Are your employees prohibited from discussing their wages?  Many employers have such policies in their handbooks.  If you have not read your employee handbook lately, now is the time to dust it off and see if you have a pay secrecy policy buried in the contents.  If you have such a policy, it is most likely illegal.  Pay secrecy is viewed as a barrier to equal pay for men and women, as well as attempts to unionize companies, so there is a strong push to eliminate such policies.

On April 8th, President Obama signed an executive order prohibiting federal contractors from discriminating against employees or applicants who inquire about, discuss, or disclose their own compensation or the compensation of another employee or applicant.  There is one limited exception pertaining to employees with access the compensation information of other employees because of their essential job functions, such as payroll clerks.  Violating this provision could lead to the loss of federal contracts and potential debarment.  If your business relies heavily on federal contracts, such a penalty could put you out of business.  The executive order applies to federal contractors, rather than employers in general, because the President would be unable to create such a rule on his own, and would need Congress to pass legislation.

To what extent is this prohibition new?  The National Labor Relations Act (“NLRA”), which applies to virtually every private employer, already prohibits employers from penalizing employees for discussing the terms and conditions of employment, such as their pay.  However, the NLRA defines “employee” to exclude many members of management, while the executive order contains no such exclusion.  Also, the executive order reaches applicants, not just current employees.  Therefore, this executive order protects more people from discrimination due to compensation discussions than existing federal law.  By reaching all levels of management, the executive order has more potential to affect “glass ceiling” issues, as women call for equal pay at the higher levels.  Beyond these federal prohibitions, some states are considering legislation to address pay secrecy and New Jersey passed such a law in 2013.

To a certain extent, the executive order falls short of its objective.  Technically, the executive order only prohibits an employer from taking action against an employee for discussing pay.  It does not actually prohibit an employer from having a policy prohibiting such discussions and then not enforcing it.  This is significant, because many employees are afraid to discuss pay because of the existence of a policy, not because they have seen other employees disciplined for it.  However, decisions of the National Labor Relations Board interpreting the NLRA are clear that such policies are unlawful because of the “chilling effect” on employee discussions.  In other words, the mere existence of the policy – even if it is never enforced – can get a company into trouble.  While it is theoretically possible to draft a policy prohibiting such discussions only among the members of management excluded from NLRA coverage, this is ill-advised as the determination of who is and is not protected is very fact-specific.

Did you find a pay secrecy provision in your handbook?  Was your handbook last updated during the Bush Administration?  (We won’t ask which one.)  If so, it is probably time for an update.  Our team of labor and employment attorneys can efficiently draft or update your employee handbook to ensure you are in compliance with all applicable federal, state, and local laws.