Overview
Pay equality between men and women demands an employer's attention now more than ever. Both federal and state governments have enacted strict laws and regulations to close the wage gap between men and women. Employers that do not address existing pay disparities may be subject to severe consequences if sued under an equal pay claim. Employers should conduct pay audits before a lawsuit is filed to uncover any disparities and to determine the reasons any such disparities exist; these audits help employers protect against, or limit, liability. Employers must be careful, however, to work with qualified legal counsel to conduct these audits so that they can maintain privilege to the extent possible. Employers should be aware that the primary reason for pay disparity is often starting pay. As such, employers should carefully analyze an employee's starting pay and avoid setting salary solely based on a prospective employee's prior wage history.
The Pay Equity Landscape
The White House often cites the 2014 statistic that women earn 79 cents for every dollar earned by men. The wage gap increases for women of color, mothers, and older women. This is due to a variety of factors, including whether the employee has taken time off, salary negotiations, the location of employment, the industry or occupation, and the likelihood that the employee works in the desired profession. Federal and state governments have been actively legislating to address the wage gap.
Federal Efforts To Address Wage Gap
In 1963, the Fair Labor Standards Act was amended to add the Federal Equal Pay Act ("EPA"). The EPA was enacted to prohibit sex-based discrimination between men and women in the same establishment who perform jobs that require "equal skill, effort, and responsibility, and which are performed under similar working conditions." 29 U.S.C. § 206(d).
In January 2009, President Obama signed the Lilly Ledbetter Fair Pay Act; the first bill signed into law during his presidency. The Lilly Ledbetter Fair Pay Act was in response to the United States Supreme Court decision which held that pay discrimination cases under Title VII had to be filed within 180 days of an employer's pay decision. Ledbetter v. Goodyear Tire & Rubber Co., 550 U.S. 618, 618 (2007). Under the Act, an employee now can file a complaint for unfair pay within 180 days of each discriminatory paycheck. The President has also called on Congress to pass the Paycheck Fairness Act, which revises the remedies for, enforcement of, and defenses to prohibitions against gender-based pay discrimination.
The Equal Employment Opportunity Commission's Proposed Revisions To EEO-1 Reports
On January 29, 2016, the United States Equal Employment Opportunity Commission ("EEOC") announced its intent to submit to the Office of Management and Budget (OMB) a revision to the Employer Information Report (EEO-1). This revision would require all employers with more than 100 employees to submit compensation data to the EEOC starting September 30, 2017. Federal contractors and subcontractors with between 50 and 99 employees would only be required to submit the current EEO-1 form without compensation data.
Specifically, this proposal requires employers to report on the W-2 earnings and hours worked for all employees by race/ethnicity and gender, instead of the current reporting which only requires employers to collect and provide information about employees' race/ethnicity and sex in each of 10 job categories. The proposal would break up job categories into twelve bands. An employer's data must also date back to July 1, 2016. The EEOC has proclaimed that this information would assist the agency to identify potential pay discrimination and allow it to compare variations within and across job categories. However, these proposed job bands do not account for legally accepted variables, such as seniority, education, and level of responsibility. This revision is expected to go into effect on September 30, 2017.
State Laws Advancing Pay Equity
A number of states have aggressively revised their current laws on gender pay equity. These states include California, New York, Massachusetts, and New Jersey. California's Fair Pay Act ("FPA"), which went into effect on January 1, 2016, is the strictest of these new state-level laws. Under California's FPA, employees can be compared to other employees even if they do not work in the same establishment and do not hold the "same" or "substantially equal" job. The employees compared, however, must still perform work that is similar. Additionally, the new law requires employers to justify pay differentials and limits the factors that employers can use to explain the differential. Although a showing of discriminatory intent or a specific practice or policy with a discriminatory impact was required for claims brought under Title VII, no such showing is required under California's FPA.
Recent proposed legislation in California also suggests that pay may not be limited to gender for long. California Senator Isadore Hall introduced Senate Bill 1063, which seeks to extend California's FPA amendments to race and ethnicity.
Pay Equity Audits
Pay audits can help identify potential gender pay disparities, determine whether any discrepancies are statistically significant, and help explain any potential disparities. Before an employer conducts an audit, though, it should it consider some key points:
• What Is The End Game? Before an employer conducts an audit it must think about what will be done with the information it learns. Will new policies be implemented? Will money be set aside for possible remediation? If so, how much? How will the company address the remediation in a way that does not create an impetus for potential litigation? For example, will the pay adjustment be rolled out as a "market adjustment"?
• Protect The Privilege: An employer must also consider the attorney-client privilege and the work-product doctrine before conduct an audit. Findings or evaluations prepared without the assistance of counsel, or at the direction of counsel, would likely be discoverable in an equal pay lawsuit. An employer should implement a privilege protocol to prevent discovery of information that may be protected by a privilege. Companies should mark documents with the appropriate headers, ground analyses in legal advice, and limit the group of employees who assist with the audit to only the key and necessary employees.
• Frequency Of Audits: If any employer decides to audit its compensation, it must also consider how frequently it will perform future audits. Rate of pay constantly changes. Employers typically adjust their current employees' salaries on an annual or semi-annual basis. Employers also hire new employees throughout the year, which can affect the overall gender pay analysis. As such, employers should decide the frequency of any audits to ensure that any potential gender-related disparities are identified and corrected.
Starting Pay Often Leads To Disparities
Employers usually set a prospective employee's pay based off the employee's pay at his or her previous employment. However, employers who rely solely off of prior pay to set salaries find this practice leads to disparate pay results. If an employer uses a prospective employee's existing or previous salary, it may disadvantage employees who have taken extended time off during their career; women who take time off for family and caregiving responsibilities are the most common example. An employee's existing or previous salary also may not reflect the candidate's current qualifications. Moreover, an employee's existing rate of pay often does not take into account existing labor market conditions.
While an employee's starting salary can still be considered when setting pay, it should not be the sole determining factor. Indeed, while an employee's wage history may be used to explain differentials in some jurisdictions, it is not a defense to an equal pay discrimination claim under the proposed and currently pending Massachusetts law and is likely not a defense under the California FPA.
Conclusion
Gender pay equity is a top priority issue for federal and state governments. Employers should review their current policies and pay structures to minimize potential liability under the proposed EEO-1 reporting requirements and under various federal and state laws. Employers must take care to engage qualified counsel to conduct pay audits in order to protect legal privileges. Finally, employers must carefully consider an employee's starting pay to avoid future pay disparities.
Additional Resources
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