Heightened Pay Disparity Enforcement Requires Defensive Steps

Review pay policies and consider all practices that may lead to compensation disparities

By Stephen Miller, CEBS Mar 14, 2013

Gender-based pay equity has been identified as an enforcement priority for the Obama administration’s second term by the Equal Employment Opportunity Commission (EEOC) and the U.S. Department of Labor’s Office of Federal Contract Compliance Programs (OFCCP). These agencies are gearing up to increase their enforcement actions and are issuing new regulations, said Alison B. Marshall, a partner at law firm Jones Day, speaking on March 12 at SHRM’s 2013 Employment Law & Legislative Conference in Washington, D.C.

One sign of the heightened enforcement climate is that on Feb. 28, 2013, the OFCCP rescinded its 2006 enforcement guidelines on pay discrimination, which had provided employers that are federal contractors—covering nearly one-fourth of the U.S. workforce—with a safe harbor through a voluntary compensation self-audit. As Marshall noted, the reason the agency gave for the change was that the 2006 guidelines "significantly constrained OFCCP’s ability to investigate pay discrimination to the full extent permitted by law."

In place of the 2006 guidelines, the OFCCP issued Directive #307, which states that it will consider all practices that may lead to pay disparities and use all available evidence to evaluate compliance, and that it will no longer require individual evidence of pay discrimination before making a finding of systemic pay discrimination.

Marshall also said the Equal Pay Act, now marking its 50th anniversary, is receiving renewed attention from the EEOC, which is implementing a pilot project to audit employers’ compliance. This effort is an outgrowth of President Obama’s National Equal Pay Enforcement Task Force, created during his first term after passage of the Lilly Ledbetter Fair Pay Act, which expanded current and former employees’ ability to sue their employers for pay discrimination.

In addition, "The EEOC has been exploring requiring all employers to submit pay data like they do demographic data in the EEO-1 report," Marshall said.

Determining ‘Equal Work’

Marshall outlined a series of points to consider for gender-based pay disparity lawsuits. Among these, the burden remains on the plaintiff or employee to show that positions are equal when charging unwarranted pay disparity. However:

    Courts have ruled that equal work does not mean identical; it needs to be "substantially equal."

      Courts will look at the duties of the job as performed, not simply the job description, and generally focus on overall content of the positions to determine whether they are equal.

        In defending against Equal Pay Act claims, Marshall observed that:

        A seniority system is a defense, assuming it is applied in a nondiscriminatory manner.

        A merit system based on employee performance can be a defense, but at issue will be whether the performance measures are subjective.

        Pay differentials under a system that measures earning by quantity or quality of production can be a defense (for example, commissions), but an issue could be whether female employees are unfairly assigned to lower-performing teams within the organization.

        For differentials based on factors other than gender, some federal circuits require evidence that a legitimate business reason caused the wage disparity.

        "Plaintiffs who cannot establish an Equal Pay Act violation may nevertheless have a Title VII claim," Marshall said. Plaintiffs under Title VII still need to show that discriminatory practice resulted in the wage disparities.

        A Data-based Defense

        In defending against a plaintiff’s lawsuit or agency enforcement actions, the best defense is data-driven, Marshall advised. The challenge, though, is that "analysis is only as good as the data the organization retains," so record-keeping related to pay decisions must be a top priority.

        With data in hand, "multiple regression analysis is a statistical tool for understanding the relationship between a dependent variable, such as salary, and independent variables, such as education, tenure and prior experience," Marshall explained. "It can be used to assess deviations in an individual employee’s compensation from expected earnings, given other characteristics."

        For instance, leave history will likely have an effect on compensation, and women are more likely than men to have breaks in long-term service related to pregnancy or child-rearing. But the impact on women for taking such leave should not be greater than that on men who take disability leave of a similar duration.

        Employee "lawsuits have been lost when employers were able to show no statistical disparity between the impact of pregnancy leave by women and disability leave by men," Marshall noted.

        In another example, she pointed out that individuals negotiate different starting salaries based on different prior earnings, and women may have a history of lower salaries when joining an organization. But while courts have agreed that salary history is an acceptable explanation for initial gender-based disparities, "courts have ruled that salary disparities based on that factor should converge over a period of time, such as six to seven years out."

        Similarly the 7th U.S. Circuit Court of Appeals ruled in 2012 (King v. Acosta Sales & Marketing Inc.) that, as Marshall summarized, "differences in education may have justified differences in starting salaries, but if men and women are equally doing the job, women should have received greater and more frequent increases, and the salaries should have converged over time."

        Additional Defensive Actions

        Other steps that Marshall advised employers to take include:

          Review current pay policies and consider all employment practices that may lead to compensation disparities. Include all components of compensation, such as base pay, incentive awards and bonuses.

            Review manager training and how well managers understand the compensation system.

              Review documentation around compensation decisions, particularly decisions about starting salaries, and consider whether more structure needs to be imposed on documentation.

                If using market-rate data to determine pay, assess how complete the data is.

                  If disparities exist, consider whether pay structures need to be revised.

                    Stephen Miller, CEBS, is an online editor/manager for SHRM.​

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