Tougher State Laws Increase Scrutiny on Pay Equity

 

Allen Smith, J.D. By Allen Smith, J.D. March 19, 2019
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David Cohen, president of DCI Consulting in Washington, D.C., speaks at the 2019 Society for Human Resource Management Employment Law & Legislative Conference.

​Factors HR professionals have long relied on to make compensation changes, such as seniority and education, may not withstand court scrutiny unless they are job-related and consistent with business necessity. The only way to show that is through yearly studies conducted by a pay equity team consisting of legal counsel and someone familiar with statistics, according to David Cohen, president of DCI Consulting in Washington, D.C. Keep the team small to preserve the attorney-client privilege, he recommended.

Why the upheaval? Cohen said at the 2019 Society for Human Resource Management Employment Law & Legislative Conference on March 19 that it is largely due to states strengthening their pay equity laws.

Federal Pay Equity Laws

The two main federal pay equity laws are the Equal Pay Act (EPA) and Title VII of the Civil Rights Act of 1964. Cohen said that it's so difficult for plaintiffs (employees) to prevail under the EPA that the law is "almost a worthless act."

To file an EPA claim, an employee has to work in the same establishment as those who are allegedly earning illegally higher pay and show that he or she is performing substantially equal work. The EPA prohibits only unequal pay as a result of sex, not race or ethnicity.

The EPA also provides employers with a host of defenses, from seniority, merit, quantity of production and a catch-all category of any other factor other than sex, Cohen said.

Race and ethnicity pay equity claims, in addition to claims of unequal pay on the basis of sex, may be brought under Title VII. Title VII has the lower standard of comparing similarly situated workers rather than those who are performing substantially equal work.

But Title VII requires the plaintiff to show the employer intended to discriminate or to prove that a practice had a "disparate impact," a disproportionate impact on a protected group. The EPA, by contrast, does not require intent to win a claim.

[SHRM members-only toolkit: Managing Pay Equity]

State Equal Pay Laws

Almost every state has an equal pay law, Cohen noted. Some of these laws are slowly evolving to be more employee-friendly than the federal EPA.

In California and Maryland, for example, the plaintiff need only show that their wages are in a job "substantially similar" to that of someone else earning more. And in California, the plaintiff does not have to show that the comparator works at the same establishment. Under a growing number of state laws, the catch-all "any other factor" no longer is a permitted defense.

Massachusetts has a safe-harbor provision that gives employers a "get-out-of-jail free card" if they can show they found a problem and fixed it in good faith, Cohen noted. He said it's possible that such a safe-harbor provision might one day be enacted at a federal level.

But Massachusetts also specifies that the factors that can be used in pay equity decisions must be job-related and consistent with business necessity. Cohen suggested this interpretation is becoming more widespread and leading to challenges of such common justifications for salaries or salary increases as:

  • Education.
  • Years of Experience.
  • Skills.
  • Certifications.

The central question that is being litigated more often these days is whether an employer has done a study on whether such factors truly are job-related and consistent with business necessity.

Courts may even scrutinize performance reviews more closely, he said. If white employees have higher ratings than black employees, performance reviews could be a tainted factor. Cohen did not recommend getting rid of performance reviews, saying they can be a useful defense. But he also recommended employers review their performance rating systems.

Big Picture

Don't look at pay equity in isolation, Cohen concluded, saying that diversity and inclusion should be considered. An employer may have equitable recruiting and hiring, but also have high turnover and not be a good place to work at as a woman , for example.

And a workplace may have pay equity but few minorities or women.

So, a pay equity study should look at applications, hires, promotions and terminations, he said.

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