Clearing the Fog: The Importance of Pay Transparency in Remedying Wage Discrimination

By Michael Nunn, 2L at Brooklyn Law School

Historic biases against women and people of color have repeatedly been shown to contribute to long-term economic instability. Despite laws such as the Equal Pay Act of 1963 and the Lily Ledbetter Fair Pay Act’s broad retroactive remedies, pay inequality persists in American society. Significantly, our federal framework fails to fully address employees’ limited access to pay information and their limited ability to negotiate. This is troublesome considering that, to prove discrimination, the laws also place the onus of information-gathering and negotiation on employees, who typically lack the means to avoid under-compensation resulting from historical discrimination.

Usually, those subject to pay discrimination are unaware they are being paid unfairly or fear backlash. As a result, salary negotiations are statistically unfavorable to women and, in particular, people of color: for example, Black and Hispanic women in the U.S. are estimated to achieve parity with white men’s salaries only by 2133 and 2220 (respectively). Recognizing the difficulty in accessing information that shows pay discrimination, pay secrecy among employers is a common denominator in the persistence of the wage gap. Since 2016, as many as a dozen states and localities have either established pay transparency laws, with recent legislation in New York, California, Washington, Colorado, and Connecticut that demand responsibility from employers.

California’s pay transparency law, effective January 1, 2023, now requires employers to include salary ranges in all job advertisements. Additionally, large employers must now submit annual pay data reports disclosing the median and mean hourly rates within each listing by race, ethnicity, and sex. It further provides a private right of action for individuals who file a complaint within a year of learning of employer violations. These provisions make California’s one of the most demanding and progressive pay transparency laws to date.

Similarly, since November 1, 2022, New York City’s pay transparency law requires employers to disclose salary minimums and maximums for all job advertisements based on a “good faith” belief of what they would pay a successful applicant. The New York State legislature recently passed similar legislation, signed in December, and taking effect later this year.

A common motivation among jurisdictions passing such legislation is to make discrimination more identifiable for employees and employers. If given upfront access to comparative salary data as a reference, employees may identify instances of pay discrimination earlier in the hiring process. Moreover, these laws push employers to actively evaluate the validity of their pay practices, as they stand to lose out on talent if their payscales are incongruous with market-rate salaries for similar positions.

Concurrently, the European Union reached a similar conclusion as it, too, struggles to enforce equal pay laws, with a persistent gender wage gap of about 13% (compared to about 17% in the U.S.). In a 2020 report, the European Commission found a significant issue hindering access to justice is “the establishment of a prima facie case of pay discrimination,” with lack of pay transparency as the main obstacle to addressing gender inequality. In response, the Commission issued an equal pay directive in 2021 focused on increasing access to justice and pay transparency for employees. On December 15, 2022, the European Parliament and the Council on the Directive reached agreement on implementing rules.

In practice, the benefits of transparency are readily observed. In unionized workplaces, where pay transparency practices are the most common, the wage gap is significantly smaller than in nonunionized workplaces. Studies have shown that union representation reduces women’s wage gap by “nearly 40% compared to the wage gap experienced by non-union women.” This benefit is attributable to the “transparency and equality provided in union contracts,” according to the U.S. Department of Labor Women’s Bureau. Such benefits had been observed in Europe, where EU member states that implemented pay transparency laws found that workforce participation and retention improved, and women’s career progression strengthened.

In a notable fashion, pay transparency laws have begun cropping up in states across the U.S. Although non-compliance concerns have invariably arisen since the pay transparency laws have gone into effect, many believe these laws will be the most effective in dispersing the fog of confidentiality that enshrouds wage discrimination.