Introduction
After years of stagnation, pay equity law is gaining spectacular momentum. Over a dozen states have passed new legislation in the past three years, with numerous other bills pending before the federal, state, and local legislatures.
Over five decades ago, Congress addressed the gender pay gap by passing the Equal Pay Act of 1963, mandating “equal pay for equal work.”
The following year, Congress again addressed pay discrimination by passing Title VII of the Civil Rights Act of 1964.
Soon after, most states followed suit and enacted equal pay laws. Despite decades of federal and state legislation prohibiting pay discrimination, the gender pay gap has persisted into the twenty-first century.
The past several years, however, have brought a series of key reforms: legislative, administrative, judicial, and private efforts. This Article argues that the underlying logic behind the new wave of pay equity initiatives is to structurally change the ways in which salaries are negotiated, determined, and, subsequently, detected, and contested. Moreover, a central innovation of the new laws is to reverse information flows in the wage market. Efforts to eradicate wage discrimination have failed in large part due to information asymmetries and difficulties in identifying and proving discrimination. The new path of pay equity is to correct knowledge disparities in three key ways: (1) inducing more information about salaries, including protecting the exchange of information among employees; (2) reducing information that reflects existing biases by preventing employers from relying on, or even asking about, salary histories of new hires; and, (3) requiring broader explanatory information from employers about pay disparities by broadening the comparisons from “equal” work to “substantially similar” or “comparable” work, shifting the burden to employers to produce reasons for disparities that exist in their salary structures.
These developments hold important promise. They move beyond the substantive prohibition of pay discrimination to focus on process. They also have the potential to move beyond the litigation framework of traditional discrimination law to a governance approach that encourages dynamic, ongoing, and proactive efforts by private organizations and stakeholders. The new laws target what happens at all stages of the Coasian deal: pre-employment, during employment, and post-employment in the repeat game of job mobility tournaments. The significance of these reforms is dramatic because the new laws alter and shape the numbers and signals that circulate in the job market, including both intra- and inter-firm speech. Still, this Article argues that the reforms are piecemeal, primarily at the state level, heavily contested, and that some of the most promising initiatives for systematic wage transparency have been halted. In particular, a major initiative of the Obama Administration, which required regular reporting on pay structures, has been stayed by the new Administration.
This Article introduces the current reforms as they relate to information flows, and correcting and detecting discriminatory pay. The goal is to analyze the promise as well as the limits of the contemporary multifaceted pay equity reforms and to suggest directions for the future of pay equity law. The most visible and highly contested new legislative reforms, which primarily took effect in 2019, prohibit employers from asking prospective employees about their previous salaries.
Beyond salary history inquiry, salary history reliance for determining a new offer or justifying gender disparity is also a heavily contested issue.
The federal courts are currently strongly split on whether employers can use salary history as a reason “other than sex” to defend against a gender pay inequity claim. In an April 2018 en banc decision, the Ninth Circuit Court of Appeals decided Rizo v. Yovino,
which held that federal pay equity law prohibits employers from justifying pay disparity based on salary histories, thereby overturning its previous precedent and diverging from several other circuits. In 2019, the Supreme Court vacated and remanded Rizo.
On remand in 2020, the Ninth Circuit once again affirmed the district court en banc.
Flipping transparency on its head, the same legislative initiatives that disallow information on salary history to flow to employers are also promoting more information sharing among coworkers. As this Article explains, the new laws are anchored in a longstanding right of employees to engage in concerted activity and discuss the terms and conditions of their jobs.
At the same time, a rising number of employers demand secrecy and contractual confidentiality, and the legislative reforms must be understood in relation to these realities.
A third set of legislative reforms adopt a fresh lens on pay disparities by rethinking salary comparisons and shifting the burden of justifying disparity to employers.
Several state laws and court decisions are changing the ways in which employees are compared to one another. For example, the new laws in California, Massachusetts, New York, and several other states move from “equal work” for equal pay to “substantially equal” or “comparable work.”
Maryland has taken the lead in going further and prohibiting “mommy tracks,” which create gender pay disparities by tailoring positions that limit career opportunities for women.
A federal bill, the Paycheck Fairness Act, includes a similar reform revising the Equal Pay Act.
Together these developments represent a new era for pay equity law. This Article is the first to comprehensively analyze the layers of the momentous wave of pay equity law reform as a paradigm shift in the market for wages. The Article explains the great promise of the current reforms while uncovering their limits and challenges on the road ahead. Unsurprisingly, major class actions have already been filed, leveraging the momentum and testing the waters of the new legislation. More importantly, new patterns of private sector action are being triggered. Many companies are changing the processes by which salaries are set and are responding proactively to pay disparities in their workforce. These private market efforts are supported by the rise of digital platforms and software tools that help both companies and employees in the efforts to eradicate pay inequities. Taken together, the legislative and private developments adopt a comprehensive strategy to eradicate long-persisting gender pay discrimination and are interconnected with the momentum of the #MeToo gender equality efforts.
The study of pay equity law is the study of the interactions between substantive prohibitions and the surrounding forces that create barriers to implementation. Transparency done right is a universal challenge for law and policy. The goal of perfecting markets through information while also understanding the demands for secrecy and proprietary knowledge pervades every regulatory field. This Article draws on the robust research, including my original studies, on behavioral law and human capital law, to understand how information is exchanged, understood, and used in the market for wages. The bans on salary history inquiry and reliance are novel and controversial. They are designed to close the gender pay gap by preventing lower wages from following women from job to job. Bloomberg called this emerging type of legislation a “gag rule that won’t help women advance,”
and industry groups have challenged these new rules in court on constitutional grounds.
This Article responds to these claims and explains the dual goal of information flow reversal: to break cycles of pay discrimination, which pervade the wage market and grow over time, and to correct for gender biases as well as negotiation differences during the hiring process. At every stage of employment—search, offer, promotion, and exit—ongoing disparities impede the closing of the pay equity gap.
Therefore, while policies that reverse information flows at the hiring stage are important, policies for continuous direct pay transparency through reporting and pay scale provision are likely to have an even greater systematic impact. The Article offers the lens of new governance—a shift from a command-and-control approach to ongoing private–public collaborative efforts—which can better ensure continuous checks and safeguards and incentivize employers to self-audit, assess, and establish better compliance practices. The recent state laws have begun moving toward new governance reforms by enacting safe havens for companies that voluntarily conduct audits and take active steps to correct inequities. Some reforms also require the provision of pay scales to prospective employees upon request.
Moreover, private sector initiatives, including the use of digital platforms to create networks of employees who share salary information and the use of software tools to identify internal pay gaps, are creating alternatives to mandated transparency laws.
While these initiatives are promising, this Article also draws on the research on new governance and compliance to analyze their limits. This Article argues that the new information-focused reforms help support a shift from a litigation-driven model of pay equity to a governance-centered model.
This Article proceeds as follows. Part I presents the most recent evidence on the persisting wage gap in our contemporary job markets. The Part analyzes the empirical studies that provide insight into the multiple reasons for ongoing pay discrimination including direct bias, gender differences in negotiation, job mobility, secrecy, occupational segregation, and private choices. Unpacking the factors that contribute to the persistent gender pay gap is key to understanding the need for multilayered reforms that target the different causes and stages of unequal compensation. Part II provides a brief history of pay equity law and introduces the wave of recent initiatives in the context of the #MeToo movement and efforts to expose and eradicate gender inequality more broadly. Part III explains the logic, controversy, and behavioral economics of salary history inquiry and reliance bans. The Part analyzes the bans in relation to insights on rational and irrational compensation markets, including executive pay, and empirical evidence on gender differences in negotiations, which I term the negotiation deficit, the negotiation penalty, and the negative inference processes at the hiring stage. The Part also relates the salary inquiry ban to the earlier effort to ban criminal record history inquiry and provides insights from recent empirical evidence on the effects of these bans. Part IV focuses on the goal of enhancing the information available to employees, including the ability to share salary information with coworkers and to compare pay across comparable, even if formally different, job categories. The Part further considers the effects of clauses that impede information sharing, including nondisclosure agreements, which I have researched extensively in relation to talent mobility and innovation.
Building on that research, I propose a notice requirement in employment contracts about the ability to discuss pay, analogous to a requirement adopted by Congress in the 2016 Defend Trade Secrets Act with regard to whistleblowing.
Part V turns to federal transparency requirements, which were stayed in 2017 by the new Administration, and provides a comparative view of similar reforms recently adopted in Europe, particularly in the United Kingdom and Iceland. The Part then explains how gender pay equity is best understood within a new governance paradigm and offers a framework for enhancing the rise in private efforts toward a sustainable and robust pay equity regime.