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#PayMeToo: The Next Wave of Class Actions? What In-house Counsel Need to Know

Sponsored content graciously presented by Constangy Brooks, Smith & Prophete LLP

T hanks to Harvey Weinstein, Hollywood has become ground zero for the #MeToo movement and the current national discourse on workplace harassment. So when it was reported recently that actress Michelle Williams was paid less than US$1,000 to reshoot a film that actor Mark Wahlberg was paid US$1.5 million for, the backlash was swift.

Ironically, scenes from that film — All the Money in the World — had to be reshot in the wake of sexual misconduct allegations against Kevin Spacey. To avoid one firestorm, the film's producers stepped into another: headlines about Wahlberg being paid more than 1500 times his female co-star, and the wage gap in Hollywood overall. Most companies aren't faced with defending such stark pay disparities in the court of public opinion. But it's safe to assume that the wage gap is on the mind of employees everywhere.

The New Legal Landscape Surrounding Pay Equity

Gender-based disparities in pay have long been prohibited under the federal Equal Pay Act and Title VII of the Civil Rights Act of 1964. But even after Congress passed the Lilly Ledbetter Fair Pay Act in 2009, federal claims have not increased. Instead, stricter pay equity legislation has trended at the state and local level with no signs of a slowdown. Bills circulated in more than 40 jurisdictions in 2017 alone; California, New York, Maryland, Massachusetts, Oregon and Puerto Rico all signed bills into law even before the #MeToo movement started to gain ground.

[Related: Attorney-Client Privilege and Sexual Harassment: Lessons from a Hollywood Scandal]

Overall, these laws (1) extend the concept of "equal pay for equal work" to cover "substantially similar work," (2) eliminate the need to show intentional bias and (3) put the onus on the employer to justify pay disparities. The newly-enacted measures pose an increased risk for pay equity claims styled as proposed class actions — especially since they do not require a litigant to file an agency charge before going to court. It is worth noting some of the key features of these laws when assessing your organization's risk tolerance in the current #MeToo climate.

Beyond the Same Job Title and Location: Rethinking Comparisons Between "Jobs"

Generally, the new laws prohibit paying different wage rates based on gender (and sometimes other protected categories, such as race and ethnicity) for jobs of comparable skill, effort, and responsibility performed under similar working conditions. Disparities can be justified with proof attributing them to a system based on seniority, merit, measuring earnings by quantity or quality of production, and/or a "bona fide factor other than sex" (and some states also allow for other enumerated justifications as well).

This requires companies to re-think how they currently categorize "comparable jobs." Some laws re-define this concept in terms of both geography and job function. New York and Maryland allow for comparing between jobs at different locations within the same county — while California allows comparing jobs statewide. Whether and to what extent cost-of-living differentials can justify pay differences for jobs located in Silicon Valley versus the Central Valley remains to be seen.

Relying on job titles alone is insufficient. The new laws abandon strict apples-to-apples comparisons for a more flexible approach. California's Department of Labor Standards Enforcement (DLSE) offers the following guidance:

"Substantially similar work" refers to work that is mostly similar in skill, effort, responsibility, and performed under similar working conditions. Skill refers to the experience, ability, education, and training required to perform the job. Effort refers to the amount of physical or mental exertion needed to perform the job. Responsibility refers to the degree of accountability or duties required in performing the job. Working conditions have been interpreted to mean the physical surroundings (temperature, fumes, ventilation) and hazards.

Going back to the Michelle Williams and Mark Wahlberg example: they arguably brought comparable skills to the table on All the Money in the World. If anything, Williams was more qualified, given her history of awards nominations. Their pay gap was not limited to the reshoot: Wahlberg was paid US$5 million for the film — 800 percent more than Williams. Assuming they were "substantially similar": can their stark pay differences be justified?

In addition to updating job postings, job applications, and other forms, employers should train their recruiters and HR team to make sure they are up to speed on how to address salary history issues.

Salary histories are not a defensible justification in California. There may be creative or box office rationales to explain the disparity. But can they be justified as a job-related business necessity? In some states, this defense will not carry the day if an employee can point to an alternative solution that would have served the same purpose. As this example illustrates, how a company defines jobs and sets pay is this critical for assessing potential risk.

Hidden Pitfalls in Existing Policies, Practices & Procedures

Some new laws render once-routine hiring and compensation processes problematic, if not unlawful. Pay disparities typically start at the time of hire (e.g., when using a candidate's current pay to set salary in a job offer). The new laws regulate the use of salary history:

  • California and Delaware prohibit employers from inquiring about past salary history, and relying on such information when it comes to pay decisions.
  • Although this is not prohibited under New York State law, New York City imposes the same restrictions as California, with a limited exception where pay history is volunteered.
  • California allows employers consider publicly available salary history information, but New York City does not. (But San Francisco employers will be subject to stricter requirements starting in July 2018.)
  • Massachusetts prohibits seeking salary history without express written consent, and before an employment offer (with proposed compensation) has been made.
  • Delaware and Oregon prohibit screening job applicants based on current or past compensation.
  • Oregon also prohibits seeking pay history before extending an employment offer with proposed compensation.
  • In addition to updating job postings, job applications, and other forms, employers should train their recruiters and HR team to make sure they are up to speed on how to address salary history issues.

Further training may also be warranted on newly enacted wage transparency measures. Maryland and Colorado have outlawed the use of contracts that limit employees' right to discuss their wages as a condition of employment (conduct that is also "protected concerted activity" for employers covered by the NLRA). While some states have extended the anti-retaliation protections available to those who oppose intentional discrimination, these protections are not always coextensive. Oregon only prohibits retaliation when it comes to setting pay, and only for those employees who file a charge, bring suit, or are expected to testify.

[Related: Sexual Harassment in the Workplace: What the Numbers Tell Us]

By contrast, California and Nevada prohibit adverse action against employees who discuss either their own pay or their co-workers' pay. Maryland goes even further to prohibit retaliating against employees who ask their employer to justify their pay or encourage others to come forward to pursue their rights. Colorado protects employees from "intimidation" for inquiring about or discussing their own pay. Thus, in companies where HR is in the habit of dismissing pay-related inquiries out of hand, such requests may need to be handled in the same fashion as internal complaints and documented in a manner to avoid retaliation claims.

Notably, there is no affirmative obligation to disclose pay information under these laws. Maryland, Massachusetts and New York all allow employers to impose reasonable time, place and manner restrictions on employee inquiries regarding their pay. But nothing prohibits employees from sharing that type of information amongst themselves. Indeed, these measures were drafted to facilitate exactly this type of transparency.

Best Practices for Minimizing Risk

With similar proposals working their way through legislatures, companies not already grappling with these issues may need to soon. Beyond compliance challenges are two considerations: employee relations and public relations. Employees who sincerely believe they were wronged post the greatest risk for ling claims. And given the current climate, plaintiffs' attorneys have even more incentive to pursue class claims so they can leverage headlines to extract a more favorable result. How can you tell if your company is vulnerable, and what can you do to manage the risk?

1. Take Stock of Potential Vulnerabilities — Some May be More Obvious than Others.
Employee feedback can be an important indicator of potential vulnerabilities. Do you actively survey employees? Do employees see pay equity as a company core value? Does your company have a robust complaint procedure? Can employees raise issues without fear of reprisal? Are internal complaints and feedback monitored for pay gap red flags? When issues are raised, how are they handled? How are responses communicated back to employees?

Note that pay decisions may be more defensible when there is diversity within management and top leadership. If workers don't feel like their concerns are being heard, or believe that the deck is stacked against them, it can increase your litigation risk — regardless of your best efforts behind the scenes.

2. Re-assess How Jobs are Grouped for Compensation and Advancement Purposes.
Employers in the habit of evaluating their job structure are well-positioned to incorporate factors from the new pay equity law(s) into their analysis. Job evaluation studies typically entail identifying the knowledge, education, skills, abilities and other factors necessary for each job and using that data to quantify how much that job is "worth" to the organization and set pay. There are many ways to do this analysis (e.g., by ranking all jobs; using a pay grade or points system; or benchmarking jobs by using market surveys).

The new laws present an opportunity to look at current job grades and salary bands to confirm whether they truly capture the relative contribution of each job — and whether pay differences between can truly be justified by a business case. To that end, it may be advisable to engage an outside firm to conduct a study with an eye toward using that analysis to potentially defend against any pay equity claims later.

3. Evaluate How Your Compensation Practices are Currently Structured.
Is your current system for making pay decisions structured to incorporate checks and balances? Some examples include:

  • HR involvement in reviewing of job offers;
  • Training those who make pay decisions in the field on how to set pay;
  • Implicit bias training for decision makers and HR;
  • Automated reports to flag pay decision outliers for HR review (i.e., to assess whether those decisions can be justified);
  • HR-facilitated group discussions between managers to set targets for awarding pay increases and bonuses, and identify disproportionate award allocations before they are finalized; and
  • A women's advisory board to monitor the efficacy of existing measures and make recommendations for adopting new strategies.
  • Your organization may already be using these features, and their effectiveness can be measured by how your pay gap narrows from year to year.

4. Conduct Annual Pay Audits.
At what point do pay disparities become risky? Traditionally, when presented with statistical evidence courts have drawn the line at two standard deviations, thanks to Hazelwood Sch. Dist. v. United States, 433 U.S. 299 (1977). A statistical analysis can control for education, experience, performance ratings, leaves of absence, and other factors to measure whether disparities based on gender (or other traits) exceed two standard deviations. But not every company is equipped to do such a study as part of its annual review cycle. Even then, a self-critical analysis may not be privileged thus be subject to disclosure in a pay lawsuit — warts and all.

[I]n companies where HR is in the habit of dismissing pay-related inquiries out of hand, such requests may need to be handled in the same fashion as internal complaints and documented in a manner to avoid retaliation claims.

One option: hire outside counsel for a privileged pay audit. That way the company can address significant disparities without fear of disclosing problematic evidence in future litigation(s).

However, this decision can be fraught for employers who operate in multiple states — especially those with new pay equity laws. Massachusetts provides an affirmative defense if an employer proves it conducted a good-faith pay audit of "reasonable size and scope" and made progress towards eliminating pay differentials in the three years preceding a claim. A self-audit that fails to pass muster can still provide a defense to 100 percent liquidated damages.

Oregon has adopted a similar affirmative defense to claims of "compensatory and punitive damages" assessed for willful violations. New York law does not reference pay audits specifically, but willful violations of the pay equity law are subject to a whopping 300 percent liquidated damages — unless the employer proves "a good faith basis to believe" that any underpayments were lawful (also a defense to liability).

By contrast, Maryland only confers a private right of action in cases where "an employer knew or reasonably should have known that" their actions violated the state's pay equity laws." In other words: asserting an affirmative defense in some states could open a company up to other state (or federal) claims elsewhere and may also require waiving privilege, leading to further claims.

[Related: Sexual Harassment in the US: Don't Be a Trending Topic]

Rather than face the prospect of putting a genie back in the bottle, the best practice would be to adopt a two-stage audit. The first stage would consist of a privileged analysis to proactively identify and correct pay discrepancies. Depending on the results, the company can then consider options for waiving privilege (which will differ depending on the jurisdiction) as well as whether to enter stage two (i.e., a second independent, non-privileged audit) for the purpose of defending claims.

5. Consider Adopting Measures that Increase Transparency.
Finally, pay transparency measures can go a long way towards narrowing the pay gap. The most notable example is the federal government, which publishes salary and other information for each pay grade — and has a gender gap of only 11 percent (much lower than the national average). Organizations should at least publish the criteria used to make pay decisions, as well as salary bands for different jobs.

While full transparency may not be practical (or advisable) for most companies, the less uncertainty there is around the decision-making process, the less employees will feel "victimized" by unfair practices or arbitrary decision-making. If employees are made aware of who is accountable for achieving pay equity goals — and are apprised of the company's progress — an organization can help insulate itself against future claims. Companies with millennial workforces in particular will benefit from adopting these types of measures — especially in the age of #MeToo and the airing of grievances via social media.

About the Authors

Naveen Kabir is an attorney working out of the New York and Los Angeles offices of Constangy, Brooks, Smith & Prophete LLP. She represents and counsels clients in a wide variety of employment issues, such as litigating individual, collective, and class actions in the wage/hour and pay equity contexts, as well as discrimination and retaliation claims under federal, state, and local laws. Kabir regularly appears before state and federal courts and administrative agencies.

Steven W. Moore is a partner in the Denver office of Constangy, Brooks, Smith & Prophete LLP. He is the co-chair of the firm's class action practice group. Moore devotes his practice to the representation of employers in a wide range of labor and employment disputes, including discrimination, wage/hour, and pay equity cases. He is noted for his representation of employers against large-scale, systemic investigations being conducted by the EEOC in response to Commissioner's Charges and other class-based charges of discrimination.

The information in any resource collected in this virtual library should not be construed as legal advice or legal opinion on specific facts and should not be considered representative of the views of its authors, its sponsors, and/or ACC. These resources are not intended as a definitive statement on the subject addressed. Rather, they are intended to serve as a tool providing practical advice and references for the busy in-house practitioner and other readers.