Salary Secrecy and the Law

Herring-Wade-OPTBy Wade W. Herring, II, HunterMaclean

For Business in Savannah

On April 8, President Obama signed an executive order making it illegal for federal contractors to retaliate against employees for discussing salaries. He also signed a presidential memorandum requiring federal contractors to submit summary data on compensation paid to their employees, including data by sex and race.

Equal pay for women is clearly the impetus for this executive order banning salary secrecy for federal contractors; not knowing what colleagues earn is often cited as a hindrance for negotiating salaries.

The signing of the executive order banning salary secrecy — complete with an appearance by Lilly Ledbetter, namesake of the Lilly Ledbetter Fair Pay Act — generated a lot of buzz and discussion about pay equity in the press. The ceremony, however, was more style than substance.

Although many people prefer not to talk about their salary with their colleagues, some companies go so far as to have policies against it, which is at odds with existing law. All employees, whether they work in the government or private sector, have a right to discuss compensation as a result of the National Labor Relations Act (NLRA) of 1935.

Many employers wrongly assume it is permissible to ban employees from discussing salary. Pay secrecy is certainly more prevalent in the private sector versus the public sector, but it was already illegal in both before this most recent executive order.

A common misconception is that the NLRA only protects unionized workers. Not so. While the Act does guarantee basic rights of private sector employees to organize into unions, it also protects collective action, defined as employees banding together to share information about their work, whether it’s discussion about their physical working environment or monetary compensation.

In an interesting contrast to how many businesses go about dealing with salary secrecy, Whole Foods has a policy to encourage conversations among staff members and to promote competition within the company. In addition to posting weekly each store’s sales data daily and regional sales data, any staff member can easily look up colleagues’ salaries or bonuses from the previous year, including the pay of the CEO.

The rationale, according to Whole Foods co-CEO John Mackey, is to help employees understand what types of performance and achievement earn certain people more money, encouraging motivation and success in the process. Senior leadership at Whole Foods believes that shared information creates shared fate.

While it’s up to business owners how transparent they should be regarding sales and salary information, the law is indisputable: employers cannot retaliate against employees from openly discussing working conditions and compensation.

It’s important to seek legal counsel regarding issues relating to employment problems and issues, especially around pay equity. For assistance, be sure to consult with an attorney who specializes in labor and employment law.