New York City recently passed a law requiring that job postings state a minimum and maximum starting salary for any advertised job, promotion, or transfer opportunity. Wage transparency laws like New York City’s deepen the connection between several aspects of workforce management best practices. While the law simply requires job postings to include salary ranges, this requirement raises the stakes on pay equity, so much so, that it behooves employers to maintain defensible pay structures, employ sound performance management practices, have up-to-date job descriptions, and maintain all other necessary documentation to support their compensation decisions.

New York City’s law, which goes into effect on May 15, 2022, amends the city’s Human Rights Law to include a new discriminatory practice: failing to include salary ranges in job postings. The law requires job postings to include a salary range “from the lowest to the highest salary the employer in good faith believes at the time of the posting it would pay for the advertised job, promotion, or transfer opportunity.” NYC Admin. Code §8-107 (32). The law does not define “salary,” so absent further regulatory clarification, all positions, regardless if paid as salary or on an hourly or other basis, are presumed subject to the law. New York City’s law applies to “employer agents and employment agencies,” unlike Colorado’s law, discussed below, which is strictly limited to the hiring employer.

A Growing Trend

New York City’s law follows from Colorado’s robust pay transparency law, which requires employers to disclose salary range as well as benefit information in job postings, and obligates employers to post internal openings (including the mandated disclosures) before filling the role. Colorado has taken the position that its law applies to nationwide remote job postings by Colorado employers, and Colorado employers who post national remote positions excluding Colorado applicants violate the law.

Several other states and cities have passed, or are considering, pay transparency laws that require salary disclosure at various points in the interview process and employment relationship:

Growing Transparency Means More Fairness, More Claims of Pay Discrimination, and Higher Stakes for Recordkeeping

Many pay transparency laws grant specific rights to current employees to request their current or prospective pay scale information. Even under laws that do not grant specific rights to current employees, pay scale publication on open positions will be illuminating. As employees learn more about their pay relative to peers, some element of dissatisfaction may be inevitable, and claims of pay discrimination will likely become more common.

Employees who are paid less than colleagues are paid for similar work may pursue two types of claims. The first arises under the federal Equal Pay Act (EPA), which applies to gender only and has a simple framework: Once a plaintiff demonstrates the employer pays higher wages to the opposite sex for equal work on jobs performed under similar working conditions requiring equal skill, effort and responsibility, there is a presumption of liability that the employer can only rebut by establishing the discrepancy is due to a system based on seniority, merit, or quantity or quality of production, or a differential based on a factor other than sex. Sandor v. Safe Horizon, No. 08-CV-4636 (ILG), 2011 U.S. Dist. LEXIS 3346, at *38 (E.D.N.Y. Jan. 12, 2011). The EPA is “essentially a strict liability statute; a plaintiff need not demonstrate discriminatory intent to prevail.” Id. (citing Belfi v. Prendergast, 191 F.3d 129, 136 (2d Cir. 1999)). States with equal pay laws generally follow this same format. Some states, including New York and New Jersey, have expanded their equal pay laws to cover all classes protected from discrimination.

The second type of claim, discrimination under Title VII and similar antidiscrimination laws, is addressed through the burden-shifting framework of McDonnell Douglas v. Green, which requires a plaintiff to show that differences in pay were coupled with evidence of discriminatory animus. Lenzi v. Systemax, 944 F.3d 97, 109 (2d Cir. 2019). Under either type of law, proof of a difference in pay is the essence. New pay transparency laws, therefore, will invariably lead to a rise in pay discrimination claims under either federal law or similar state laws.

All employers, even those who already align their positions to pay scales, should understand—and prepare for—the legal implications of increased transparency. Employers not yet using a standardized pay determination process may want to seriously consider establishing one, notwithstanding that doing so could be a significant undertaking and might reveal existing disparities.

Most pay transparency laws require additional recordkeeping to substantiate compliance with the laws’ stated requirements. Employers must not only maintain proof of compliance with their disclosure obligations under applicable law, but also will need strong documentation supporting reasons for any potential pay differentials. When pay information, and potential differences in pay among colleagues, becomes routinely available to the workforce, thorough documentation supporting legitimate differences in pay, such as variance in employee skill sets, will be critical. Under the EPA, equal skill “is defined as including such factors as experience, training, education, and ability, as measured in terms of the performance requirements of the job at issue.” Chiaramonte v. Animal Med. Ctr., 2016 U.S. Dist. LEXIS 8024, at *25 (S.D.N.Y. Jan. 7, 2016). Title VII permits a more flexible framework, but typically discrimination will hinge on similar factors. 6 Larson on Employment Discrimination §110.01 (2021).

Employers who keep accurate documentation of employees’ specific job duties, specializations, performance, productivity, and workload will be in the best position to explain differences in pay. For EPA claims, courts require specific proof of equal work; similar job titles are not sufficient. See Fisher v. Vassar Coll., 70 F.3d 1420, 1452 (2d Cir. 1995) (vacating judgment for plaintiff on EPA claim where plaintiff failed to establish that she and her comparator performed equal work, despite proof that both were professors in the biology department), reheard en banc on other grounds, 114 F.3d 1332 (2d Cir. 1997), abrogated on other grounds by Reeves v. Sanderson Plumbing Products, 530 U.S. 133, 120 S. Ct. 2097, 147 L. Ed. 2d 105 (2000). Consistent, periodic review of job descriptions—both for current employees and for new listings—ensures records align closely with an employee’s actual workload and job responsibilities. Annual performance reviews that address lapses in performance, removal of responsibilities, and other earmarks of underperformance provide helpful documentary support for stalled wages when others are receiving pay raises.

Practical Concerns

As New York City’s law goes into effect, applicants and current employees will soon have access to employers’ pay practices, and so will business competitors. This could result in salary wars over in-demand roles. Employers may consider increasing their pay ranges to attract talent. Raising pay for new openings might create a legal obligation to increase pay for current employees. Further, given the law’s posting requirement—employees can see competitors’ postings, as well—employers should consider whether any pay adjustments or retention bonuses are warranted to retain current employees through the frenzy.

Education of managers and those involved in performance management and compensation decisions is critical, as pay transparency laws reinforce the importance of comprehensively documenting workplace realities such as performance and the other factors discussed above. Employers may find that lawful factors explain any pay differentials in their workforce.

Even employers with sound pay practices are likely to receive an increase in complaints of pay discrimination when transparency increases. Employers can create new exposure, even when handling complaints challenging their lawful practices, if they fail to handle complaints in line with employer obligations under applicable antidiscrimination laws. Claims for retaliation, typically an independent cause of action, can arise even when based on disproven complaints of discrimination.

Employers may consider reviewing pay practices now, under attorney-client privilege where practicable, keeping in mind that well-intended analyses of an existing pay structure may be discoverable in a later pay discrimination claim. Employers that uncover pay disparities will have to decide whether to rectify those errors on a prospective or retrospective basis. Unlike other claims under Title VII, which have filing deadlines of 180 days (300 days in states with their own human rights agencies), claims of pay discrimination could have lengthy viability. Under the Lily Ledbetter Act, claims for wage discrimination under applicable federal antidiscrimination law accrue with each new paycheck, rather than at the time the employer made the challenged decision. 42 U.S.C. §2000e-5(e)(3)(A). As a result, current employees could have viable claims spanning many years into the past. State labor laws allow employees to seek back wages and damages for unlawful pay disparities; in New York, the statute of limitations is six years. New Jersey’s Diane B. Allen Equal Pay Act amended the New Jersey Law Against Discrimination to create a six-year “lookback” period, allowing an employee who establishes discrimination in compensation to recover up to six years of back pay as long as the discrimination was continuous and the most recent violation occurred within the law’s two-year statute of limitations.

As pay transparency laws become more prevalent around the country, they will raise the stakes for employer pay practices. Employers should take steps now to minimize their risk through careful analysis, potential pay structure modifications, and thorough documentation of business justifications for pay decisions.