Equal Pay: Pay Equally Now or Pay Much More Later

October 23, 2018Articles New York Law Journal

It may come as a surprise to many New York employers that as many as five separate federal, state, and local laws prohibit pay differences between male and female (and non-binary) employees performing equal jobs: (1) the Equal Pay Act; (2) Title VII of the Civil Rights Act of 1964; (3) the New York State Equal Pay Act; (4) the New York State Human Rights Law; and (5) the New York City Human Rights Law. The penalties for violations can add up, quickly reaching into the tens of thousands of dollars per employee, on top of unwanted publicity involving allegations of sex discrimination.

Equal pay between the sexes is an issue that is garnering increased attention, propelled in part by news about pay differentials across industries. As of 2017, nationally female employees earned only 80 percent of their male counterparts, though New York was nearest to parity (88 percent) of all 50 states. At the same time, state and local governments have been enacting laws intended to narrow the pay gap. There is even an annual Equal Pay Day, which seeks to increase public awareness of the issue.

With this increased attention to equal pay issues and enormous potential liability, it is crucial that employers act quickly to identify and fix equal pay violations.

What Is an Equal Pay Violation?

Broadly stated, equal pay laws prohibit an employer from paying employees of different sexes at different rates for the same job. The mantra is “equal pay for equal work.” Specifically, equal pay is required where two jobs require equal skill, effort, and responsibility (i.e., equal duties) and are performed under similar working conditions. “Equal,” in this context, does not mean “identical.” It is enough if skill, effort, and responsibility are substantially equal. Equal pay laws apply to both exempt and non-exempt employees, in all industries, and at all levels of a business.

To make out a violation of equal pay laws, an employee need only show that she performs or performed equal work as an opposite-sex employee (the “comparator”) in the same establishment—which can be the entire business, covering the whole country, in some cases—and was paid less than the comparator. The comparator need not even be employed at the same time as the complaining employee, as predecessors and successors count, too. Notably absent from the required proof is any element of intentionality, willfulness, malice, etc., unless the plaintiff wants punitive damages. Generally, the pay disparity itself is enough. Under federal law, a plaintiff can go back up to two years (three years if the violation was willful); under New York law, six years.

What Is the Potential Liability?

Equal pay laws can be enforced by employees in private suits or by federal and state enforcement agencies like the Equal Employment Opportunity Commission. The penalties for an equal pay violation can be stiff: damages equal to the pay differential; additional liquidated damages equal to the pay differential (under federal law) or three times the pay differential (under New York law); attorney fees; costs; interest; and, for intentional violations, possible punitive damages. For a small New York employer that intentionally underpaid a single female employee by $1,000 per year for six years, liability can exceed $75,000, not including attorney fees and costs. And, it is important to recognize that equal pay claims are often brought as class/collective actions on behalf of dozens, hundreds, or thousands of plaintiffs, increasing the stakes even more. Convert that one plaintiff into a class of 10 and now liability can exceed $750,000 plus attorney fees and costs.

Perhaps most significantly, individual decision-makers and business owners can be held personally liable for equal pay violations in certain circumstances.

How Does an Employer Defend Itself?

In certain circumstances, there may be a very good—and, more importantly, legal—justification for a pay differential between two employees performing equal jobs. If there is indeed unequal pay for equal work, an employer can defend itself by showing that the pay differential is based on: (1) a seniority system; (2) a merit system; (3) a system based on quantity or quality of work; or (4) “any factor other than sex” (federal) / “a bona fide factor other than sex” (New York). The first three defenses are largely self-explanatory and are merely examples of the fourth. The fourth defense, which may appear to be a major loophole, is in actuality narrower than it seems, generally requiring that the factor be job-related, gender-neutral, and adopted for a legitimate business reason. Employers can also avoid liquidated damages by showing a good faith basis for believing that their pay practices comply with the law.

How Do I Fix This?

The quicker an employer remedies equal pay violations, the quicker liability stops accruing. Here’s how to identify and fix potential violations.

Compare equal jobs. Start by identifying jobs with substantially equal duties. Job titles may be informative but they are not controlling and may be irrelevant if the same broad title covers jobs with varying duties or if employees with the same duties have different titles. Where two jobs share many of the same duties, consider the significance of any differences. If the additional duties performed by one employee are insubstantial, take little time, or are of peripheral importance, that will likely not be enough to distinguish the jobs for equal pay purposes. Conversely, significant differences in skill, effort, or responsibility—heavier lifting, longer hours, more accountability, etc.—will make jobs unequal for these purposes. Note that additional job duties do not excuse a pay differential if the employee with the additional duties is the one who is paid less than the opposite-sex comparator.

Identify pay differentials. Look at each component of the employees’ compensation. Equal pay laws are broad in scope and cover nearly everything, from cash wages to fringe benefits to bonuses, expense accounts, vacation pay, and so on. It is not enough that total compensation is equal between opposite-sex employees if any component or rate is different. For example, a female employee paid less per hour has a claim even if she receives the same cash wages in a week because she worked more hours. Any difference in compensation should be a red flag.

Investigate why. Some reasons for a pay differential may be readily apparent, such as longer tenure, measurable efficiency, experience, or prior job performance. Others may take some digging to discover. Either way, what matters is the reason that was relied on at the time the employees’ compensation was set. Note that a pretextual reason, however good it may sound, will not protect you if the real reason for a pay differential is something else.

It is impossible to list all of the factors that can and cannot justify a pay differential but here are some illustrative examples:

Legal Factors: length of tenure/seniority; shift differential; ability/skill; participation in employee training; experience.

Illegal Factors: salary history; cost to employ; education not relevant to the job; industry practice (if discriminatory); status as head of household.

Fix the situation—the right way. Once you identify a pay differential that cannot be justified based on unequal work or a factor other than sex, the remedy is to raise the pay of the lower-paid sex to match their counterparts. The law specifically prohibits reducing the wage of any employee as a means to come into compliance. This may be a bitter pill to swallow, especially where there are multiple employees whose wages need to be raised a significant amount. But it is still better than a lawsuit and all of the damages described above. Keep in mind that these remedial pay increases can be done discreetly.

Do not retaliate. Do not retaliate in any way against any employ that makes a good faith complaint about pay differences between employees of different sexes. Retaliation will only increase your liability, often significantly.

The Bottom Line

Make sure you are paying male and female (and non-binary) employees equal pay for equal work unless you have a legitimate, job-related reason for the pay differential. If not, fix the situation immediately.

Reprinted with permission from the October 23 issue of the New York Law Journal (c) 2018 ALM Media Properties, LLC. Further duplication without permission is prohibited. All rights reserved