When New York City saw its salary transparency law take effect on November 1, 2022—requiring covered employers to include the salary range when posting any job, promotion, or transfer opportunity for a role that can or will be performed in New York City—it joined a whole host of jurisdictions that have or soon will walk down the same path. Indeed, the State of New York is not far behind, with a similar pay transparency law expected to go into effect in 2023. California, Colorado, Connecticut, Maryland, Nevada, Rhode Island, and Washington—as well as cities and counties in New York (Ithaca, New York City, and Westchester County), New Jersey (Jersey City), and Ohio (Cincinnati and Toledo)—also have adopted laws requiring employers to publicize salary ranges. Genevieve Burger-Weiser & Robert Holtzman, “Pay Transparency Laws Are Expanding Across the Nation. What’s an Employer to Do?,” JD Supra, Oct. 24, 2022. These laws are intended to ensure pay equity among employees regardless of their gender, race, national origin, or other demographic factors. However, one unintended consequence may be that they weaken trade secret protections previously afforded to certain salary information.
Indeed, pay transparency laws stand at odds with the traditional notion that employees should not discuss their salaries with each other and, in some cases, are prohibited from discussing such information. Employers have historically cited the “war for talent” to justify their efforts to keep salary information under wraps. Market shifts following the pandemic, coupled with inflation, have rendered this concept as timely as ever. For 2023, in fact, companies are anticipated to boost salaries as much as 4.6 percent, the biggest year-over-year salary salary increase since 2007. Matthew Broyle, “Inflation, War for Talent Spark Highest Salary Hikes Since 2007: Survey,” Bloomberg News, Nov. 17, 2022.
Neither the Defend Trade Secrets Act nor the Uniform Trade Secrets Act explicitly includes salary information in its definition of “trade secrets.” Instead, both broadly define this term so that information (largely regardless of form) is protected as long as it (1) derives independent economic value, actual or potential, from not being generally known and (2) is subject to reasonable efforts to keep the information secret. 18 U.S.C. § 1839(3); Uniform Trade Secrets Act § 1(4).
The result of this scheme has historically led to mixed results, with the status of salary information remaining largely dependent on the facts and circumstances of the specific case:
Moving forward, pay transparency laws will undoubtedly make it more difficult for employers to claim that their employees’ salary information constitutes a trade secret. Although case law analyzing the interplay of pay transparency laws and trade secret laws remains sparse, an examination of cases involving other laws, such as those that have the effect of making government or a specialized group of employees’ salaries public, provides useful insight.
For example, in Medical Mutual Insurance Co. v. Bureau of Insurance, 866 A.2d 117 (Me. 2005), the Supreme Judicial Court of Maine was presented with the question of whether certain compensation information from an insurance company was exempted from public disclosure under the Maine Freedom of Access Act. The court was asked to determine whether it fell under Maine’s trade secret privilege (Me. R. Evid. 507) or within the scope of a privilege against discovery due to its trade secret status (Me. R. Civ. P. 26(c)(7)).
A policyholder submitted a Maine Freedom of Access Act request for this information from Maine’s Bureau of Insurance, which began requiring that insurers file certain salary information with it each year as part of annual statements required to be filed with the superintendent of insurance under the Maine Insurance Code. Me. Stat. tit. 24-A, § 423 (2000). The court ultimately held this information was not exempt because the insurance company failed to show that salary information comes within the definition of a trade secret. Specifically, the insurance company “failed to demonstrate [. . . that salary information] had independent economic value from not being generally known and failed to show that it is in fact subject to secrecy.” Id. at 121.
The company’s internal policies did not prohibit employees from disclosing their own salaries, and, as noted at the outset, it was statutorily required to disclose this information to the superintendent of insurance. In cities, counties, and states where pay transparency laws have gone into effect, it will be similarly difficult to argue that employee salary information derives economic value from not being known and is in fact subject to secrecy.
Labor and employment law practitioners should consider what steps they can legally take to keep their employer clients’ salary information secret. For instance, the National Labor Relations Act makes it illegal for an employer (even a non-union employer) to institute a policy that restricts employees from discussing their salaries among themselves. According to the National Labor Relations Board (NLRB), such internal compensation discussions are a “protected concerted activity,” so violating this rule may subject employers to an NLRB complaint. NLRB, St. Louis, Missouri, Case No. 14-CA-26790.
Instead, lawyers representing employers (particularly those in states where pay transparency laws have not yet been passed) should concentrate on taking reasonable measures aimed at ensuring that compensation information remains confidential within the company, such as the following:
Jeffrey D. Horst et al., “Trade Secret Litigation,” in Georgia Business Litigation, 255, 266–67 (Robert C. Port ed., 2018) (citing B&F Sys., Inc. v. LeBlanc, No. 7:07-CV-192 (HL), 2011 WL 4103576, at *25 (M.D. Ga. Sept. 14, 2011) (suggesting several ways a company could take reasonable efforts to maintain the secrecy of a document)).
