Compensation

8th Circuit: ‘Economic Conditions’ Did Not Allow Unequal Pay

The U.S. 8th Circuit Court of Appeals (which covers Arkansas, Iowa, Minnesota, Missouri, Nebraska, North Dakota, and South Dakota) recently affirmed a jury’s decision that a furniture manufacturer was liable for sex-based wage discrimination under the Equal Pay Act (EPA) and Title VII of the Civil Rights Act of 1964.Equal Pay

Background

“Stella,” “Margot,” and “Taylor” held managerial positions at Allsteel, Inc., a furniture manufacturer. They filed suit against Allsteel, alleging it paid them less than it paid men for equal work. All three women filed claims of sex-based wage discrimination under the EPA, and Stella and Margot also filed sex-based wage discrimination claims under Title VII.

Stella, Margot, and Taylor presented evidence that they were paid less than male employees in their three respective positions. Allsteel presented evidence that the women’s work was not equal to the work of their male comparators. Allsteel also sought to establish that it paid the female employees less than their male comparators based on factors other than sex, an affirmative defense to their EPA claims. Specifically, the company presented evidence that the female workers were paid less based on their education, outside experience, and seniority.

Additionally, Allsteel sought to establish that it paid the female workers less than their male comparators because of economic conditions. It introduced evidence that it experienced negative effects because of the economic recession that began in 2008 and that it laid off several employees, restructured job responsibilities, and froze merit-based pay raises to reduce costs.

Allsteel also presented evidence that even if it did violate the EPA, the violation was not willful, which was relevant to the limitations period for the employees’ EPA claims. It submitted evidence that the Office of Federal Contract Compliance Programs (OFCCP), a U.S. Department of Labor (DOL) agency, conducted an audit to ensure that the company complied with certain requirements of federal contractors, including obligations related to compensating men and women equally.

The district court excluded the audit results, but Allsteel was permitted to present other evidence regarding the audit, including evidence about the audit’s process, the types of data collected and evaluated during the audit, and company personnel’s conclusions based on the audit data.

At the close of trial, the district court instructed the jury that Allsteel could establish an affirmative defense to the employees’ EPA claims if it could prove that a factor other than sex justified the pay differentials. However, the court told the jury that Allsteel could not rely on economic factors such as layoffs, restructurings, or raise freezes to establish the affirmative defense.

The jury found in favor of the employees on all claims and determined that Allsteel’s violations of the EPA were willful. The jury awarded each employee back pay, and it awarded Stella and Margot damages for emotional distress and punitive damages for their Title VII claims. The district court entered judgment in favor of Stella for $61,000, Margot for $83,000, and Taylor for $60,000. Allsteel filed a motion for a new trial, making various arguments. The district court denied the motion, and Allsteel appealed.

8th Circuit’s Opinion

On appeal, Allsteel argued, among other things, that it was entitled to a new trial because the district court improperly (1) instructed the jury that the company could not rely on economic conditions to justify the wage differentials and (2) excluded the results of the OFCCP’s audit.

Jury instruction. Allsteel argued that the district court incorrectly instructed the jury that the company could not rely on economic conditions to establish an affirmative defense that a factor other than sex justified the pay discrepancies between the female employees and their male comparators.

The court explained that to establish a claim of sex-based wage discrimination under the EPA, an employee “must show: (1) she was paid less than a male employed in the same establishment; (2) for equal work on jobs requiring equal skill, effort, and responsibility; (3) which were performed under similar working conditions.”

However, even if an employee proves all three elements, the employer may establish an affirmative defense by demonstrating that the wage differential was based on (1) a seniority system; (2) a merit system; (3) a system that measures earnings by quantity or quality of production; or (4) any factor other than sex.

Allsteel tried to establish an affirmative defense by showing that economic conditions were a “factor other than sex” justifying the pay differentials. The employer offered testimony that it began to feel the effects of the economic recession in October 2008. After the close of evidence, the district court instructed the jury:

Allsteel cannot rely upon market forces or economic conditions as a factor other than sex to justify any pay differential complained of by [the female employees]. These market forces and economic conditions include downsizing, reductions in force, restructuring, and economic downturns.

Allsteel objected to the instruction, arguing that economic conditions in fact could be a factor other than sex justifying the pay differentials. But the district court concluded that the instruction was correct because Allsteel’s proposed economic-conditions defense was inconsistent with the U.S. Supreme Court’s decision in Corning Glass Works v. Brennan.

In that case, the Supreme Court held that an employer paying women less than men simply because men would not work at the lower rates paid to women (therefore, market forces dictated lower wages for women) was not a defense under the EPA.

The Supreme Court explained: “That the company took advantage of such a situation may be understandable as a matter of economics, but its differential nevertheless became illegal once Congress enacted into law the principle of equal pay for equal work.”

Allsteel contended that the district court erred in equating its economic-conditions defense to the market-forces defense in Corning Glass. In Allsteel’s view, the holding in Corning Glass was limited to cases in which employers paid female employees less solely because women were willing to accept less pay than men and did not apply to all affirmative defenses based on economic forces.

The 8th Circuit did not directly opine on whether economic conditions could be a factor other than sex justifying a pay differential in some circumstances, but it did conclude that the district court did not err in giving the jury instruction because Allsteel did not present evidence to establish such a defense. The court noted that Allsteel pointed out that the economic downturn caused layoffs, restructuring of job duties, and a freeze of merit-based pay raises.

However, according to the court, Allsteel offered no evidence showing how those cost-saving measures caused the female employees to be paid less than their male comparators. Also, no evidence suggested that the layoffs and restructuring had any effect on the wages of the female employees or their male comparators. Although the raise freeze affected wages, the evidence demonstrated that it did not cause the female employees to be paid less than their male comparators but merely held preexisting wage differentials in place.

Audit evidence. Allsteel argued that the favorable results of the OFCCP’s audit should have been presented to the jury, saying the results could have served to prove it did not willfully violate the EPA. However, the court found that admitting the OFCCP’s findings would be unfairly prejudicial because it would suggest to the jury that an official fact-finding body had already decided whether Allsteel had violated the EPA.

The court worried that admitting the OFCCP’s findings would create the risk that the jury would rely on the audit’s results instead of its own judgment in determining whether the female employees had proven their claims. Further, the court reasoned that the audit results had limited evidentiary value because Allsteel was permitted to introduce a significant amount of evidence regarding the audit and the conclusions company personnel reached based on it. Accordingly, the court determined that the district court did not abuse its discretion in excluding the audit results.

Bottom Line

There may be situations in which economic conditions justify unequal pay, but only when an employer can explain why the economic conditions caused the specific pay differences in question.

Steve Jones is an attorney Jack Nelson Jones & Bryant, P.A and an editor of the Arkansas Employment Law Letter. He can be reached at sjones@jacknelsonjones.com.