Employers Face Heavy Burden When Defending EPA Claims

Not only must you be vigilant in preventing workplace sexual harassment in the age of #MeToo, but you also may face an uphill battle in defending against gender-based pay discrimination claims under the Equal Pay Act (EPA), according to a new decision from the U.S. 4th Circuit Court of Appeals—which covers Maryland, North Carolina, South Carolina, Virginia, and West Virginia.

While EPA claims currently may not be as common as claims brought under Title VII of the Civil Rights Act of 1964, that could change in light of the 4th Circuit’s recent decision. Let’s take a closer look at the case.

EPA vs. Title VII

The EPA, which is part of the Fair Labor Standards Act (FLSA), predates Title VII. Unlike Title VII, which prohibits discrimination in pay and other terms or benefits of employment based on certain protected characteristics, including sex, the EPA addresses only gender-based pay discrimination.

Moreover, Title VII merely requires an employer to provide a reason that explains a wage disparity, but you will avoid liability under the EPA only if you prove that your reason actually explains the wage difference between male and female employees.

An employee may raise both Title VII and EPA claims in a lawsuit, but often only the Title VII claim will get to trial. However, after the 4th Circuit’s recent opinion, we likely will see more EPA claims going to trial, allowing a jury to decide whether a pay disparity was based on factors other than gender.

Facts of the Case

The Equal Employment Opportunity Commission (EEOC) sued the Maryland Insurance Administration (MIA), contending its pay practices discriminate against women in general—and specifically against three female fraud investigators compared to certain male counterparts with comparable qualifications. The trial court dismissed the case without a trial, finding the EEOC failed to satisfy its initial burden of proving discrimination because the male employees weren’t comparable to the female fraud investigators.

The court noted that either the male comparators were hired at a higher step in the civil service classification, or the pay disparity could be attributed to a factor other than sex (i.e., experience or better qualifications). The EEOC appealed to the 4th Circuit, which reversed the dismissal and sent the case back to the trial court for further proceedings.

4th Circuit’s Standard

The appeals court noted that an employer seeking the dismissal of an EPA case without a trial bears the burden of ultimate persuasion. Once an employee has established a case of pay discrimination, the employer must prove that the pay disparity was based on a factor other than sex so conclusively that no rational jury could reach a contrary conclusion.

In adopting that analysis, the 4th Circuit (which covers Maryland, North Carolina, South Carolina, and West Virginia) joined two other courts of appeal: the 3rd Circuit (which covers Delaware, New Jersey, and Pennsylvania) and the 10th Circuit (which encompasses Colorado, Kansas, New Mexico, Oklahoma, Utah, and Wyoming).

Applying the Standard to the Facts

Applying that principle to the case before it, the 4th Circuit found that the male fraud investigators’ allegedly superior background experience and professional designations, licenses, or certifications, which the MIA said justified their higher salaries, weren’t relevant to whether the EEOC had established its initial case under the EPA.

As the court explained, an employee filing suit under the EPA “is not required to demonstrate that males, as a class, are paid higher wages than females, as a class, but only that there is discrimination in pay against [her] with respect to one employee of the opposite sex.” Because the EEOC had done that, the appeals court said the MIA had to prove that no rational jury could reject its nondiscriminatory reasons for the wage disparity.

The MIA advanced two gender-neutral reasons for the pay disparity:

1. Its use of the state’s civil service compensation scale—the Standard Salary Schedule—which classifies each position at a grade level and assigns each new hire to a step within the grade level based on work experience; relevant professional designations, licenses, or certifications; years of state service and past salary; and the difficulty of recruiting for the position; and
2. The male comparators’ experience and qualifications.

The 4th Circuit found that the MIA’s use of the state’s Standard Salary Schedule didn’t shield it from liability under the EPA. The MIA had to prove that the salary plan actually motivated it to award the male and female employees different starting salaries.

However, it failed to make that showing by presenting contemporaneous evidence that its decision to award higher starting salaries to the male comparators was in fact based on their greater experience and better qualifications. As a consequence, the 4th Circuit held that a jury must decide whether the MIA objectively weighed the male comparators’ qualifications as more significant than the female investigators’ qualifications. EEOC v. Maryland Ins. Admin., 879 F.3d 114 (4th Cir., 2018).

Takeaway

As the 4th Circuit’s decision makes clear, merely having gender-neutral criteria for your pay decisions isn’t enough if you are able to exercise discretion in applying the otherwise neutral criteria. Additionally, a gender-neutral justification for a pay disparity isn’t sufficient on its own if you cannot establish that the decision was in fact made on a gender-neutral basis.

In light of the court’s decision, you should create and retain clear, contemporaneous records of the manner in which you actually exercised discretion in making pay decisions. Such evidence won’t prevent a lawsuit over unequal pay, but it could help you avoid having to defend your reasons for the pay discrepancy at a jury trial.

Best Practices: Objectivity and Transparency

Here are some best practices for avoiding complaints about equal pay in your workplace:

• Have a dialogue when an employee questions your pay practices. A head-in-the-sand approach to dealing with equal pay issues is ill-advised.
• Perform a self-audit and resolve inexplicable or otherwise problematic pay disparities. If your female employees are being paid less than their male counterparts, take a closer look at the reasons why. If there are no clear factors to support the disparity, increase the wages of your female employees. Remember, the EPA doesn’t permit you to decrease a male employee’s higher wages to come into compliance with the law.
• Look at performance instead of schedules or past salaries. Women are more likely to require flexible work schedules at some point during their careers. A decrease in hours may correspond to a lower salary and a hesitancy to request periodic salary adjustments. In some instances, a flexible work schedule may permit fewer work hours but in reality require full-time work. Furthermore, if a female employee returns to a full-time schedule, make sure her salary reflects her current full-time schedule, not her prior flexible schedule. In that situation, a compensation decision based on past salary may not reflect the true value of her work.
• Studies show women are less likely than men to ask for raises or insist on pay equity, but that factor alone doesn’t excuse a pay disparity. In other words, there is no “she didn’t ask for equal pay” defense. Don’t tacitly use your female employees’ unwillingness to advocate for themselves or a previous request for a flexible work schedule as an excuse to pay them less than their male colleagues who perform the same amount of work on a more traditional work schedule or request raises more frequently.
• If you use a facially gender-neutral pay scale, make sure you apply objective criteria and standards uniformly to determine appropriate pay rates. Remember, always be consistent, including when you establish pay rates for both entry-level and lateral employees.

Finally, when in doubt about the legality of the reasons for any pay disparity in your organization, consult with experienced employment counsel. Legal counsel can assist you in analyzing pay issues to ensure that any disparities have an objective factual basis and are legally sound. Such an analysis can go far in helping you avoid the prospect of having to defend your pay practices to a jury in an EPA action.

Jayna Genti is an attorney with DiMuroGinsberg. She may be reached at jgenti@dimuro.com.