I have been writing this blog for a long time now, and the one thing that I know from the experience is that there is always something new. The latest novelty to develop is the emergence of class action litigation related to employers’ alleged violation of statutorily mandated pay range disclosure requirements. Several states, including the state of Washington, have enacted laws requiring the disclosure in job postings of salary or wage ranges. Class action plaintiffs’ attorneys are quickly targeting employers for alleged violations of these laws, with an at least theoretical potential for massive damage awards. As discussed below, this newly and quickly emerging class of litigation could present some interesting insurance questions. An October 17, 2023, memo from the Ogletree Deakins law firm discussing the new statutory requirements and emerging litigation can be found here.
Background
In March 2022, Washington Governor Jay Inslee signed S.B. 5761 into law, making Washington one of several states, including California, Colorado, and New York, to adopt pay transparency laws. The Washington statute requires employers with fifteen or more employees to affirmatively disclose in each job posting the salary range or pay scale offered for the position, in addition to a description of all benefits offered and available for the position. The statute defines “posting” to include printed or electronic solicitations intended to recruit job applicants for a specific position. The law allows applicants alleging violations of the statute’s requirements to seek actual damages or statutory damages of $5,000 per violation per applicant, whichever is greater.
The Washington law only just went into effect on January 1, 2023, yet already job applicants have, according to the law firm memo, filed “dozens of putative class actions against employers alleging they applied for job openings for positions in Washington where employers did not disclose salary ranges or wage scales, describe the benefits, or include other compensation information.” The claimants seek declaratory and injunctive relief as well as the damages provided for under the statute.
As the law firm memo also notes, because of the statutory damages provision and the “nearly inexhaustible pool of applicants for jobs,” the lawsuits have a “potential for devastating liability of employers.”
Discussion
While these new lawsuits have only just been filed and while it remains to be seen how they will fare, the new statute and the ensuing litigation have important implications for employers. First and foremost, there are several important steps for employers to take to try to reduce the likelihood of this type of litigation. As the law firm memo notes, employers will “want to review their job posting policies and agreements with third-party recruiters to evaluate their job postings in light of the pay transparency requirements.” They may also want to conduct “pay audits and review desired compensation for various positions.”
It is worth emphasizing that these kinds of concerns are not limited just to employers with employees in the state of Washington. For starters, as noted above, Washington is not the only state with pay range disclosure requirements; Colorado, California and New York have similar laws. The likelihood is that other states will adopt similar requirements as well.
One obvious issue for employers with respect to the prospect for this type of litigation is the question of insurance. To be sure, the more important risk management actions with respect to the possibility of this type of litigation are the preventive measures discussed above. But the availability of risk transfer through insurance is a potentially important risk management concern as well.
The potential problem relating to insurance for this type of claim is the threshold question of whether this type of claim would meet the policy definition of an employment practices wrongful act. The core employment practices wrongful act definition is built around traditional notions of discrimination, harassment, and retaliation. Alleged violations of the pay range disclosure laws clearly would not represent any of these kinds of misconduct. While contemporary EPL insurance policies typically extensively amend the definition of employment practices wrongful act to include a variety of other kinds of alleged misconduct, alleged violation of statutory pay range disclosure requirements typically would not fall into any of the standard amended extensions of the definition of employment practices wrongful act.
The possible mismatch between the potential need for insurance coverage for these kinds of claims and the absence of policy language anticipating these kinds of claims looks like a shortcoming the insurance industry needs to address.
It is worth considering whether coverage for these kinds of claims might alternatively be available under an employer’s D&O insurance policy. The possibility of D&O insurance coverage for these kinds of claims would appear to be remote for public company insureds, as the entity coverage available under public company D&O insurance policies typically is limited to Securities Claims; since a claim for violation of the pay range disclosure statutes does not represent a Securities Claim, there would not appear to be entity coverage for this type of claim under the public company D&O policy. The entity coverage available under a private company D&O insurance policy is broader but is also subject to more exclusions. Depending on the wording of the exclusions, there could theoretically at least be a better argument for coverage for pay range disclosure claims under a private company D&O insurance policy, subject of course to all of the policy’s terms and conditions.
The fact that the potential insurance questions are relatively unclear reflects the fact that these kinds of claims are a relatively new phenomenon. But while these kinds of claims are new, these claims also represent a rapidly emerging phenomenon as well. The significant number of claims already filed, the possibility for any further claims in the weeks and months ahead, and the distinct possibility that other states could adopt similar legislation, adds an extra layer of urgency to the insurance questions, and should provide incentives for the insurance industry to grapple with these issues.