2016: The year of pay equity discrimination claims

The employment practices liability (EPL) landscape never disappoints when it comes to keeping employers on their toes. 2015 was no different.

Highlights from 2015

A number of significant events and results were noteworthy from 2015 but here are a few that will likely continue to trend in 2016:

  • The Equal Employment Opportunity (EEOC) had a phenomenal year; the agency recorded its largest monetary recovery ever at over half a billion dollars ($527.6 million)[1] as a result of its continued focus on systemic litigation and other enforcement activities. As the EEOC continues to focus on its initiatives, 2016 may prove to be an even bigger year for the agency.
  • The Department of Labor (DOL) announced proposed FLSA amendments. It is safe to assume that businesses are not breathlessly awaiting the amendments, which are expected to be finalized in early 2016. In the meantime, the number of wage and hour claims filed under the Fair Labor Standards Act (FLSA) rose by 7.5% from 2014. In addition, a number of states, including California and New York enacted or amended existing laws to impose individual liability on directors and officers of companies for wage and hour violations.[2]
  • Joint employer liability issue raised by the National Labor Relation’s Board Browning-Ferris decision had employers wondering about the implications of the decision beyond the scope of the National Labor Relations Act. While there is a probability that the decision will have implications under other employment laws such as Title VII or the FLSA, those implications have not yet materialized.[3]

So while the EPL sky did not fall for many employers in 2015, and likely will not in 2016, employers should fasten their seat belts as they are about to embark on a wild ride in 2016 with a wave of pay equity discrimination claims.

Federal Focus on Pay Equity to Increase in 2016

The Equal Pay Act, which is part of the FLSA and thus enforced by the DOL, is the federal law that prohibits gender pay discrimination between men and women in the same establishment who perform jobs that require substantially equal skill, effort and responsibility under similar working conditions.

Employers are about to embark on a wild ride in 2016 with a wave of pay equity discrimination claims.

The DOL has reported that, despite the fact that the Equal Pay Act has existed since 1963, “women working full-time only make about 78% of what men earn.” It is not surprisingly then that one of the DOL’s trending hashtags on Twitter is #EqualPayNow. This should suggest to anyone who has been closely watching the DOL’s enforcement activities in the last few years that pay equity is going to be a strong area of focus for the agency in 2016.

With the exception of an Executive Order prohibiting federal government contractors from retaliating against employees who share wage and salary information and imposing certain record keeping requirements, the Obama Administration has been unsuccessful in its attempt– through the Paycheck Fairness Act–to amend the Equal Pay Act to allow greater protection for employees on the issue of pay equity.

States Fill the Gap in Gender Pay Equity

As a result of Congress’ failure to pass the Paycheck Fairness Act, many states have taken matters into their own hands.

New Hampshire was one of the first states to pass a law intended to promote gender pay equity by allowing employees to share wage or salary information without fear of retaliation. Other states followed suit.

California “Fair Pay Act”

Notably, in October 2015, California passed the California Fair Pay Act, which is considered one of the most stringent pay equity laws in the country thus far. California Labor Code section 1197.5 prohibits employers from paying an employee less than the wage rate paid to employees of the opposite sex in the same establishment for equal work, unless the employer can demonstrate that the wage differential is based upon

  • A seniority system
  • A merit system
  • A system which measures earnings by quantity or quality of production, or
  • Any “bona fide factor other than sex”

Among other amendments, the California “Fair Pay Act” eliminates the requirement that the wage differential be within “the same establishment.” To simplify the amendment, which may still be complex in application, employers in California (or with employees in California) are now prohibited from paying one employee less than another on the basis of sex regardless of whether the employees are in the same establishment. If there is a pay differential, employers must show that the differential is job related and consistent with business necessity. The law further prohibits retaliation and remedies under the law include reinstatement and reimbursement of lost wages and benefits.

New York Achieve Pay Equity

Meanwhile, back on the East Coast, in October 2015, Governor Andrew Cuomo signed the Achieve Pay Equity bill which took effect on January 18, 2016. The law expands New York Labor Law and, among other provisions, prohibits employers from paying an employee less than an employee of the opposite sex if they work in a similar job, taking into account the skill, effort, responsibility and working conditions involved. The law also prohibits employers from retaliating against employees who inquire about, discuss, or disclose their wages or the wages of other employees.[4]

Gender pay equity is not just a United States issue. Employers in Europe are also on the watch as new laws seeking to balance the gender pay inequality in Europe are being debated.

Why Employers Should Take Note

Prohibiting employees from discussing salary information may violate the National Labor Relations Act.

So, here are three reasons why employers should make light of these developments at their own peril:

  • Remedies (including loss wages, reinstatement and punitive damages) under state laws are broader than the federal Equal Pay Act.
  • Employers do not have to intend to discriminate—most pay equity laws allow for disparate impact claims which attack an employer’s facially neutral policies that may have an adverse impact on minority groups.
  • The NLRB is also closely watching this issue, particularly as relates to retaliation, and can make employers’ lives even more miserable than the EEOC and DOL.

Managing the Exposure

While there is no full-proof way to avoid this exposure, there are a few steps that employers can take to mitigate the exposure:

  • Amend or delete any reference in employee handbooks and confidentiality agreements expressly prohibiting employees from discussing compensation issues or sharing salary/wage information. Note that in addition to potential liability under some of the laws referenced above, prohibiting employees from discussing salary information may violate the National Labor Relations Act, which allows employees to have these discussions for purpose of organizing.
  • Keep in mind that retaliation is broadly defined, and an adverse action taken against the employee following an inquiry (even if a formal complaint is not lodged) can be construed as retaliatory. Therefore, train supervisory employees on how to appropriately address questions or complaints regarding pay differentials and promptly investigate complaints about discrimination.
  • Conduct regular pay equity analysis across all similar titles and offices.
  • Employment practices liability insurance policies, subject to their terms and conditions, are intended to cover gender discrimination claims. To maximize coverage for pay equity discrimination claims under these policies, it is important to pay attention to the definition of “claim,” the FLSA exclusion, as well the definition of “loss” under your policies as every policy’s language is not created equal.

 


 

[1] The EEOC’s total recovery in 2014 was $318.6 million. In 2015, $356.6 million of the $527 million was obtained through mediation, conciliation, settlements and other pre-litigation relief on behalf of charging parties in the private sector. An additional $65.3 million was the result of the EEOC’s litigation efforts. The remaining $105.7 million was secured on behalf of federal employees.

[2] It should be noted that wage and hour insurance policies, currently available through at least one domestic insurer and several Bermuda and London insurers, include directors and officers in the definition of insureds and, as such, are the most logical insurance risk transfer avenue for companies concerned about this exposure for their directors and officers. Terms and conditions of these policies vary.

[3] Employment practices liability insurance (EPLI) policies cover retaliation claims made under the National Labor Relations Act, but do not cover other claims arising under the NLRA.

[4] The law allows written policies that articulate “reasonable workplace and workday limitations on the time, place and manner for” wage discussions.

About Adeola Adele

Adeola I. Adele is an Executive Vice President in the Willis Towers Watson FINEX North America practice group, base…
Categories: Compensation | Tags: , , , , ,

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