With hiring about to pick up, this is a great time for a refresher on employers’ obligations under the Equal Pay Act (EPA), brought to you by the U.S. 7th Circuit Court of Appeals—which covers Illinois, Indiana, and Wisconsin.
Two for One
“Hannah” served as acting superintendent of the Illinois School for the Deaf (ISD) from 2006 to 2007 and as superintendent from 2007 to 2010. During her last year as superintendent, she was paid a base salary of $83,856 plus bonuses. “Doug” was superintendent of the School for the Visually Impaired (SVI) from 1998 to 2003 and again from 2008 to 2010. He resigned in 2010.
The Illinois Department of Human Services (IDHS) decided to combine the two schools and create one superintendent role to cover both schools. Hannah was offered the combined superintendent position. During salary negotiations, she said she wanted to be paid as much as Doug had been paid ($121,116 per year), and the department counteroffered.
Some IDHS employees thought Hannah was entitled to a large raise because she was taking on two roles. However, the IDHS was under budget constraints, and there were concerns that the state’s central management services would not authorize a 30% pay increase for a public employee.
Hannah accepted a salary of $106,500, which was less than Doug’s salary but was a 21% increase from her salary as superintendent of ISD. She sued the IDHS, alleging a violation of the EPA.
The EPA prohibits employers from discriminating against employees based on sex. To establish a claim under the EPA, an employee must demonstrate a difference in pay for jobs that require equal skill, effort, and responsibility and that are performed under similar working conditions. Once the employee establishes that, the employer must show that a factor other than sex explains the pay discrepancy.
Specifically, the EPA provides four defenses that allow an employer to claim that a pay discrepancy is not discriminatory. Payment must be in accordance with (1) a seniority system; (2) a merit system; (3) a system that measures earnings by the quantity or quality of production; or (4) a differential based on a factor other than sex.
Hannah claimed that she could establish an EPA violation because her role as dual superintendent required her to perform work that was equal to, if not more demanding than, the work Doug did as superintendent of SVI.
The IDHS countered that the pay discrepancy was based on three nondiscriminatory reasons: (1) the state’s pay plan, (2) Hannah’s and Doug’s prior salaries, and (3) budget concerns. Based on those factors, a federal trial court judge entered judgment on behalf of the department without a trial. Hannah appealed.
Pay to Play
On appeal, the court assessed each of the factors the state relied on to determine whether they provided a nondiscriminatory basis for the difference in pay. First, the IDHS argued that the Illinois Administrative Code prohibited it from increasing Hannah’s salary to match Doug’s salary. The Administrative Code sets the pay plan for state employees, including Hannah. Under the pay plan, positions are assigned salary and bonus ranges, and pay increases are based primarily on employees’ prior salary. Under the code, a salary increase of more than 5% is considered a special salary adjustment that requires special authorization.
The department argued that the pay plan prohibited it from matching Hannah’s new salary to Doug’s salary since Hannah’s most recent base salary prior to her new role was $83,856 and the salary for her new role was a 21% increase from her previous salary. The appellate court agreed that the pay plan was a factor other than sex that limited the department’s ability to increase Hannah’s salary.
Show Me the Money
Additionally, the 7th Circuit said that even apart from the pay plan, a difference in salary based on a difference in what employees were previously paid is a legitimate factor other than sex. Hannah’s previous salary as superintendent of ISD ($88,048, including bonuses) was significantly lower than Doug’s previous salary prior to becoming superintendent of SVI ($118,794). The court concluded that the department could properly take the employees’ previous salaries into account.
Finally, the court found that the IDHS’s decision on what to pay Hannah was based on budget concerns. Hannah argued that budget concerns could not have been the genuine basis for her lower salary since the department eliminated one position by combining the two roles, thus saving money.
However, the 7th Circuit concluded that it was not its role to determine how agencies should spend their money so long as they do not discriminate. No reasonable jury could find that Hannah was paid less because of her sex. Lauderdale v. Ill. Dep’t of Human Services, No. 16-3830 (7th Cir., Nov. 30, 2017).
Let’s Talk About Sex
The start of the new year is a great time to review your pay practices to determine whether there are any potential pay disparities based on gender (or other protected characteristics). Consider evaluating all forms of compensation, starting with salaries, benefits, bonuses, shift differentials, overtime, and separation pay to assess whether there are disparities that need to be addressed. If there are problems, there’s no time like the present to fix them.