Income equality and equal pay lately have been hot topics in political circles. The proposed Paycheck Fairness Act‘s proponents claim the law would help narrow the wage gap between men and women, notwithstanding ongoing debate over the statistics. Employers should be aware that state and federal law already require equal pay based on equal work. Below is a summary of the current laws and the proposal to improve their effectiveness.

The Federal Equal Pay Act and California Labor Code

The federal Equal Pay Act and the California Equal Pay Law require employers to provide men and women equal pay for substantially equal work. “Substantially equal” means the positions require roughly the same levels of (1) skill (2) effort and (3) responsibility. The work also must be (4) performed under similar working conditions and (5) within the same establishment. “Skill” refers to training, education, or experience actually needed to perform the position. “Effort” measures the physical and mental requirements of the job — e.g., long hours or heavy lifting. “Responsibility” means the level of accountability associated with the position, such as handling money or trade secrets, for example. “Similar working conditions” means the physical comfort and risks are about the same for both jobs. “Same establishment” generally means the same physical/geographical location, unless salaries are set uniformly without regard to the location of the employee.

Unlike other anti-discrimination laws, it is not necessary for an employee to prove intent to violate equal pay laws. What matters is that workers of the opposite sex were not paid equally for substantially equal work. An employee making this showing is entitled to the gap in pay plus an equivalent amount in liquidated damages. So, if an employee shows she made $20,000 less than her male counterpart for the same work, she would be entitled to $40,000 in damages.

That said, the law recognizes exceptions. Not all pay disparities are illegal. Pay differentials are permitted when they are based on legitimate job-based differences including seniority, merit, quantity/quality of production, or any other reason unrelated to sex (the “catch-all” exception). The employer has the burden of showing that these differences exist.

Title VII and the Fair Employment and Housing Act

The federal Equal Pay Act, passed in 1963, pre-dated the broader provisions of Title VII of the Civil Rights Act of 1964. Title VII (and the California Fair Employment and Housing Act) generally prohibit discrimination – unequal treatment – against members of protected groups. The focus is on whether the employer paid an employee less than another worker because of the employee’s race, sex, religion, etc. This could mean that the employee’s salary was intentionally set artificially low due to discriminatory motives, or that the employer’s seemingly neutral compensation policies nevertheless favor members of one group over another without adequate justification. The employer may explain the disparity with any legitimate, non-discriminatory reason, just as in any discrimination case.

Lily Ledbetter Act

It can be difficult for a worker to learn he or she is unfairly underpaid. Employees do not always share their salary information with co-workers. Employers typically do not broadcast what they pay each employee, either. In the past, the statute of imitations barred otherwise meritorious claims, at least under federal law. That changed when Congress passed the Lily Ledbetter Fair Pay Act of 2009. The law was a response to the U.S. Supreme Court’s decision holding most of Lily Ledbetter’s claims against her employer were time-barred. The law allows an employee to file an equal pay claim long after the employer made the discriminatory decision that led to the pay disparity.

The Lily Ledbetter Act does not affect California statutes. Under the Labor Code, section 1197.5, claims for wage disparities may be brought up to two years after the violation occurs, and up to three years if the violation is “willful.” The Ledbetter law’s expanded statute of limitations may provide greater coverage for employees than the Labor Code’s equal pay provision.

What Would the Paycheck Fairness Act Add?

Proponents of the federal Paycheck Fairness Act claim it will increase transparency about wages, theoretically making it easier to discover a discrepancy. It would also prohibit retaliation against employees who raise concerns. California law already prohibits retaliation against employees who complaint about equal pay. California law also prohibits adverse action against employees who discuss their wages. Indeed, the National Labor Relations Act also prohibits employers from taking adverse action against employees who discuss their wages.

The proposed law also may tighten up employers’ reliance on the Equal Pay Act’s “catch-all” exception as a defense to disparate pay. Courts would be required to ensure that apparently gender-neutral reasoning was not the result of historical sex-related wage decisions or irrelevant job qualifications. Employers would be required to show that policies that disparately impact one sex cannot be replaced by a more neutral policy that achieves the same purpose.

Recommendations

The renewed focus on unequal pay should prompt employers to look at their compensation systems. Larger employees hire outside consultants to perform sophisticated compensation analyses. These are not practical for all employers. At minimum, employers should review similarly situated employees’ pay rates to ensure that there are lawful reasons to explain pay disparities among employees who perform the same work.

Employers should ensure there is adequate justification for paying new workers differently for performing the same task as well. If a male applicant earned more at a prior job than a female applicant, paying the male new hire more than the female new hire may perpetuate discrimination. Employers that base pay increases on merit should ensure that the measurement of “merit” will withstand a third party’s scrutiny.

Documentation of lawful compensation decisions will be critical. The Ledbetter law means that even decisions made long ago can give rise to new claims. Finally, employers should review policies prohibiting employees from discussing their wages.

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