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What Every Employer Should Know About New Pay Equity Laws

HR Column
The last 12 months have seen increased focus on the gender pay gap, which "continues to widen, with men's earnings growing this year at more than twice the pace of women's."[1] Federal and state officers have begun to focus on eliminating the gender pay gap, changing the statutory and regulatory landscape in ways that pose significant risks to unwary employers.

Recently Enacted and Proposed Federal Regulations

The Office of Federal Contract Compliance Programs (OFCCP), which regulates federal contractors, prohibits federal contractors and subcontractors from discharging or discriminating against employees or applicants who inquire about, discuss or disclose their compensation or that of other employees or applicants.[2] The OFCCP further requires that federal contractors incorporate a prescribed non-discrimination provision into existing employee manuals or handbooks and to disseminate this provision to employees and job applicants.[3]

The OFCCP rules do not apply to employees whose essential job functions involve management of pay information, such as Human Resources Specialists, accounting professionals or payroll personnel.[4]

Not to be outdone, the EEOC has proposed a rule requiring employers to include aggregate data on pay ranges and hours worked to the information collected on the EEO‑1 report beginning in September 2017.[5] These data collection requirements would apply to all companies with 100 or more employees.[6] The information collected by the EEOC would be available to the EEOC and to the OFCCP.[7]

The EEOC's changes (which have generated controversy among employers and industry groups) have yet to be adopted. However, the period for public comment closed on April 1, 2016, and few commentators expect the EEOC to back away from its proposals.

Information collected by the EEOC could facilitate EEOC investigations of, and claims against, employers throughout the United States. Under the Equal Pay Act, the EEOC can investigate an employer's pay practices with no underlying discrimination charge. The EEOC may examine data provided by an employer on an EEO‑1 report and decide, sua sponte, to investigate that employer. The EEOC's subpoena power against the employer during such an investigation is subject to very few limits. The Commission may sue the employer if it concludes the employer is discriminating against women or minorities.

It is easy to see why the EEOC believes the new data will facilitate enforcement of the Equal Pay Act.

Recently Enacted and Proposed State Legislation

Various states have modified their statutes and regulations to facilitate gender pay equity claims.

California Fair Pay Act

Leading the way as usual, California's Fair Pay Act became effective January 1, 2016 and significantly relaxes the requirements for gender pay equity claims in California.

  • The previous California statute required equal pay for "equal work on jobs the performance of which requires equal skill, effort and responsibility, and which are performed under similar working conditions." The new statute replaces "equal work" with "substantially similar work."[8]
  • The statute changes "on jobs the performance of which requires equal skill, effort and responsibility" to "when viewed as a composite of skill, effort and responsibility and performed under similar working conditions . . ."[9]
  • It abolishes the previous requirement that compensation be compared between employees within the same establishment. Now employees may compare their compensation to that of employees at other facilities. Id.
  • It limits the defenses available to employers against gender pay equity claims.
  • The previous California statute allowed differences "based on any bona fide factor other than sex." The new statute requires the employer to show the differences are not based on or derived from gender, are job related and consistent with business necessity.[10]
  • Even if an employer demonstrates that factors other than sex account for the wage differential, an employee may show that an alternative practice would serve the same business need without producing a wage differential.[11]
  • The statute requires that employers allow employees to discuss compensation freely in the workplace.[12]

New York Achieve Pay Equality Act

Effective on January 19, 2016[13], the New York Achieve Pay Equality Act mirrors California's revisions in that it makes it easier for employees to compare positions when analyzing compensation.[14] It also eliminates any requirement that the comparisons occur between positions within the same establishment.[15] The statute also has the following noteworthy components:

  • Unlike the California statute, the New York statute limits the geographical scope of comparison between facilities to facilities within the same county.[16]
  • It specifies limited bases on which an employer may defend against an employee claim, including seniority, a merit system, the quantity or quality of production, education, training, or experience.[17]
  • It contains a catch‑all exception allowing an employer to defend against a claim by showing that the differences are based upon a bona fide factor other than sex, so long as that factor is job related and consistent with business necessity.[18]
  • If an employer articulates such a defense, an employee may rebut the defense by identifying an equally effective and less discriminatory alternative the employer considered and rejected.[19]
  • Employers cannot prohibit employee discussions of compensation, although they can set limits on the time, place and manager of those conversations.[20]

Other States Proposing Equal Pay Laws

New York and California are unlikely to be the last states to revise their statutes in these areas. Massachusetts is considering revisions to its pay equity legislation to relax the definition of comparable work, restrict employer defenses, and facilitate gender pay equity lawsuits. The Massachusetts statute prohibits employers from reducing compensation to comply with the law; they must address wage differentials by paying women more, not by reducing compensation paid to men. New Jersey and Washington are also considering gender pay equity legislation.

Recommendations for Employers

Employers should carefully consider potential exposure and adopt a multi-prong analysis of pay practices.

1. Analyze Current Pay Practices

First analyze pay practices to identify and eliminate any potential sources of pay differential:

  • Be cautious about using the employee's compensation at their prior employer as basis for current compensation. Some studies show women make 70 cents for every dollar that men make, so by basing compensation on a former employer's compensation, an employer may be structuring gender discrimination into its own compensation system.
  • Beware of giving recruiters discretion in making compensation decisions since these can lead to gender-based differences.
  • Examine historical differences in positions because many male-dominated positions have historically been better compensated than female-dominated positions.

2. Conduct a Statistical and Cohort Analysis

Take the following steps:

  • Conduct a statistical and cohort comparison analysis of your workforce to identify and eliminate existing gender pay inequities across establishments and positions that perform similar work.[21]
  • Identify positions with disparities, focusing on jobs with similar work that have a standard deviation of two or more.
  • Study the differences to identify potential defenses and remedial measures. All analyses should be protected by attorney-client privilege and the work product doctrine to avoid creating evidence that could be used by the EEOC, OFCCP or a private plaintiff.
  • In analyzing current pay practices, statistics and cohorts, document the bases for your pay determinations at the time of hire and at the time of any subsequent salary adjustments. Many employers do not maintain documentation regarding salary decisions. The failure to maintain such documentation can make it almost impossible to defend against subsequent gender pay equity suits.

[1] "Gender Pay Gap Widens," Wall Street Journal, October 20, 2015.

[2] Executive Order 11246 as amended by 202 (3).

[3] Id.

[4] Id.

[5] EEOC Proposed

[6] EEOC Proposed Revision.

[7] Id.

[8] Cal. Lab. Code § 1197.5(a).

[9] Id.

[10] Cal. Lab. Code § 1197.5(a)(1)(D).

[11] Cal. Lab. Code § 1197.5(a)(3).

[12] Cal. Lab. Code § 1197.5(j).

[13] N.Y. Lab. Law § 194.

[14] Id.

[15] Id.

[16] Id.

[17] Id.

[18] Id.

[19] Id.

[20] Id.

[21] Because new state statutes have eliminated the prior establishment-based comparison requirement and expanded the 'equal work' definition; employers must compare employees to their co‑workers at different facilities and with substantially similar work requirements.

About the Authors

Spiwe L.A. Pierce is deputy general counsel at John Crane. She is a member of the ACC intellectual property, information governance and law department management sections.

Scott Fazio is the President of EEO Logic, an equal employment and affirmative action consulting firm located in Portland, Oregon that focuses on affirmative action compliance and statistical compensation and workforce analyses.

Joseph Schmitt is a shareholder at the Minneapolis law firm of Nilan Johnson Lewis. Mr. Schmitt specializes in class and complex labor and employment matters.

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.