APU Business Original

Pay Equity and Private-Sector Employer Accountability

By Dr. Gary L. Deel, Ph.D., J.D.
Associate Professor, Dr. Wallace E. Boston School of Business

Several years ago, I wrote an article about how gender-based pay discrimination could be mitigated, if not eliminated, through IRS tax record audits. In that article, I explained how the federal government could potentially use information it already has and a process of random auditing to ensure that illegal wage discrimination isn’t occurring along the lines of any protected classes. And I continue to stand by that proposal as one potential solution through which pay discrimination could be abated and pay equity could be better ensured.

However, there is another potential method through which we might resolve the issues of pay injustice and/or pay discrimination. What if employers were required to openly publish wage brackets for all of their jobs, so that they could be monitored for incongruities that might suggest unfairness with respect to employee pay equity?

This proposition might smack of anathema to many people. After all, this information would mean that all of your friends, family and coworkers would know approximately how much money you make from your employer.

For many of us, that information is and always has been private. Wages and income are viewed as a kind of status symbol in American culture, so keeping this pay information confidential means others cannot judge us about our place in society.

Indeed, some studies have indicated that more than three-quarters of us lie about the money in our lives in some way, shape or form. Much of this dishonesty likely has to do with saving face and maintaining the kind of dignity we want others to afford us, whether or not it’s predicated on false pretenses.

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Publishing Wage Information Publicly Is Already Done by the Federal Government

It’s important to note that the idea of publishing wage information isn’t novel by any means. The most prominent example is the federal government, which openly publishes wage brackets for all federal employees.

For example, the General Schedule is a classification disclosure for most civilian professional, technical, administrative, and clerical positions in the federal government. The pay tables are region-specific and adjusted for costs of living in different parts of the country, so they are complex, to say the least.

But nonetheless, all federal personnel wage brackets are public information – right on up to the President of the United States, who, if you’re wondering, currently makes $400,000 per year. There are currently about two million civilian employees of the federal government, and another two million or more active-duty and reserve military personnel.

So wage transparency is already a reality for a lot of people. Many state governments also follow suit in publishing pay information for their employees as well.

Ultimately, if you work for the federal government or a conforming state government, you know (more or less) what every person working around you makes, including your coworkers, your boss, and your subordinates. All of them know how much you make, too.

Wage transparency in governments has been the norm for decades, and somehow the world keeps on turning. Government employees accept that a free and open democracy requires this kind of transparency.

But wage transparency also ameliorates the majority of concerns about wage discrimination, because everyone within a certain job classification can only be paid what the pay bracket dictates for the minimum and maximum pay. Deviations are generally not allowed in the federal government as a matter of policy.

Private-Sector Pay Ranges Between Employees Are Much Different

In the private sector, the situation regarding employee pay is obviously different. Private-sector employers are free to pay their employees vastly different amounts, provided that the reason for such differences is not an illegal, discriminatory one.

For example, let’s say that an employer pays Employee A $50,000 per year and pays Employee B $500,000 per year (10 times the amount paid to Employee A) for the same work in the same job. In theory, this pay disparity is fine, so long as there is a legal and legitimate reason for doing so.

So if Employee B has better education, training, experience, skills, abilities, licenses or certifications, then these factors might be legitimate reasons for a higher pay rate. Remember, there is no regulatory cap on the range of salaries for employees doing the same job.

But when there is no legitimate reason given for a pay disparity between employees, that may raise suspicion and concerns about illegal pay discrimination. Employers may face accusations about differences in pay based on gender, race or some other protected class.

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Employees Have the Legal Right to Discuss Their Salaries with Each Other

According to the 1935 National Labor Relations Act, the right of employees to discuss pay between themselves (if they wish) is legally protected. But this law doesn’t require employees to discuss pay with each other, either.

Most employees, as it turns out, simply do not discuss their salaries with each other. It’s generally considered private and personal information, and asking other employees about how much money they make would probably be seen as rude. You aren’t likely to make many friends in the workplace if you go around asking to see your coworkers’ paystubs.

Privacy Traditions Mean That Private-Sector Employees Often Don’t Know about Pay Discrimination

The problem with the privacy traditions of salary information in the private sector is that employees generally don’t have any way of knowing if their employer is illegally discriminating against them by paying them less than other employees in the same position.

One such employee was a Goodyear tire company manager by the name of Lilly Ledbetter. Ledbetter worked for Goodyear for 19 years in the ‘80s and ‘90s, only to then discover through an anonymous email tip that she was being paid substantially less than her male counterparts in the company.

Ledbetter sued for gender-based pay discrimination. She won at the trial level, but her victory was overturned at the appellate level. Her case was then reviewed by the Supreme Court, which ultimately ruled against her. At the time, the law for discrimination claims placed a statute of limitations for those claims at 180 days from the date the discrimination began.

For Ledbetter, this law meant that she was roughly 18 and a half years too late in filing her claim. But of course, she had no way of knowing about the pay discrimination until she was tipped off by the anonymous email, so the ruling seemed to reflect a terribly unfair situation.

In response to this injustice, President Barack Obama passed the Lilly Ledbetter Fair Pay Act in 2009. This law changed the trigger point from which the clock begins running on the statute of limitations for discrimination claims. Rather than counting from the date when the discrimination first began, the statute of limitations now starts on the date when the employee first discovers the discriminatory behavior.

This act made a big difference to the victims of pay discrimination, because now it doesn’t matter how late in the timeline an employee discovers illegal pay discrimination. A victim can still file a claim for up to 180 days after the discrimination is discovered.

Lilly Ledbetter would have had legal recourse under this changed rule; unfortunately, the new law was too late for her. But in the future, the Lilly Ledbetter Fair Pay Act should help many other employees who are victims of similar pay discrimination.

The Lilly Ledbetter Fair Pay Act Doesn’t Entirely Solve the Pay Equity Problem

But the Lilly Ledbetter Fair Pay Act doesn’t really solve the problem of pay equity, because many employees suffer from illegal pay discrimination and simply never know about it. They’ll never get an anonymous tip like Ledbetter did. They’ll never have a realistic way to find out about the wrongdoing, so pay transparency among the private-sector employers might be a prudent step.

Some states have incidentally begun to move in this direction, especially in view of the Great Resignation when many employees are leaving their jobs in hopes of finding better jobs. Currently, a handful of states across the country require private-sector employers to publish pay ranges for different positions in their organizations or at least to make such information available upon request from an employee or job applicant.

As it happens, most of these states are progressive “blue” territories. New York City also recently joined this movement in April of 2022.

These new laws require employers to follow their own published pay range information, because deviation from these parameters could be construed as fraud. However, employers are still generally free to establish whatever ranges they like – the pay brackets can be as broad as the employer feels appropriate.

But if a bracket spans a particularly large range, the employer might be exposed to unwanted scrutiny over the basis for such decisions. For example, if a pay bracket spans a very wide range (such as in the scenario we looked at earlier with Employee A and Employee B), employees might begin to wonder how their employer justifies such a large potential difference between worker salaries in the same role.

Of course, a wide range only reveals limited information about employee pay. It doesn’t disclose who makes exactly what amount. Such disclosures are not unheard of as some government agencies actually disclose the exact figures of compensation for each employee.

Perhaps in the future, private-sector pay transparency laws will expand to include such disclosures. For now, most employers are not required to share employee-specific pay details.

But even under existing pay range disclosure rules, a suspiciously large range might motivate employees to be more open with each other. They might be inclined to start talking amongst themselves about who makes what and why – and this communication could lead to legal trouble if the decisions undergirding pay are not completely defensible.

The new pay transparency laws aren’t a perfect solution to prevent all discrimination. But they do provide a means through which employees can monitor the integrity of their employers and hold them accountable when wrongdoing is discovered.

This practice is definitely a win for workplace fairness. We can only hope this transparency about pay continues to spread across all 50 states until there is enough pressure on the federal government to make private-sector pay transparency a nationwide requirement.

Gary Deel

Dr. Gary Deel is a Faculty Member with the Wallace E. Boston School of Business. He holds an A.S. and a B.S. in Space Studies, a B.S. in Psychology, a J.D. in Law, and a Ph.D. in Hospitality/Business Management. Gary teaches human resources and employment law classes for the University, the University of Central Florida, Colorado State University and others.

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