Pay Equity: Everything Employers Need to Know

Originally published by Georgia Jolink.

Title VII and the Equal Pay Act expressly ban the unequal treatment and compensation of female employees. Yet pay inequity can creep in to even the most well-intentioned companies.  As a consequence, standards for evaluating pay practices are rapidly evolving in both the public and private sectors, and many companies are pledging to improve wage equality.  What’s more, with the EEOC now targeting equal pay discrimination, we are primed to see a wave of class action lawsuits that could cost companies millions in back pay and damages.  Is your company keeping up?

EEOC Proposes Adding Pay Data to Annual EEO-1 Reports

Earlier this year, the EEOC announced a proposed revision to Employer Information Reports (or EEO-1’s) that would require certain employers to include annual pay data information in their EEO-1’s. The current EEO-1 form requests annual data on the racial, ethnic, gender and job role make-up from employers with 50-99 employees and federal contractors.  The proposed pay data requirement will require employers with 100 or more employees and contractors to report pay by gender, race and ethnicity, across 12 pay bands.

The proposed changes were originally set to take effect on September 30, 2017. Based in part on feedback from affected employers, the agency moved the “go live” reporting date to March 31, 2018. However, employers should not sit back on their heels until next March, given that they must begin collecting data based on salaries received as of January 2017. The “go live” change was made in large part to match the timing of data collection with the period in which W-2 forms are issued to employees.

For more information on the proposed rule, see our previous post entitled “EEOC Announces Revised Proposal for U.S. Employers to Report Pay and Hours Data“.

Private Sector Companies Pledge to Combat Wage Inequity

The federal government is not alone in attempting to curb pay inequity. In the private sector, numerous Fortune 500 companies have pledged to monitor employee salaries to ensure that any pay inequities are remedied swiftly.  Likewise, in June 2016, twenty-eight companies expressly pledged to conduct annual analyses of their hiring and promotion processes as part of the White House Equal Pay Pledge, an initiative aimed at addressing and reducing the gender pay gap.  By September 2016, numerous other companies had also signed the Equal Pay Pledge.  By taking this action, these corporations have signaled to the public (and the government) that eradicating pay disparity is a company priority.

What is at Risk?

While the intention behind the Equal Pay Pledge is admirable, there is more at stake. Companies face serious potential exposure for wage discrimination violations.  Consider some of the risks for employers who are not in compliance:

• Employees may file a pay discrimination claim under the Equal Pay Act and Title VII. If successful, employees could be awarded substantial damages. Under the Equal Pay Act, if the plaintiff can show that she was paid differently than men who perform work requiring the same skills, experience and responsibility, she is entitled to back pay equal to the difference in pay. In the case of intentional sex-based pay discrimination, the plaintiff may be entitled to liquidated damages equal to the amount of back pay awarded (i.e., double the back pay). This means that where a court finds that a woman was paid $20,000 a year less than the men in her department for the same work, under the Equal Pay Act, she would recover $40,000 per year in damages. Under Title VII, meanwhile, a plaintiff’s compensatory and punitive damages are capped based on the defendant employer’s workforce size. For example, where an employer has 15-100 employees, the cap is $50,000 per plaintiff; where an employer has 101-200 employees, the cap is $100,000 per plaintiff; and where an employer has 201-500 employees, the cap is $200,000 per plaintiff. The maximum damages that a plaintiff can recover under Title VII from an employer with more than 500 employees is $300,000. When added together, these amounts can be staggering, even in a single-plaintiff lawsuit.
• Many wage discrimination claims are brought as class actions, which multiply the number of claims and the potential damages awarded to successful plaintiffs. Moreover, if the class prevails, a company is on the hook for the plaintiffs’ attorneys’ fees and costs as well. In the case of a large class action, this could lead to astronomical fees!
• Regardless of whether or not a violation is found, once a plaintiff files a complaint against his or her employer, the employer also incurs legal fees as well as the time and resources spent to defend the action. This may be the case even where the company has not acted in bad faith. There is also no guarantee that the employer will recoup fees, even if the employer prevails.
• Finally, a pay discrimination lawsuit could seriously damage a company’s reputation, whether the underlying claims are founded or not. Most companies would rather avoid the negative press and unflattering headlines that accompany such a lawsuit.So what should employers do given the rapid changes in the field of pay equity, and the risks of non-compliance?

Keeping up with the Changing Landscape of Pay Equity

So what should employers do given the rapid changes in the field of pay equity, and the risks of non-compliance?

• Mark your calendars now. When the proposed EEO-1 pay data collection takes effect, all employers with 100 or more employees as well as all federal contractors will be required to submit pay data as of the March 31, 2018 EEO-1 filing deadline. While the OMB has not given final approval to the proposed EEO-1 data collection form, the latest proposed version can be found here.
• Review record-keeping mechanisms to ensure EEO-1 compliance. For purposes of the EEO-1 pay data requirement, employee pay will be measured by employees’ total W-2 earnings for the previous pay cycle. To enable easy EEO-1 compliance in 2017, employers should confirm that their current record-keeping practices are thorough and accurate.
• Audit pay data frequently to identify pay gaps and disparities as they arise. Salaries in the private sector are rarely lockstep. Sometimes, differences in pay, hours worked and job titles are based on legitimate, non-discriminatory reasons. Nevertheless, employers who want to rectify gender-based pay inequity should consider auditing compensation data on a consistent basis, making adjustments to remove discrepancies where appropriate.
• Engage legal counsel prior to data collection.  Given the risks, and the almost inevitable wave of class actions on the horizon, companies should strongly consider a voluntary internal audit with the assistance of legal counsel.  An audit can be complex, and it is critical to have consistent and useful processes in place to mitigate risks.  Legal counsel can guide companies on such processes, and ensure that companies avoid certain pitfalls and landmines.  Moreover, if data collection and analysis are performed by or at the direction of legal counsel, they may be protected by the attorney-client privilege and/or work product doctrine.  This means that confidential information related to the audit may not be discoverable in the case of subsequent litigation.  These audits and protections could prevent headaches—and exposure—down the road.

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