A state pay transparency law will go into effect on Jan. 1, and “a lot of businesses are probably not in favor of it,” said Schenae Rourk, principal and chief executive of Redwood Resources, a strategic communications firm.
According to the new statute, California employers with 15 or more employees must include a position’s pay range when advertising job openings.
That may seem straightforward enough, but it entails new reporting requirements, opens up employers to lawsuits and can cause businesses to give up strategic advantages – or even bypass good candidates, according to business owners and small business associations opposed to the law.
As is often the reaction to new business-focused laws, several said the statute is well intended but has corrosive effects that lawmakers may not have considered.
“The intent is to remove discriminatory practices in pay,” said Rourk. “That makes sense, but at the same time, we need to be competitive.”
She explained that by publicly providing a pay range, a businesses exposes itself to competitors who may offer a few dollars more. Or they may seem to offer more money but really only hire people with greater experience, say.
“Salaries can be dependent on a number of factors,” said Rourk, who works out of Culver City but whose business is in based in the Bay Area.
Rourk pointed out that the law seems to misunderstand the hiring process, which can be changing and dynamic, particularly for small businesses. A company that advertises for an employee for a certain post with an expected experience level may pivot, depending on the candidates who respond, and end up hiring job seekers at somewhat different positions or skill levels. But the new law may put an end to that because businesses may be wary about hiring employees at higher or lower salary levels than advertised.
Rourk said that a business that seeks an employee for, say, a $20-an-hour job may say, “Wow! This (applicant) has so much more experience and they are worth more than $20.” But if the business passes on hiring that applicant for fear of running afoul of the new law, “it didn’t help them any,” she said.
Gov. Gavin Newsom late last month signed Senate Bill 1162, which requires employers to post salary ranges to prospective applicants and expands requirements for pay-data reporting.
“California has the strongest equal pay laws in the nation, but we’re not letting up on our work to ensure all women in our state are paid their due and treated equally in all spheres of life,” said Newsom. “These measures bring new transparency to tackle pay gaps, end discriminatory pricing of products based on gender and expand supports for survivors of abuse and assault.”
The law has been opposed by business-aligned organizations in Los Angeles and throughout California, including the California Chamber of Commerce, the Valley Industry and Commerce Association, the Los Angeles County Business Federation and a number of trade unions.
The Business Federation’s policy manager, Denise Kniter, said the problem isn’t necessarily with the law itself, but the fact that it is “another in a line of bills that are unduly burdensome, without having the impact they’re intended to have.” Commonly known as BizFed, the federation is an alliance of over 180 business groups, representing 401,000 companies employing nearly 3.5 million people primarily in Los Angeles County.
The overwhelming majority of Los Angeles’ businesses are small, Kniter said, and they are struggling to recover from the impact of the pandemic, inflation and other troubling economic factors.
“Your local mom-and-pop shop doesn’t have an HR person. Under this law, you can be fined significantly,” said Kniter. “Do we feel, reasonably, that they have the resources to implement this? And is this implementation of this addressing the problem we want to address? The answer to both is ‘no.’”
While California is often a trailblazer state for worker-friendly legislation, advocates for the law point out that California is actually far from the first to implement pay transparency on this scale. Sid Upadhyay, the chief executive and co-founder of small business-recruitment platform WizeHire Inc., notes that Colorado, Connecticut, New York and Washington, D.C., have passed similar laws within the last year.
“We’re helping small businesses fill roles they need to fill and teaching them how to win talent over… and we’ve found that compensation is a No. 2 deciding factor when someone is applying for a role,” said Upadhyay.
When a significant number of employees won’t even apply absent a pay range, Upadhyay said the law is less about punishing businesses than catching them up to speed.
“A lot of small businesses have already met the needs of those employees. Others are having to find the funds, which can be difficult when you take stock of where the market is,” said Upadhyay. “But that Band-Aid has to be ripped off.”
The law authorizes the California Labor Commissioner to order civil penalties ranging from $100 to $10,000 for violations of the pay scale-disclosure requirements. The state labor commissioner will determine a penalty based on the circumstances, taking prior violations into account, and will also incorporate new reporting requirements for private employers with more than 100 employees hired as labor contractors.
Stuart Waldman, president of VICA, said he expects that a number of businesses that will be found in violation of these new reporting rules will be completely blindsided by the fact.
“I think most businesses aren’t even aware of it. Right now we’re trying to make sure they realize they will have to put this together, and there’s not enough time to really make sure people understand it,” Waldman said.
Beyond the costs of meeting the new pay-transparency rules, the law seems to be creating ripe opportunities for enforcement litigation that border on vexatious.
“(The law preserves the) private right of action, which means trial lawyers will jump right on it,” said Waldman. “There are going to be trolls who hop on Indeed and other job boards looking for any business that doesn’t include a pay scale. And they’ll send them a letter and start the legal process.”
These lawsuits wouldn’t just clog the courts, they’d be costly to the state and its industries, said Waldman.
Juan A. Torres, a partner at the downtown law firm Musick Peeler LLP who regularly represents employers in litigation disputes, agreed that litigation over noncompliance is likely. But it’s small businesses that lack the legal teams to rapidly meet new compliance laws that will suffer, to the benefit of big business.
“No question, this will no doubt add another heavy burden to small employers in particular, who can ill afford to hire the additional staff they’d need to make sure they’re meeting these new regulations,” said Torres.
The guidance and resources provided by the state to address obvious issues on the horizon is lacking, according to Kniter, which could have a devastating impact on small business in Los Angeles.
“The time and resources that will be dedicated to addressing litigious bad actors will be debilitating. How many businesses are we willing to lose?” said Kniter. “Our side is always in support of commonsense reforms that keep Angelenos’ happy, but the people who oppose this bill are disappointed in the result.”
The new law also requires reports that must be filed to state regulators from businesses with as few as 15 employers. Not only will the reports themselves take time, but questions from regulators may spur more time-eating tasks and even legal bills.
All of which is burdensome, said Rourk.
“There will be more reporting, more documentation,” she sighed. “And it’s nonbillable work.”