2010); Rafael Gely, Leonard Bierman, Pay Secrecy/Confidentiality Rules and the Nat’l Labor Relations Act, 6 U.Pa.J.Lab.& Emp.L. 121, 129 (2003).

The most commonly cited rationale for pay secrecy is that disclosure of salaries breeds jealousy that can disrupt the workplace and undermine productivity. O’Neill, 40 Seton Hall L. Rev. at 1233-34. Even if an employer discloses salaries, their employees may not understand the many complex, and sometimes unquantifiable factors that influence compensation. Id. at 1233; Gely, 6 U.Pa.J.Lab. & Emp.L. at 143-44. Employees who do understand may still disagree with an employer’s subjective analysis of performance. The result can be workplace resentment or undue time spent by employees advocating for raises that simply haven’t been earned. O’Neill, 40 Seton Hall L. Rev. at 1233-34.

Pay secrecy also allows employers to differentiate compensation to award performance rather than indiscriminately leveling pay. Id. at 1235. Policies may also reduce the costs that arise from employee-turn over, including recruitment and training costs, and lost productivity. Employees with constant access to salary information may behave more opportunistically and change jobs more frequently. Id. at 1234; Gely, 6 U.Pa.J.Lab. & Emp.L. at 146. In an environment where employees frequently “abandon ship” an employer may even choose to lower pay across the board rather than investing in their employees’ long-term job satisfaction. Finally, transparency might be opposed by employees themselves, many of whom consider their salary to be private information.

Employers who want to advance the sometimes legitimate aims of pay secrecy may grapple with how to do so while complying with the law. While there is plenty of statutory authority that mandates equal pay, including the federal Equal Pay Act, Title VII of the Civil Rights Act of 1964, and the Pennsylvania Equal Pay Law, the law regulating pay secrecy is comparatively sparse. Two bills designed to address pay secrecy at the state level, House Bill No. 1890 and Senate Bill No. 1212, recently stalled in the Pennsylvania General Assembly. H.B. 1890, 198th Gen. Assemb., Reg. Sess. (Pa. 2014); S.B. 1212, 198th Gen. Assemb., Reg. Sess. (Pa. 2014).

In April, President Obama took the fight against pay secrecy into his own hands by enacting two provisions that apply to federal contractors. Federal contractors are now prohibited from retaliating against any employee or applicant that “has inquired about, discussed, or disclosed” their compensation to another. Exec. Order No. 13665, 79 Fed. Reg. 20,749 (April 11, 2014). The President also directed the Department of Labor to promulgate regulations requiring federal contractors to submit compensation data, which will be used to further parity. 79 Fed.Reg. 20,751 (Apr. 11, 2014).

For most employers, however, the National Labor Relations Act (NLRA), 29 U.S.C. §§ 151 et seq., is the principal statute that governs pay secrecy. Perhaps because the NLRA is most commonly associated with labor organizations (the word “labor” is in its name after all), many private employers fail to recognize that they are also subject to its terms. Dreisbach, ‘Pay Secrecy’ Policies at Work, (last visited May 18, 2014), http://www.npr.org.

Section 7 of the NLRA safeguards employees’ rights to engage in “concerted activities” for their “mutual aid or protection.” 29 U.S.C. § 157. Section 8(a), in turn, declares that it is “an unfair labor practice for an employer to interfere with, restrain or coerce employees in the exercise” of the section 7 rights. Id. at § 158(a)(1). Courts interpreting section 7, and the National Labor Relations Board (NLRB) have repeatedly held that conversations regarding pay are a protected activity under section 7, and that pay secrecy policies can therefore constitute an unfair labor practice. See e.g. Jeanette Corp. v. NLRB, 532 F.2d 916, 918 (3d Cir. 1976); Waco Inc., 273 NLRB No. 1010 (1984).

Set against this background, employers may be left wondering how they can advance the valid aims of pay secrecy without running afoul of the NLRA. Courts analyze NLRA claims by first asking whether a protected activity is implicated and if the employer has inhibited the activity. See e.g. Jeanette Corp., 532 F.2d at 918. If so, the employer then has the burden to show that there is a legitimate business justification for the intrusion. Id. Finally, the court weighs the employer’s proffered reason against employee rights. Id.

While eliminating workplace jealousy is not a legitimate business justification, other rationales may survive scrutiny. See e.g. Jeanette, 532 F.2d at 919; NLRB v. Vanguard Tours, Inc., 981 F.2d 62 (2d Cir. 1992). In Jeanette, the Third Circuit opined that a policy “prohibiting wage discussions during work time,” but which allowed for discussions during breaks or off-campus, might be acceptable. See Jeanette Corp., 532 F.2d at 919. A carefully tailored policy that is aimed at productivity, therefore, may be enforceable. Concerns about workplace safety may also justify policies that curb wage discussions. See e.g. Wilson Trophy Co. v. NLRB, 989 F.2d 1502 (8th Cir. 1993). Employers should keep in mind, however, that even an unspoken policy can violate the NLRA. See e.g. NLRB v. Main St. Terrace Care Ctr., 218 F.3d 531 (6th Cir. 2000).

Importantly, nothing in the NLRA imposes an affirmative duty on employers to advertise individual salaries or the reasons behind its compensation scheme. IBM Corp, 265 NLRB No. 107 (1982). Employees can also be required to keep sensitive internal information, including salary information, confidential from competitors or outside entities. Id.

Employers should also note that section 7 of the NLRA only safeguards employee rights. Policies that exclusively apply to supervisors or independent contractors, as defined by the NLRA, are therefore valid. 29 U.S.C. §§ 157; 152(3); O’Neill, 40 Seton Hall L. Rev. at 1247-48.

The NLRA, first enacted in 1935, continues to shape the American workplace today. Counsel is well-advised to inform clients of their NLRA obligations and review any existing pay secrecy policies. Anyone who represents federal contractors should stay tuned for federal regulations relating to employment data and should caution their clients about actions that could constitute retaliation. Finally, counsel should remind employers that all their employees deserve equal pay for equal work; pay secrecy policy or not.

Reprinted with permission from the June 24, 2014 issue of The Legal Intelligencer. (c) 2014 ALM Media Properties, LLC. Further duplication without permission is prohibited. All rights reserved.

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