We recently gave only one of our employees a merit-based raise after an excellent performance review and asked that employee not to tell others. The employee still told their coworkers and now several of our staff are upset. What can we do about this situation?
Making compensation decisions about your workforce that are both fair and rewarding to top performers can be an important tool to help retain top talent. There are, however, some possible traps that employers should avoid in this area.
Confidentiality of Wage Increases
In California, wage equality continues to be an important policy issue. To this end, the state passed the Fair Pay Act, which sought to ensure that employees are paid equally for performing substantially similar work.
The Fair Pay Act has been amended several times to increase protection for workers. One of those protections prohibits “pay secrecy.” Under the Fair Pay Act, employers cannot prohibit employees from disclosing their own wages; discussing the wages of others; asking about another employee’s wages; and aiding or encouraging other employees to exercise their rights under the Fair Pay Act.
Additionally, the National Labor Relations Act, a federal law geared toward allowing employees to act collectively regarding their working conditions, allows employees to discuss their own wages openly as part of that effort.
So, instructing the employee to keep their raise and new wage secret violated both federal and California laws. Ultimately, the employer cannot take any action against the employee for sharing information about their raise and new wage rate.
Justifying Pay Disparity
Of course, the employer was concerned that if other employees found out about the wage increase and that the employee was making more than others, it could create several issues in the workplace.
Although the Fair Pay Act wants employers to pay employees who do substantially similar work the same, the law does allow for differences in pay if the differences are based on legitimate, bona fide factors.
Bona fide factors that may lawfully justify a pay disparity include:
- a seniority system;
- a merit system;
- quantity or quality of work; or
- a factor other than sex, race or ethnicity, such as education, training or experience.
If an employer is using the fourth factor to justify a pay disparity, the employer has to show that the factor also is job-related and consistent with business necessity.
For example, if an employer uses experience as the bona fide factor to justify disparate pay between two employees, the experience needs to be related to the job that the employees perform and not just “more experience.”
For this employer, the employee earned the salary increase because of the quality of their work compared to their peers as reflected in the performance review. So, the employer may rely on this factor to justify why they are paying this employee more than any other that does substantially similar work.
Relying on these factors, employers then can have open conversations with the rest of their employees about why compensation decisions were made after the staff became aware of the raise as well as avoid any potential claims under the Fair Pay Act.
Matthew J. Roberts, Labor Law Helpline Manager, Employment Law Counsel/Subject Matter Expert
CalChamber members can read more about Wage Equality – Fair Pay Act in the HR Library. Not a member? Learn how to power your business with a CalChamber membership.