A major portion of the ever-expanding slate of laws and regulations employers must now deal with stem directly from a single issue: pay equity. Whether addressing feminist, racial or ethnic concerns, these efforts seek to root out discrimination perceived in different rates of pay for people who work in the same or similar jobs.
The pay equity issue has been a constant complaint of feminist critics, with the oft-quoted (and sometimes disputed) statistic that women continue to make only about 79 cents for every dollar men make in 2019. Similar figures have been frequently bandied about over recent decades by politicians and commentators.
However, when you account for factors such as job title, years of experience, industry sector and location so that the only differentiation between workers is their gender, women now make $0.98 for every dollar an equivalent man makes, according to the compensation software provider PayScale, which between 2017 and 2019 conducted an online survey taken by 1.8 million people.
(It’s also important to remember that women are not one homogenous group: Women of color face a different set of barriers in obtaining fair pay and advancing in the workplace compared to white women, Payscale points out.)
High-profile cases of pay inequity that grabbed the public’s attention in recent years include revelations in the wake of the #MeToo scandal of female movie stars being paid significantly less than their male counterparts in the same productions, and the world champion U.S. women’s soccer team lawsuit over differences in the way they are compensated compared to male players.
At the federal level, the most significant piece of legislation in recent history was the Lilly Ledbetter Fair Pay Act of 2009 – the first bill that the newly-elected President Barack Obama signed into law. Although generating a lot of fanfare at the time, it did nothing more than extend the statute of limitations for bringing lawsuits involving pay discrimination.
The House of Representatives currently is considering the Paycheck Fairness Act, which is intended to close perceived loopholes in the 1963 Equal Pay Act by providing additional protections for employees who may face retaliation for discussing salaries with colleagues and which would at the federal level for the first time limit the use of an applicant’s wage history in the hiring process.
Even if the legislation is passed by the Democrat-controlled House, it is not expected to go anywhere as long the Republicans control the Senate.
Among federal agencies, the Equal Employment Opportunity Commission (EEOC) has its mission of combatting pay discrimination built right into its name. Although the commission’s enforcement efforts center around complaints brought by citizens (and their attorneys), many of the cases it recently chose to pursue have dealt with sexual harassment, LGBT, age, disability and religious discrimination rather than unequal pay practices.
However, EEOC also has launched some nationwide initiatives in recent year targeting the issues, including a complicated and very messy attempt to reform the EEO-1 Form reporting process.
‘Ban the Box’
But if major legislative and federal agency initiatives have failed to make much progress, a number of states and cities have mounted their own campaigns aimed at leveling the playing field. These fall under the rubric of what is called the “Ban the Box” movement, referring to boxes that applicants must check on job applications and which often require submission of additional information.
Advocates have long argued that requiring applicants to supply certain kinds of information unfairly disadvantages women and minorities and encourages employers to pay them less – or not to hire them at all. The first to go was requiring submission of personal credit information.
The Fair Credit Reporting Act (FCRA) does not prevent an employer from conducting third-party credit checks so long as it obtains the applicant's written consent and complies with the FCRA's notice requirements.
The Democrat-controlled House of Representatives is currently considering legislation that would prohibit employers from using credit reports for employment decisions, except when required by law or for a national security clearance. Employer groups such as the U.S. Chamber of Commerce and the Society for Human Resource Management oppose the bill because they say it overreaches.
States with credit history bans include California, Colorado, Connecticut, Hawaii, Illinois, Maryland, Nevada, Delaware, Oregon, Vermont and Washington State. The cities of Chicago, New York City, Philadelphia and Washington, D.C, also have passed similar laws.
The second ban the box wave involves ongoing attempts to curtail requirements that applicants offer up all kinds of criminal record information. Again, which employers these apply to and what they require vary widely.
Jurisdictions with criminal record bans include the states of Colorado (effective Sept. 1, 2019 for employers with 11 or more employees; effective Sept. 1, 2021 for all employers), Connecticut, Hawaii, District of Columbia, California, Illinois, Massachusetts, Minnesota, New Jersey, New Mexico, Oregon, Rhode Island, Vermont and Washington. Cities include Baltimore, New York City (along with Buffalo and Rochester), Philadelphia, Austin, Texas. And Kansas City and Columbia, Mo.
The EEOC jumped on the bandwagon during the Obama administration by adopting its own criminal record ban the box guidance. That was blocked in 2012 by a federal District Court in Texas, where the state government had challenged the commission action, pointing to that state laws that required public schools must not hire felons, and even to the EEOC’s own hiring policy, which at that time required criminal record disclosures.
In August, the Fifth Circuit U.S. Court of Appeals struck down the EEOC guidance on the technical ground that because it was so sweeping, it should have been issued as a proposed rulemaking instead of a guidance memo, which would have allowed for public comment. However, the decision may be helpful for employers in Texas, Louisiana and Mississippi (the Fifth Circuit’s jurisdiction)
States and Cities Act
Regardless of what the EEOC chooses to do next, state and local ban the box laws remain in force and more are being added all the time. In many cases today, an employer can ask only for limited information from applicants (convictions but not arrests, for example) and can only ask for it after making a job offer.
The patchwork nature of these laws, which differ from jurisdiction to jurisdiction, creates problems for employers who operate in several states. But the issue is not going away anytime soon, especially now that many of these same states and cities being swept up in a new campaign to prohibit employers from asking job applicants for their salary histories.
The logic here is that because women and minorities traditionally have been paid less than white men, the availability of salary histories allows employers to continue to keep salaries low for those who have been discriminated against in the past.
For example, a white male and a black female apply for the same job where an employer is prepared to pay an applicant in the mid-$40,000 range. Because the employer knows that the black woman’s last job paid $28,000, she is offered $32,000. However, the white male’s most recent salary was $38,000, so he is offered $42,000 to do the same job. That is the logic being applied.
The states of Alabama, California, Colorado, Connecticut, Delaware, Hawaii, Maine, Massachusetts, Oregon, Vermont, Washington State and New York City already had passed such legislation by the middle of this year. In mid-August salary history bans were adopted by New York State, New Jersey, Illinois, Kansas City, MO, Cincinnati and Toledo, OH.
To make matters more confusing, federal circuit courts are split on whether prior salary information may be considered a permissible “factor other than sex” under the Equal Pay Act. Pay differentials that are legally allowed when they are based on seniority, merit, quantity or quality of production, or a factor other than sex. Even in cases where these are considered affirmative defenses, it’s the employer’s burden to prove that they apply, and pay differentials are not cutting it in some courts.
The latest wave of pay equity legislation are called “wage transparency” laws designed to prohibit employers from barring pay disclosures in the workplace and from retaliating against employees who discuss their pay with others.
The operative theory is that when employee compensation data is shared, collected and reported freely, without fear of retribution, it promotes fair pay both within companies and across industries.
States and cities that have enacted wage transparency protections include California, Colorado, Connecticut, Delaware, District of Columbia, Hawaii, Illinois, Maine, Maryland, Massachusetts, Michigan, Minnesota, Nevada, New Hampshire, New Jersey, New York, Oregon, Vermont and Washington State.
What Employers Should Do
All of these laws are different, and the subject of pay equity offers challenges that many employers have never faced. What can you do to make sure your company does not become the target of government enforcement and civil lawsuits?
Some employers have decided to simply end the practice of requesting prior salary information from applicants or do not use the information they obtain to set starting pay. However, that is not even a complete solution, point out attorneys for the law firm of Jackson Lewis. They stress that employers also should consider exploring whether there are any existing pay disparities that were created by the historical use of applicants’ prior salary information in setting starting pay rates.
Among the other best practices they recommend are:
- Consider removing salary history inquiries from applications or tailor applications to jurisdictional requirements.
- Train recruiters and talent acquisition team not to ask about salary history in jurisdictions prohibiting such inquiries.
- Train those involved in pay-setting decisions to set pay without reliance on prior pay.
- Consider implementing written guidelines for establishing starting pay.
- Conduct an internal review of pay of others in similar positions for equity.
- Document the reasons for pay differences, particularly in starting pay rates.
- Under attorney-client privilege, consider conducting a broader pay equity analysis to determine if reliance on prior salary history has perpetuated wage gaps in the organization and, if so, take remedial steps to address any issues.
Employers also should seriously consider conducting this kind of privileged pay audit, stresses Jackson Lewis attorney Christopher T. Patrick “The continued focus on pay equity by state and local governments requires employers to review their pay practices and consider a proactive, attorney-client privileged pay audit to identify and address unexplained pay disparities.”
Because these laws often embrace the concept of comparable worth, the privileged pay audit also should be constructed so that employee groupings (comparator pools) match the breadth of potential comparators under the specific state and local laws that apply to the workforce.
When considering a privileged pay audit, employers should consider expanding pay groupings beyond job title and compare jobs that share similar functions. “New state laws are breaking away from the idea that relatively minor job-related distinctions command different pay,” Patrick notes. “Employers will need to broaden their ideas of comparable tasks and roles by considering the reality of the job functions.”
He also suggests that the audit evaluate the pay groupings multiple ways to see where potential issues may exist, and then focus on ensuring that those issues are defensible in the relevant jurisdiction. Audit job descriptions and the actual job duties of employees – skills, efforts and responsibilities – to ensure that any privileged pay analyses will compare the “right” employees and identify actual legal risk for the jurisdiction where they work.
The actions you take can help attract new talent and reduce turnover as well as avoid legal tangles. Payscale’s nationwide survey found that women tend to have a more negative perspective than men do in regard to whether they are paid fairly within the organizations where they work.
When a worker senses she is underpaid, it also breeds resentment, which can lead to absenteeism and loss of productivity, Payscale observes. The researchers found that perceptions about pay also play a significant role in an employee’s desire to leave an employer. For example, 60% of employees who perceived they were underpaid said they intended to leave, compared to only 39% of those who believed they were overpaid.
Employers also need to grapple with the rising awareness among their workforces about these issues. “These days, employers no longer have an option to ignore potential wage and opportunity gaps within their workplace,” Payscale says. “Not only are there new equal pay laws that organizations must comply with nationally and globally, workers themselves are demanding change from their employers.”
In today’s tight job market, workers are choosing to align themselves with organizations that have values that match their own personal values, and among these the one held in the highest regard is fairness, according to Payscale. “Organizations which commit to examining their pay and rewards practices to ensure fairness will position themselves well in the war for talent.”