The Labor and Employment Report: An End to Pay Secrecy Policies?

Many employers are reluctant to allow employees to discuss their compensation with one another, fearing that this may lead to poor morale and/or jealousy if similarly-situated employees discover that they receive different rates of pay.  Employers may also believe that employees’ lack of knowledge of their colleagues’ compensation can be beneficial when negotiating pay increases.  Due to these concerns, it is commonplace for employers to implement policies that bar employees from disclosing their compensation.  Although these policies are ubiquitous, they violate the laws of multiple states and the federal government is also increasingly restricting the use of such policies.

Illinois is one of approximately a dozen states that prohibit pay secrecy policies.  The Illinois Equal Pay Act expressly provides that it is unlawful for an employer to discharge, discipline or otherwise retaliate against from inquiring about, disclosing or comparing his or her compensation or that of another employee.  This provision was adopted as a method for reducing the earnings gap between men and women, with the belief that communications between employees about pay rates can prove valuable evidence in pay discrimination lawsuits and that pay secrecy policies enable pay discrepancies to continue.  Other states, such as Connecticut and Michigan, have promulgated bans on pay secrecy policies as part of their general wage and hour laws. 

Recently, the National Labor Relations Board (“NLRB”) has ruled that pay secrecy policies can violate the National Labor Relations Act (“NLRA”).  Although the NLRA is usually thought of as the law regulating employer/union relations, the law also protects non-unionized employees who engage in concerted activities for their mutual aid or protection.  In a March 2015 ruling, an administrative law judge at the NLRB concluded that a pay secrecy policy implemented by T-Mobile violated the NLRA because the inter-employee communications about rates of pay were joint efforts to improve the work environment.  Separately, the Office of Federal Contract Compliance Programs (“OFCCP”), the federal agencies that oversees federal contractors, is in the final stages of promulgating a new regulation that will bar federal contractors, subcontractors, and contractors working on federally-assisted construction projects from discharging or otherwise discriminating against employees or applicants who inquire about, discuss or disclose wage information in connection with an investigation or complaint of pay discrimination.

Both the NLRA and the pay secrecy laws adopted in various states allow employees who are discharged for discussing compensation to recover the same types of damages as employees discharged for a discriminatory reason.  This means that employers can potentially be liable for lost wages and benefits, attorney’s fees, interest, emotional distress damages and other costs.  Contractors or subcontractors who violate the OFCCP’s rules can be debarred from working on federal contracts for specified periods of time.    Hence, the cost to employers for discharging or otherwise retaliating against employees who disclose or discuss their compensation can be onerous. 

Even though employers should be leery about enforcing pay secrecy policies, there are still some areas where pay secrecy can be enforced.  The pay secrecy laws apply to communications among employees, or communications made during investigations or complaints of pay discrimination.  However, to the extent that an employer’s compensation practices are confidential, proprietary or a trade secret, they continue to be protected.  Therefore, employers can still prohibit employees from disclosing their wages to competitors.  Employers also will likely be able to successfully justify a termination or discipline of an employee when the employers can show that the action was taken due to misconduct, not discussion or inquiry about compensation.  Hence, when an employee continues to ask another employee about compensation after being told to leave, or is otherwise disruptive to the workplace, termination or discipline may be warranted.  However, in these circumstances, employers should be cautious and act only if there is clear evidence of employee misconduct.

The Labor and Employment Report addresses current issues in labor and employment law.  Please contact Seth at (312) 648-2300 or if you have any questions about this blog or any other labor or employment law issue.