Earlier this year, the Paycheck Fairness Act, which would have functioned to ban “pay secrecy” policies in the workplace and prohibit retaliation against employees for disclosing compensation information, languished in Congress. President Barack Obama then sidestepped the Congress and signed Executive Order 13665: Non-Retaliation for Disclosure of Compensation Information. EO 13665 includes the same pay secrecy prohibitions previously set forth in the proposed Paycheck Fairness Act, but its scope is far more limited, as it applies only to federal contractors. Similar anti-pay secrecy protections have existed, under an interpretation of Section 7 of the National Labor Relations Act. And California employers have their own peculiar version of anti-pay secrecy rules to worry about.

California Labor Code section 232—banning pay secrecy policies and prohibiting discipline on the basis of wage disclosure—emerged on the scene way back in 1985. (That was when Marty McFly first introduced the “hover board”; you’re so late to the party, Tony Hawk.) Although Section 232 has rarely been litigated, President Obama’s hard push for anti-pay secrecy laws has raised employee consciousness of this issue, and we expect an uptick of related claims in this area.

Section 232 states that an employer must not:

  1. Require that an employee refrain from disclosing his or her wages;
  2. Require an employee to waive the right to disclose his or her wages;
  3. Discharge, formally discipline, or otherwise discriminate against an employee who discloses the amount of his or her wages.

A California employer who violates this section may face either (1) an administrative claim filed with the Department of Industrial Relations, Division of Labor Standards Enforcement, or (2) a common law action for wrongful termination in violation of public policy. In a civil action, a prevailing employee could recover a panoply of damages, including back pay, front pay, emotional distress, and punitive damages.

Accordingly, employers could potentially face real exposure to the extent an employee can establish that compensation disclosure led to discipline or discharge.

What does this mean for you?  If you are doing business in California, be wary of imposing any pay-secrecy restrictions on your local workforce. Be sure to review employment contracts, employee handbooks, or other written materials to ensure there is no language that could be construed as limiting an employee’s right to discuss compensation. Along the same lines, be sure to inform all supervisory personnel that discussions regarding pay should not be discouraged, much less form the basis for employee discipline.