In a step that should immediately spur employers to review their compensation and hiring practices, Massachusetts recently enacted legislation that changes considerably the state's rules prohibiting gender-based pay disparities. The Massachusetts Pay Equity Act (MPEA), which was signed into law on August 1, 2016, amends existing state statutes to clarify when certain positions should be considered "comparable" for the purposes of determining whether an unlawful disparity exists, and delineates the only factors that may lawfully account for differences in salaries between genders.

Although passage of the MPEA signals a renewed interest in gender pay equality and may portend a rash of new lawsuits, the Massachusetts legislature has provided employers with a ready-made defense. The new law provides a safe harbor for those employers that have undertaken a good faith self-evaluation of their pay practices and can demonstrate that they have made reasonable progress in eliminating pay disparities for comparable work. Because the MPEA does not take effect until January 1, 2018, now is the time for employers to review their compensation, performance review, and hiring practices to take advantage of this affirmative defense. Additionally, because the MPEA prohibits employers from screening applicants based on their salary history or otherwise asking for past salary information, employers must adjust their hiring practices to ensure that previous salary information is not requested in employment applications or otherwise in the interview or the hiring process.

Prohibition on Pay Disparities for Comparable Work, Except in the Case of Enumerated Justifications

Under the MPEA, employers are prohibited from discriminating on the basis of gender in the payment of wages for "comparable work." "Comparable work" is defined as work that "requires substantially similar skill, effort and responsibility, and is performed under similar working conditions". Employers should note that an employee's job title or job description alone is not dispositive in determining which jobs are comparable. Rather, employers must closely review the requirements, duties and responsibilities, and conditions under which the jobs are actually performed to determine whether two positions should be considered "comparable" for purposes of this statute.

In accordance with the new law, any salary disparities between genders violate the MPEA unless the employer can support the disparity based on: (1) a bona fide seniority system; (2) a bona fide merit system; (3) a bona fide system measuring the quality or quantity of products or sales; (4) the geographic location of the job; (5) the education, training, or experience of the employees; and/or (6) the travel requirements of the job. In seeking to justify pay discrepancies for similarly situated employees based on a bona fide merit system (i.e., performance review ratings), employers must pay special attention to their employee review process to ensure that the performance assessment is accurate and justifies the disparity in pay, including by ensuring that employee ratings for similarly tenured employees correspond to the respective levels of employee compensation.

The consequences for violating this provision of the statute can be significant. Employees who prove a violation will be entitled to damages equal to the amount of unpaid wages because of the gender disparity, additional liquidated damages in the same amount, and attorneys' fees. Employers also should anticipate that attorneys will seize on statutory provisions explicitly allowing claims to be brought on behalf of multiple employees to file class and representative actions seeking damages for multiple employees.

Internal Pay Audits as an Affirmative Defense

In order to avoid these potential significant damages, employers should take full advantage of the safe harbor provision in the statute and conduct an audit of their employee compensation and evaluation practices to ensure compliance with the new law. As noted above, the MPEA offers an affirmative defense to employers that have undertaken a good faith evaluation of their pay practices and can show "reasonable progress" towards eliminating compensation differentials for comparable work. As further incentive to conduct such an audit, the law provides that evidence of a self-evaluation or remedial steps taken to comply with the statute will not be admissible as evidence of a violation prior to the audit or within six months thereafter. It is unclear whether the statute requires only one audit or annual audits, but at a minimum, employers should commence an initial review immediately.

Prohibition on Requesting Compensation Information from Prospective Employees

In addition to the above changes, Massachusetts employers are now prohibited from requesting certain compensation information from prospective employees or their former employers. Specifically, the MPEA makes it unlawful to screen job applicants based on their wages or salary history, including by setting minimum or maximum criteria for an applicant's compensation history or asking an applicant to disclose prior wages. It also will be unlawful for Massachusetts employers to ask current or former employers to provide applicant salary history unless the prospective employer has made an offer of employment and received written authorization from the candidate to obtain such information. Accordingly, employers will need to work closely with their employees involved in the hiring process to avoid steering into unlawful territory in the interview and hiring process and to ensure that salaries are appropriately set for incoming employees.

Prohibition on Restricting Employees' Disclosure of Wage Information

The MPEA also makes it unlawful to prohibit employees from inquiring about, discussing, or disclosing information about their own wages or those of other employees. While those policies are already prohibited by other laws, such as the federal National Labor Relations Act (NLRA), the enactment of this statute allows plaintiffs to collect monetary damages for violations of this provision (unlike the NLRA). As such, employers are reminded to review their employee handbook and other policies and agreements governing employee conduct to ensure that employees are not restricted from sharing their compensation information.

The employment and trade secret litigation practices at Wilson Sonsini Goodrich & Rosati will be actively monitoring any further developments relating to this statute, including any interpretations from state administrative agencies as to the statute's provisions. Once the law goes into effect, we anticipate an almost immediate wave of claims, as employees will have had well over a year to gather information about the pay disparities that may exist in the workforce. Even if the employer ultimately prevails, it will have spent significant time and money defending against such claims, including by undergoing the same analysis, and engaging in the same evaluative process, as would be required to fit within the statute's safe harbor. Now is the time for employers to take proactive steps to correct disparities that cannot be justified by the limited exceptions set forth in the statute and to avoid claims in the first place by adjusting their policies and practices to ensure compliance with the new law.