by Jason R. Mau
Over the last three years, members of Congress have attempted to amend the Equal Pay Act (EPA) to improve and ensure its protection of individuals subject to pay discrimination on the basis of gender. Originally approved in January 2009 by the House of Representatives, the Paycheck Fairness Act (PFA) failed to gain support in the Senate and was reintroduced in both houses of Congress in the spring of 2011. In June 2012, the bill again failed to gain the necessary support in the Senate.
The reintroduced legislation included provisions that would have enhanced employers’ burden of proof when defending against EPA claims. Those provisions are in addition to proposed amendments to the Fair Labor Standards Act (FLSA) that would allow for enhanced penalties, protection from retaliation for initiating an investigation or discussion of employee wages, programs for negotiation skills training, collection of pay information for research, and establishment of a national award for pay equity in the workplace.
The EPA and proposed amendments
The EPA provides that no employer with employees who are subject to the minimum wage provisions of the FLSA may discriminate on the basis of sex by paying lower wages to one sex than it does to another. That applies when both genders perform equal work under similar working conditions, meaning the work requires equal skill, effort, and responsibility.
As it stands now, the EPA has four affirmative defenses to a claim of gender-based differential in compensation. You will not be liable for paying an employee less than the rate paid to the opposite sex for similar jobs under similar conditions if you can show that the payment is based on (1) a seniority system, (2) a merit system, (3) a system measuring pay by quantity or quality of production, or (4) “any factor other than sex.”
The PFA would amend the latter of the affirmative defenses to read “a bona fide factor other than sex, such as education, training, or experience,” and would add three factors that an employer must demonstrate if relying on the defense. Specifically, an employer also would be required to show that the bona fide factor other than sex is:
- Not based on or derived from a sex-based differential in compensation;
- Job-related with respect to the position in question; and
- Consistent with business necessity.
In response, an employee could eliminate the defense by demonstrating “that an alternative employment practice exists that would serve the same business purpose without producing such differential and that the employer has refused to adopt such alternative practice.”
Defenses to wage discrimination claims
Currently, an employee is required to show that her compensation in substantially the same job and situation is less than that paid to a member of the opposite sex. Wage discrimination claims under the EPA do not require an employee to show discriminatory intent, which is the standard for claims filed under Title VII of the Civil Rights Act of 1964. To avoid liability, the employer has the burden of showing that one of the EPA’s affirmative defenses applies.
The broad language of the “any factor other than sex” defense has been subject to interpretation because much litigation arises under that section. Many of the interpretations have been rather broad. One circuit court went so far as to say that the defense is a “catch-all exception that embraces a nearly limitless array of ways to distinguish among employees.” Excuses that have proven to be sufficient defenses include:
- Appointment to a training program based on the employer’s evaluation of an employee’s future potential;
- Ranking within the organization at the employee’s hiring;
- Consideration of an individual’s market value in wage setting and the market’s influence on pay structure;
- Matching competing offers from similar outside employers;
- Maintaining similar levels of compensation when transferring employees to different positions to avoid unmerited pay reductions;
- Different salary-setting programs for incumbent employees versus outside recruits;
- Wage differentials based on a reorganization plan (e.g., during a merger, keeping the previous company’s wages the same to make the transition smoother); and
- Computer errors in a job classification system.
Most of the defenses were successful because the employer was able to either (1) produce evidence of its reliance on refined analysis of market factors for wage assessments or (2) show an objective written policy describing factors used for wage decisions. Of course, the policies or factors cited must be more than just pretext. They must be consistently applied to all employees and lead to gender-neutral results.
Of the “other than sex” defenses proposed in EPA cases, reliance on salary history or the theory that a woman will work for less compensation causes the most problems for employers. When an organization uses previous salary information to defend compensation disparities, courts are reluctant to accept the differential if it may be linked to sex. Basing compensation on historical data may in fact perpetuate the problem the EPA was designed to curtail. Reliance on salary history, either in-house or based on a new hire’s previous employer, can allow an employer to benefit indirectly from past wage discrimination. That’s because previous salaries could be based on a former policy or market analysis allowing for gender discrimination.
The perpetuation of past discrimination may be one of the problems the proposed PFA is designed to address. Under such a modification to the “other than sex” defense, employers would have to make sure that any differential in compensation was based on much more than salary history or market forces. Additionally, you’d have to show that the differential was related to the job and the specific position filled by the employee.
The surest way of showing that a discrepancy in wages for a specific position is based on gender-neutral factors is to tie the compensation directly to the education, experience, and training necessary for the position. Doing so likely would cover the final requirement that the education, experience, or training is consistent with business necessity. Even though the defense would be sufficient, under the proposed legislation, an employee could still overcome an employer’s evidence by showing that it refused to adopt an alternative practice that (1) wouldn’t have produced the wage differential and (2) would have served the same business purpose.
Recommended steps for employers
Regardless of whether the PFA is reintroduced in Congress soon or whether modifications to the EPA are further down the road, you still can employ compensation policies that are gender-neutral under the EPA and withstand a future claim. You can prepare for a claim and do your part to ensure that the practices sought to be punished by the original EPA aren’t perpetuated by adopting a policy that:
- Ensures all job descriptions are kept up to date;
- Ensures established criteria exist for the assigned values of the skills, effort, and responsibility needed in all positions;
- Ensures all compensation decisions are based on gender-neutral criteria;
- Ensures a consistent method of evaluating the performance of all employees;
- Ensures new hires are consistently incorporated into existing rank and compensation systems on a compatible basis;
- Ensures that each worker’s salary is directly related to the desired and necessary skills for the position (if a higher salary is necessary to hire or retain a specific employee); and
- Ensures that if the market plays a role in salary, the market analysis is done on a consistent basis and documented and includes several, if not all, of the following aspects:
- Review of the particular employee’s/candidate’s resumé and salary history;
- Consideration of the individual’s marketplace value;
- Assessment of the organization’s current financial situation; and
- Comparative assessment of similarly situated entities.
If your organization has a training program, your policy and practices should lead to advancement and increased compensation for select employees. Additionally, your program should:
- Have objective written selection factors to identify employees with the necessary potential;
- Include a written career plan or program sequence for selected trainees;
- Ensure that employees are promptly notified of their selection in the program;
- Contain written objectives and instructions for trainees;
- Assign trainees to positions based on the training program sequence and not on current staffing needs;
- Result in advancement to open positions; and
- Encourage participation of both male and female employees.
As a further precaution, if you are unsure whether your organization’s compensation policies could be vulnerable to an EPA claim, we encourage you to contact an experienced employment law attorney to assist with an in-house audit of your recruitment and compensation processes.
Jason R. Mau is an attorney with Greener Burke Shoemaker Oberrecht, P.A. in the firm’s Boise, Idaho, office. He concentrates his practice in the areas of commercial, real estate, employment, and construction litigation. He represents a variety of clients, including national banks and corporations, as well as local professionals, business owners, and individuals. He may be contacted a jmau@greenerlaw.com.