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New Pay Transparency Laws: The Employer Has No Clothes

By: Sam Garcia

Submitted by Firm:
Lathrop GPM LLP - Minnesota
Firm Contacts:
Kathryn M. Nash, Mark S. Mathison, Megan Anderson
Article Type:
Legal Update
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As employers increasingly operate in multiple jurisdictions and are allowing more and more employees to work remotely, employers should be mindful that a number of states are passing pay transparency laws.  Employers hiring workers in such states and/or posting positions that permit remote work locations need to be sure that they are aware of and comply with potential pay transparency laws.

The California Transparency Laws

California, which already required employers to disclose salary information to applicants upon reasonable request, has added new pay scale disclosure requirements for employers that will take effect on January 1, 2023.  These changes will be located in Section 432.3 of the California Labor Code. Specifically, California employers with 15 or more employees will be required to include the pay scale for a position in any job posting and must provide the pay scale to any third party it engages to announce, post, or publish a job posting and require the pay scale to be included in any third-party job posting.

Additionally, under the California law, employers will be required to provide current employees, upon request, with the pay scales for their positions. These requirements are accompanied by record-keeping requirements for employee job titles and wage stories that will enable the California Labor Commissioner to identify any pattern of wage discrepancies.

An employee may enforce these requirements by filing a complaint with the California Labor Commissioner or a civil action for injunctive relief and “any other relief that the court deems appropriate.”  The Labor Commissioner may order civil penalties for violations, ranging from $100-$10,000 per violation. However, the statute provides some leniency in allowing first-time offenders to avoid penalties by updating all job postings for open positions to include the required pay scale.

Further expanding on the transparency of pay scales, Section 432.3 now defines “pay scale” to mean the salary or hourly wage range that the employer reasonably expects to pay for the position.

New York City Transparency Law

New York City has similarly enacted a pay transparency law that took effect on November 1, 2022.  The law requires employers with four or more employees or independent contractors and at least one employee in New York City who post a job, promotion, or transfer opportunity to disclose the minimum and maximum annual salary or hourly wage that the employer in good faith believes it would pay for the position.  This requirement applies to a position that can or will be performed, at least in part, in New York City. A similar statewide proposal was recently passed in the summer of 2022 and is currently under consideration by the New York Governor.

Considerations for Employers with Employees in Multiple Jurisdictions

There are several compliance issues that will arise as transparency laws are put into effect. In California, for example, Section 433.23 requires an employer with more than 15 employees to publish pay scale information but does not expressly specify if this would apply to a large employer with only one employee in California. As this issue demonstrates, employers who are hiring for remote positions need to ensure that they are in compliance with any applicable transparency laws in locations where an employee could foreseeably perform their work.

Another issue involves the specifics of the disclosure requirement. For example, the definition of “pay scale” in California is unclear as to whether commissions, discretionary bonuses, nondiscretionary bonuses, and other benefits are contemplated as part of the pay scale. Accordingly, employers will need to closely monitor state agency guidance and court interpretations of the California statute to comply with the transparency laws.   

Employers should also note that California and New York City are not alone in passing transparency laws and the increasing popularity of these pay transparency laws may foreshadow a nationwide adoption. Colorado and Washington have both enacted pay transparency laws requiring disclosure of salaries in job postings, while other states like Connecticut, Rhode Island, and Nevada require employers to proactively disclose salary ranges during the hiring process. A third type of pay transparency law used in other jurisdictions, such as Maryland for example, requires employers to disclose pay ranges to candidates upon request. Many other states have seen similar pay transparency law proposals as well. Accordingly, employers in all states should continue to monitor the development of transparency laws, including those in California and New York, given that such transparency laws may inevitably extend throughout the country. 

Moreover, even if pay transparency laws do not soon extend to an employer’s particular jurisdictions, employers should be aware of the potential competitive disadvantages that may result from competing with employers who do disclose salary ranges and pay scales to prospective employees and current employees. This is a developing change in the employment sphere, but these transparency laws foreseeably could change employee and employer behaviors. For example, while there may not be a transparency requirement in a given jurisdiction, applicants or employees may feel entitled to that information with or without request and may elect not to even apply for a job with an employer that doesn’t share this information.

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