Mind the Gap
Practical Solutions to Minimize Pay Equity Claims
May 2020
As the pay equity legal landscape evolves, Colorado employers should brace themselves for claims of gender-based discrimination, plummeting morale, and negative publicity. Employers can minimize the risk of claims by implementing the solutions discussed here.
When the US women’s soccer team won the World Cup last summer, crowds chanted “Equal pay!” in reference to pay disparities between the US women’s and the US men’s teams. Issues surrounding equal pay are becoming an increasing part of our cultural, social, and legal landscape as evidenced by the #MeToo movement, the gender pay gap discussions in the 2020 presidential campaign, and the increasing number of laws and lawsuits involving equal pay.
In response to these developing trends, Colorado employers continue to examine how to properly identify, audit, and address equal pay issues within their organizations. While understanding that federal law prohibits gender-based pay discrimination, Colorado employers frequently struggle with two basic questions:
- How do I know if my organization has an equal pay issue?
- If an issue exists, what do I do to fix it?
Indeed, to increase pay transparency and expand the limited “equal work” standard under federal law, Colorado has enacted a pay equity law that, among other things, will prohibit salary history inquiries and require equal pay for “substantially similar” work.
Colorado employers must navigate the evolving arena of pay equity laws to avoid gender-based discrimination claims based on pay, manage overall employee morale, and handle the heightened publicity surrounding pay equity issues. This article aims to ease the burden of Colorado employers confronted with pay equity issues in the workplace by providing an overview of the pay equity legal landscape and offering practical solutions. Because one strategy will not work for all employers, this article also discusses the advantages and challenges associated with three possible solutions: conducting proactive pay audits, revising compensation plans, and coordinating implicit-bias training.
The Equal Pay Act
On June 10, 1963, President John F. Kennedy signed the Equal Pay Act (EPA) into law.1 As an amendment to the Fair Labor Standards Act (FLSA), the EPA requires that men and women receive equal pay for equal work.2 Work is “equal” if it requires “equal skill, effort, and responsibility.”3 Skill includes considerations such as experience, training, education, and ability.4 Effort refers to the physical or mental exertion necessary to perform the job.5 And responsibility concerns the degree of accountability required to perform the job.6 Courts generally construe the “equal work” requirement narrowly.7 Therefore, jobs that are merely alike or comparable are not considered “equal” under the EPA.8
Even if a plaintiff is able to establish a prima facie case under the EPA, a defendant can still defeat the EPA claim by establishing that the wage differential is justified under one of the EPA’s four affirmative defenses: (1) a seniority system; (2) a merit system; (3) a system that measures earnings by quantity or quality of production; or (4) any factor other than sex.9 The most commonly invoked affirmative defense is “any factor other than sex.”10 To establish this defense, an employer may use “any job-related or business reason other than sex to justify the difference in pay.”11 For example, “any factor other than sex” may include educational qualifications, work experience, training, or ability.12 To meet this burden, an employer must “submit evidence from which a reasonable factfinder could conclude not merely that the employer’s proffered reasons could explain the wage disparity, but that the proffered reasons do in fact explain the wage disparity.”13
Colorado’s Equal Pay for Equal Work Act
With the purpose of expanding the limited equal work standard under the federal EPA, Colorado enacted its own pay equity law. Colorado’s Equal Pay for Equal Work Act (Colorado’s EPA), effective January 1, 2021, prohibits an employer from:
- paying one employee a wage rate less than the rate paid to an employee of a different sex for substantially similar work,
- asking about or relying on an applicant’s salary history,
- restricting employees from discussing their compensation with other employees, and
- retaliating against an applicant who fails to disclose his or her wage history.14
“Substantially similar work” is to be determined without regard to job title and is based on a composite of skill, effort (which may include consideration of shift work), and responsibility.15 Colorado’s EPA will require employers to apprise all employees of employment advancement opportunities, job openings, and the pay range for the job openings.16 Similarly, Colorado’s EPA will require employers to maintain records of job descriptions and wage-rate history for current employees and—for two years after the employment ends—former employees.17 An employer that violates Colorado’s EPA may be liable for economic damages, equitable relief, and the employee’s reasonable attorney fees.18
Similar to the federal EPA, a defendant can defeat a claim under Colorado’s EPA by establishing that a wage differential is justified by one or more of the following factors: (1) a seniority system; (2) a merit system; (3) a system that measures earnings by quantity or quality of production; (4) the geographic location where the work is performed; (5) education, training, or experience to the extent they are reasonably related to the work in question; or (6) travel, if the travel is a regular and necessary condition of the work performed.19
Collective Actions
An employee’s federal EPA claim and any pendent state law claims may result in a collective action, which will increase an employer’s litigation costs and a company’s exposure to the media. A collective action under the federal EPA is governed by the FLSA opt-in procedure, under which an aggrieved employee can bring a claim against an employer on behalf of herself and other similarly situated employees. Courts generally consider whether to certify FLSA collective actions under a two-step approach.
First, the court conditionally certifies the class, based on a modest factual showing that the putative class members are similarly situated. For example, in Smith v. Merck & Co., plaintiffs, who were female sales representatives, moved for the conditional certification of their EPA collective action.20 Plaintiffs alleged that defendant—“a global pharmaceutical powerhouse”—systemically paid female sales employees less than similarly situated male sales employees who performed the same job duties and worked under the same conditions.21 Plaintiffs argued that the female sales representatives were similarly situated because they all performed the same essential work and were subject to the same compensation policies and practices.22 At the conditional certification stage, the court found that plaintiffs demonstrated that the sales representatives had similar responsibilities; the named plaintiffs were paid less than some allegedly similarly situated males; and compensation decisions, although based in part on input from some direct managers, were finalized by a central, common office.23 Thus, the court granted plaintiffs’ motion for conditional certification.24
Second, after conducting additional discovery, the court decides whether to decertify the provisional class. At this second stage, the court considers (1) disparate factual and employment settings of the individual plaintiffs, (2) the various defenses available to the defendant that appear to be individual to each plaintiff, (3) fairness and procedural considerations, and (4) whether plaintiffs made the proper filings.25
For example, in Ahad v. Board of Trustees of Southern Illinois University, plaintiffs—female physicians—alleged that defendant paid them and other female physicians substantially lower compensation than male physicians for the same or similar work.26 The court had conditionally certified their EPA collective action, and defendants subsequently moved for decertification.27 The court acknowledged that its inquiry at the second stage was “more stringent” compared to the conditional certification stage.28 The court found that while plaintiffs shared some factual and employment settings, individual issues predominated;29 for instance, plaintiffs had disparate job duties and work settings, the factors affecting each opt-in plaintiff’s compensation were highly individualized, and plaintiffs had not identified a common policy or practice responsible for the alleged discrimination.30 The court held that the affirmative defenses available to defendants were highly individualized as to each plaintiff, and because plaintiffs had not shown that they were similarly situated, allowing them to proceed collectively on their claims did not promote judicial economy.31 Thus, the court granted defendants’ motion to decertify the collective action.32
As demonstrated by these cases, most district courts grant conditional certification given the low threshold at the first stage, and the real battle for collective action status takes place when the defendant files a motion for decertification during the second stage.
Employers confronted with an EPA claim face potential liability and significant monetary exposure. For example, under the EPA, prevailing plaintiffs are entitled to lost wages, plus an equal amount in liquidated damages.33 Plaintiffs also may be awarded back pay, but back pay awards “are typically limited to damages sustained” within the limitations period.34 Finally, plaintiffs also may be entitled to their reasonable attorney fees and costs.35 Thus, in collective actions, the potential damages may be significant.
Minimizing Risk
In addition to significant monetary exposure, an employer that fails to comply with pay equity laws may be exposed to reputational damage that affects its employees, customers, and shareholders. For example, employees demoralized over inequitable pay may choose to leave, and the employer may also fail to attract top talent. Customers may switch brands, resulting in lost revenue, and stock prices may plummet due to bad press. Colorado employers should take proactive steps to minimize such risks and comply with Colorado’s EPA by
- eliminating questions about an applicant’s salary history from application forms,
- training human resources professionals to stop requesting applicants to provide salary history information during interviews, and
- revising job descriptions and job advertisements to include the salary associated with each position.
In addition, employers should implement other strategies according to their particular budgetary and personnel structures. The options below—conducting proactive pay equity audits, revising compensation plans, and coordinating implicit-bias training for decision-makers—can reduce risk exposure while maximizing employee participation in creating pay equity. Each option has its own challenges and advantages.
Conduct Proactive Pay Audits
A pay audit involves comparing the compensation of employees doing equal (federal standard) or similar (Colorado standard) work at a company. The audit’s scope may be as limited (sex only) or as broad (age, race, sex, etc.) as an employer wants it to be. However, a broader audit will likely be more costly and take more time to complete. To conduct an audit, an employer will need to collect information about each relevant employee and his or her comparators. For example, if the pay audit is based on sex among management-level employees, the employer must, at a minimum, collect information for each management-level employee on sex, pay, job title, worksite location, schedule, full-time/part-time status, length of service, education, and performance evaluations. The employer also must evaluate all documents related to the company’s performance evaluation system to confirm that its job evaluation system for each employee is consistent. Finally, an employer may need to interview employees to discuss their actual duties and responsibilities.
Employers should organize all relevant information in a spreadsheet and review the data. This review frequently involves a cohort analysis, which is an analysis of smaller groups of individuals, or a statistical regression analysis that looks for trends in larger groups of employees and smaller ones contained therein. As an employer analyzes the data, it should document the reasons for any differences in pay. The employer should determine whether any differences in pay are based on sex and, if so, adjust the wages accordingly.
Advantages: Many employers already compile gender and pay data, making the pay equity analysis more manageable. For example, employers with 100 or more employees, and federal contractors with 50 or more employees, must submit employee gender data in their EEO-1 reports to the EEOC, and pay was included as a reporting factor for 2017 and 2018.36 Moreover, public companies already analyze compensation to comply with the CEO pay ratio rule under the Dodd-Frank Act and can expand their analysis to include gender.37 For employers that are comparing only a few employees, a pay audit likely will be beneficial. Such an audit can be conducted by a human resources professional and thus be cost effective. Keep in mind, however, that internal pay audits are not protected by the attorney-client privilege and thus are subject to disclosure during discovery in a lawsuit. An employer may wish to work with outside counsel to be protected by the attorney-client privilege.
Challenges: For employers that are comparing hundreds or thousands of employees, a pay audit likely will need to be conducted by an economist to provide an expert opinion regarding whether there is any statistically significant disparity in compensation between male and female employees, controlling for any appropriate variables. This could be costly depending on the employer’s size and the scope of the audit. In this scenario, working with outside counsel is recommended, especially because failure to keep the pay audit privileged could create a treasure trove of discoverable information for class action plaintiffs.
Revise Compensation Plans
Compensation plans identify the criteria and process that employees must satisfy to receive bonuses, commissions, or salary increases. The criteria and process should be based on clear, objective factors. To comply with Colorado’s EPA, the criteria should focus on the position and duties rather than on a particular employee or applicant or his or her salary history. The employer should provide the compensation plans to all relevant employees, discuss the plans with them, and allow them to ask questions. Companies should also consider having the compensation plans reviewed by several diverse key stakeholders who can assess the effectiveness of the criteria and process on employees belonging to a diverse group.
When revising its compensation plans, an employer also should consider the competitiveness of its wages by analyzing pay ranges for comparable positions with similar employers.
Advantages: Revising compensation plans allows an employer to confirm that its criteria and processes are based on clear, objective factors. Additionally, including employees in discussions helps demystify the pay process and build trust in the employer’s decision-making process. Further, increasing transparency of the pay process likely will enhance employee contributions to the company’s success.
Challenges: Depending on the employer’s size and the number of compensation plans applicable to its workforce, revising an employer’s compensation plans may be a lengthy process that requires prioritization and commitment. And if outside counsel assists with this project, the cost likely will increase. Further, changes to certain equity compensation plans may require shareholder approval.
Coordinate Implicit Bias Training
Implicit bias “refers to the attitudes or stereotypes that affect our understanding, actions, and decisions in an unconscious manner.”38 Implicit biases can impair a person’s decision making,39 but information and self-examination can help combat the negative effects. Requiring all decision makers to attend implicit-bias training can help employers combat unintentional discrimination.
Advantages: A successful training challenges assumptions and helps people understand how others perceive their actions.40 Conducting implicit-bias training demonstrates an employer’s commitment to inclusivity and helps decision makers achieve pay equity decisions that are fair and objective.
Challenges: Discussions about sensitive learning topics must be designed properly.41 “A poorly designed diversity education program can make some feel attacked, despite aiming to raise awareness and sensitivity around an issue.”42
Conclusion
Colorado employers must comply with both the federal EPA and Colorado’s EPA. To reduce exposure to pay equity claims and avoid litigation, particularly collective actions, Colorado employers should be proactive and implement strategies to address pay equity issues before they become a problem. An employer’s size and employee morale are guides to determining the best strategies to implement.
A different version of this article was previously published at “Mind the Gap: Practical Solutions to Minimize Pay Equity Claims,” ACC Docket vol. 37, no. 10, at 25–31 (Dec. 2019). © 2019, the Association of Corporate Counsel. All rights reserved. Reprinted with permission. If you are interested in learning more about ACC, please visit www.acc.com; call (202) 293-4103, ext. 360; or email membership@acc.com.
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Notes
1. 29 USC § 206(d). See also Goldstein, “Sex-Based Wage Discrimination: Recovery Under the Equal Pay Act, Title VII, or Both,” 56 Ala. Law. 294 (1995). Relatedly, the Lilly Ledbetter Fair Pay Act of 2009, passed to protect individuals against discrimination in compensation, amended Title VII and provides that the statute of limitations for filing a charge of discrimination with the EEOC runs from each paycheck that contains discriminatory pay, rather than from the date of the discriminatory act that led to the lower pay as previously held by the Supreme Court. An employee also may seek to recover against an employer for alleged disparities in pay under Title VII of the Civil Rights Act of 1964.
There are differences between the EPA and Title VII, such as administrative prerequisites and available damages. In addition, while employees can file a traditional “opt out” class action alleging Title VII violations, EPA plaintiffs must use the “opt in” class action or “collective action,” as explained in this article.
2. Schneider and Stine, 2 Wage and Hour Law: Compliance and Practice § 16:1 Introduction (Thomson Reuters Mar. 2018 update).
3. 29 USC § 206(d)(1).
4. EEOC v. Cent. Kan. Med. Ctr., 705 F.2d 1270, 1272 (10th Cir. 1983).
5. Id.
6. Id.
7. Sprague v. Thorn Americas, Inc., 129 F.3d 1355, 1364 (10th Cir. 1997).
8. Id.
9. See 29 USC § 206(d)(1); Corning Glass Works v. Brennan, 417 U.S. 188, 196–97 (1974).
10. Yoshino, “Reevaluating the Equal Pay Act for the Modern Professional Woman,” 47 Val. U. L. Rev. 585, 595 (2013) (citing collection of sources).
11. Id.
12. See, e.g., Equal Emp’t Opportunity Comm’n v. Aetna Ins. Co., 616 F.2d 719, 725 (4th Cir. 1980) (listing “shift differentials, restrictions on or differences based on time of day worked, hours of work, lifting or moving heavy objects, differences based on experience, training, or ability” as examples of “anything other than sex” exception) (internal citation omitted).
13. Mickelson v. N.Y. Life Ins. Co., 460 F.3d 1304, 1312 (10th Cir. 2006) (citation omitted) (emphasis in original).
14. HB 19-085 § 4, amending CRS § 8-5-102.
15. Id.
16. HB 19-085 § 8, creating CRS § 8-5-201.
17. HB 19-085 § 8, creating CRS § 8-5-202.
18. HB 19-085 § 8, creating CRS § 8-5-203.
19. HB 19-085 § 4, amending CRS § 8-5-102.
20. Smith v. Merck & Co., No. 13-cv-2970, 2016 WL 1690087 at *1 (D.N.J. Apr. 27, 2016).
21. Id. at *2.
22. Id. at *4.
23. Id. at *5.
24. Id.
25. See, e.g., Thiessen v. Gen. Elec. Capital Corp., 267 F.3d 1095, 1103 (10th Cir. 2001).
26. Ahad v. Bd. of Trustees of S. Ill. Univ., No. 15-cv-3308, 2019 WL 1433753 at *1 (C.D.Ill. Mar. 29, 2019).
27. Id. at *3.
28. Id. at *4.
29. Id.
30. Id. at *4–8.
31. Id. at 8–9.
32. Id. at 9.
33. 29 USC § 216(b).
34. Pollis v. New Sch. for Soc. Research, 132 F.3d 115, 118 (2d Cir. 1997) (citing collection of cases).
35. 29 USC § 216(b).
36. Pursuant to the February 10, 2020 court order in Nat’l Women’s Law Ctr. v. Office of Mgmt. & Budget, Civ. Act. No. 17-cv-2458 (D.D.C.), the EEOC’s EEO-1 Component 2 “pay data” collection for 2017 and 2018 is now complete. See UPDATE: 2019 Component 1 EEO-1 Survey, www.eeoc.gov/employers/eeo1survey. On September 12, 2019, the EEOC announced that it has opted to not renew its request to collect employer pay data (EEO-1 Component 2) for 2019, 2020, and 2021. Notice of Information Collection, www.federalregister.gov/documents/2019/09/12/2019-19767/agency-information-collection-activities-existing-collection. On September 12, 2019, the EEOC announced that it has opted to not renew its request to collect employer pay data (EEO-1 Component 2) for 2019, 2020, and 2021. Notice of Information Collection, www.federalregister.gov/documents/2019/09/12/2019-19767/agency-information-collection-activities-existing-collection.
37. Dodd-Frank Act, Pub. L. 111-203 § 953(b), 15 USC § 78n(i).
38. Understanding Implicit Bias, Kirwan Institute for the Study of Race and Ethnicity at The Ohio State (2015), http://kirwaninstitute.osu.edu/research/understanding-implicit-bias.
39. O’Donnell, “Unconscious bias training can only take you so far,” HRDive (May 8, 2018), https://www.hrdive.com/news/unconscious-bias-training-can-only-take-you-so-far/522903.
40. Id.
41. Taylor, “Does the infamous Google memo reveal problems in the company’s training?” HRDive (Aug. 15, 2017), https://www.hrdive.com/news/does-the-infamous-google-memo-reveal-problems-in-the-companys-training/449373.
42. Id.
Colorado employers must navigate the evolving arena of pay equity laws to avoid gender-based discrimination claims based on pay, manage overall employee morale, and handle the heightened publicity surrounding pay equity issues.