Changes to Pay Equity Law Are Coming: It’s Time to Consider Auditing Your Pay Practices

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PilieroMazza PLLCAmidst all of the promises and actions taken by the Biden Administration, the topic of pay equity is gaining more and more attention. While there has been growing momentum on the issue for years now, the Biden Administration is making it clear that that momentum will materialize into actual changes in the law on the federal front. As such, it is critical that commercial businesses and federal contractors take proactive measures now, including conducting proactive pay analyses with legal counsel, in an effort to prepare for the changing landscape on pay equity.

Actions Taken on the Federal Front

Despite being enacted close to 60 years ago, the Equal Pay Act of 1963 (EPA) has failed to close the gender pay gap that we face today, and a number of lawmakers have vowed to take action. Attempts to make changes to the law have failed for years, but with Democrat-controlled legislative and executive branches, amendments to the EPA are now highly likely. Specifically, the Paycheck Fairness Act (PFA), which previously faced resistance in the Senate, is expected be enacted under the new administration.

The proposed legislation is intended to address some of the loopholes in the EPA and expand employer obligations. For example, the PFA would create a federal ban on requesting a job candidate’s prior salary history and make it easier for employees to pursue individual and discrimination-based collective/class actions against their employers. Additionally, under the EPA, an employer may pay a male employee more than a female employee where the reason for the disparity is based on a “factor other than sex,” which currently includes a broad range of factors. However, the PFA would narrow the list of permissible factors, limiting any pay differences to only “bona fide factors other than sex,” such as education, training, or experience. Notably, these changes would likely open the door for more and more lawsuits by employees challenging employer compensation decisions.

President Biden has also signaled his intent to restore Obama-era rules that required certain employers to collect and disclose compensation information to the federal government in order to provide government agencies with better insight into pay disparities and target enforcement. Particularly noteworthy for federal contractors is President Biden’s current appointment of Jenny Yang to Director of the Department of Labor’s Office of Federal Contract Compliance Programs (OFCCP). Director Yang previously served on the Equal Employment Opportunity Commission (EEOC) and was recognized as a fierce advocate for pay equity and closing the gender wage gap, spearheading the Obama Administration’s effort to collect pay data from federal contractors and other employers through Component 2 of the EEO-1 form. Moving forward, there is little doubt that a heightened scrutiny on pay practices will be a focus—if not, the focus—of the OFCCP and the Biden Administration, generally.

Growing Patchwork of State Laws

In addition to all of the expected changes anticipated on the federal front, employers also need to be wary of the growing patchwork of state pay equity laws imposing different requirements on employers, including salary history inquiry bans and pay reporting obligations. These are especially challenging to deal with as employers have to ensure compliance with the laws of each and every state in which they operate. Nearly every state has some form of pay equity laws on the books, but each has its own scope and own set of obligations, making it difficult for employers to track.

Just two months into 2021, there have already been two significant developments on the state pay equity front. Notably, Colorado became the latest state to begin enforcing its own pay equity law—the Equal Pay for Equal Work Act, which was effective January 1, 2021. The law requires employers in Colorado to include pay and benefit information with each job opening post and to communicate promotion and job opportunity information to all current employees working in the state. Additionally, effective January 1, 2021, California has new pay data reporting requirements that call for employers with one or more workers working in California and 100 or more employees companywide to submit a full Equal Employment Opportunity and Wage report to the State of California by March 31st each year. Until and unless there are significant changes made on the federal level, we expect states to continue to take matters into their own hands and enact their own set of laws.

Conducting Proactive Pay Analyses

With equal pay protections expanding and with a heightened emphasis on pay equity on both the national and state level, employers should be especially diligent in identifying and rectifying unjustified pay disparities. One of the best ways to do so is to consider undertaking a pay equity audit. Conducting a proactive pay analysis will position your company to determine, at the very least, whether any unjustified pay disparities exist, where those gaps are, and any remedial measures that need to be taken to help mitigate any risk of liability.

Conducting pay audits is not only good practice—it can actually provide an affirmative defense against claims of discrimination. In fact, some states that have enacted pay equity legislation include safe harbor provisions in their laws, specifically providing employers that conduct a good-faith audit and that make reasonable progress in eliminating wage disparities with potential relief from liability and liquidated damages.

Notably, engaging legal counsel to lead the effort has the added—and critical—benefit of attaching the attorney-client privilege to protect the confidentiality of any results and analyses. Engaging legal counsel at the outset of your audit process can ensure protection from disclosure in the event of an OFCCP audit or employee lawsuit. Beyond the analysis itself, legal counsel can also assist in reviewing and drafting policies pertaining to decisions surrounding pay practices, as well as help with diagnosing and responding to existing disparities. Conducting proactive, privileged pay analyses will give your company the information and strategies it needs to make appropriate pay adjustments and identify and fix systemic compensation practices to prevent future disparities.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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