Pay equity preparation: Considerations for compliance and self-evaluation

Issue March/April 2018 By Maura D. McLaughlin
Labor & Employment Section Review

On July 1, 2018, the Massachusetts Pay Equity Act (the Act), which was passed in August 2016, takes effect. The Act, which amends the existing equal pay provisions of M.G.L. c. 149, § 105A, advances the goal of pay equity between employees of different genders through a number of measures including a new definition of “comparable work,” increased transparency around employee wages, limits on inquiries about wage and salary history, penalties for violation of the law, and the ability to avoid or limit liability through a self-evaluation of pay practices. 

As the effective date draws nearer, employers are looking to take steps to ensure compliance with the law and minimize liability under the statute. This article sets out an overview of key provisions of the statute, considerations for a self-evaluation of pay practices, and other steps employers can take to prepare for the Act’s effective date. 

Introduction and overview

The centerpiece of the Act is the requirement that employees of different genders may not be paid a salary or wage rate less than that paid to its employees of a different gender for comparable work. Comparable work is defined as “work that is substantially similar in that it requires substantially similar skill, effort and responsibility and is performed under similar working conditions.” The Act sets out six permissible reasons for a variation in pay among different-gender employees performing comparable work; if the pay discrepancy cannot be explained by one of these six reasons, it is unlawful.

Another feature of the Act designed to end persistent pay disparity is the prohibition on employers seeking information about a prospective employee’s wage or salary history, either from the prospective employee or from a prior employer, before making an offer of employment with compensation (although an employer may confirm wage history information which an applicant voluntarily discloses). The Act also seeks to increase wage transparency by making it unlawful for an employer to prohibit employees from inquiring about, discussing or disclosing information about either the employee’s own wages or about any other employee’s wages. An employer may, however, “prohibit a human resources employee, a supervisor, or any other employee whose job responsibilities require or allow access to other employees’ compensation information, from disclosing such information without prior written consent from the employee whose information is sought or requested, unless the compensation information is a public record” as defined in the Massachusetts Public Records Law. An employer is not obligated to disclose an employee’s wages to another employee or to a third party.

Employers are prohibited from retaliating against an employee who has: (i) opposed any act or practice violating the Pay Equity Act; (ii) made or displayed an intent to make a complaint or bring an action under the law; (iii) testified, assisted or participated in an investigation or proceeding under this law, or is about to do so; or (iv) disclosed his or her compensation or has inquired about or discussed the wages of any other employee.
An action for claimed violation of the Act can be brought by either the attorney general or by an aggrieved employee, on the employee’s own behalf and on behalf of “other employees similarly situated.” There is no requirement to file first with the Attorney General’s Office, Massachusetts Commission Against Discrimination or other agency; an employee (or the attorney general) can proceed directly with a lawsuit in court. A prevailing employee will be entitled to: (a) all wage amounts that should have been paid if the employer was in compliance with the pay equity act; (b) liquidated damages in an amount equal to the unpaid wages awarded; and (c) attorneys’ fees and costs. A claim must be brought within three years after the alleged violation of the statute, but the statute of limitations begins to run anew when a discriminatory pay decision or practice is adopted, when an employee becomes subject to a discriminatory compensation decision or “when an employee is affected by application of a discriminatory compensation decision or practice, including each time wages, benefits or other compensation are paid, resulting in whole or in part from such a decision or practice.” Essentially, the statute of limitations will run from the last inequitable paycheck the employee receives. The Act does, however, provide a welcome opportunity for employers concerned about possible gender-based pay discrepancies to avoid or reduce potential liability by undertaking evaluations of their pay practices. Employers who have completed a self-evaluation within the three years before any action under this law and can demonstrate that (a) the self-evaluation is reasonable in detail and scope in light of the size of the employer; and (b) reasonable progress has been made toward eliminating compensation differentials based on gender for comparable work, will have an affirmative defense to liability for wage equality and wage discrimination actions. An employer who has undertaken the self-evaluation and can demonstrate reasonable progress toward eliminating wage differentials, but cannot show that the evaluation was reasonable in detail and scope, is not entitled to an affirmative defense but will not be liable for liquidated damages (although still responsible for the actual damages and attorneys’ fees). Evidence of a self-audit or steps taken to remedy a pay gap cannot be used against an employer as evidence of any violation of the Act or Massachusetts anti-discrimination laws that occurred (a) prior to the audit; (b) within six months of completion of the audit; or (c) within two years of completion of the audit if the employer can show a good faith implementation of steps to address gender-based pay inequities. 

Self-evaluation of pay practices 

The Act provides little detail about what an employer’s self-evaluation of pay practices should look like. The evaluation can be of “the employer’s own design, as long as it is reasonable in detail and scope in light of the size of the employer.” The Act also says that employer self-evaluations “may be consistent with standard templates or forms which may be issued by the attorney general.” No forms or templates had been published as of the drafting of this article, but future guidance from the Attorney General’s Office may prove to be a helpful tool. 

While a self-evaluation will not be a one-size-fits-all proposition, a self-evaluation needs to identify where there’s a gender-based gap in pay for comparable work; lead to an understanding of why pay disparities are occurring; and set the stage for eliminating unlawful differentials. 

Determination of comparable work: One starting point of a self-evaluation is an evaluation of which employees are likely to be performing comparable work by looking at the statutory factors of skill, effort, responsibility and working conditions. “Skill” includes the capability and aptitude needed to perform the job, including any specialized proficiency developed through training, education and/or experience. An assessment of whether work is substantially similar in skill looks at the functions the position in question actually requires, not those skills that an employee or candidate may possess that don’t meaningfully relate to the job. “Effort” refers to the amount of physical and/or mental exertion necessary to performing a job, including manual or heavy labor. “Responsibility” may refer to the extent to which the employee works without supervision; whether, and to what degree, the employee performs supervisory functions; and the impact the employee’s performance of his or her job has on the employer’s business. 

The Act defines “working conditions” as “the environmental and other similar circumstances customarily taken into consideration in setting salary or wages, including, but not limited to, reasonable shift differentials, and the physical surroundings and hazards encountered by employees performing a job.” The “physical surroundings and hazards” may include heat, cold, noise, odors, dust, ventilation and heights. An examination of the “hazards” of a position can involve looking at the number of physical dangers the employee encounters in performing the job in question, the frequency with which the hazards are present, and the severity of the injury that can result. 

A comparable work analysis should both look at employees in the same position (who may or may not be doing comparable work, despite job titles) and also in different positions (including those in different business groups or departments) whose functions may overlap to the extent that the work is comparable. Examine what makes jobs similar or different in terms of tasks performed on a daily basis, physical duties, training or experience needed, and the factors that go into working conditions. Be creative and challenge assumptions. 

Gather information to show what employees earn — and why: In preparing for a self-evaluation, an employer should gather information about all aspects of employee pay. The definition of “wages” includes “all forms of remuneration for employment.” This includes not only base pay but other elements of compensation such as signing and merit bonuses, profit-sharing, tuition stipends, paid vacation and similar items. For elements of compensation which may be offered to all employees but only some employees will accept (such as overtime work, health benefits, 401K participation) the benefits must be available to employees equally. 

Data to be gathered will vary for each employer, but may include items such as:
• Employee identifier (name/ID)
• Gender
• Job Title
• Job Code/Grade
• Location
• FT/PT status
• Exempt/non-exempt status
• Type of pay (hourly, salary, etc.)
• Benefits eligibility
• Bonus eligibility
• Date of Hire
• Date into position/grade
• Supervisor/reporting relationship
• Necessity of travel
• Shift worked/differential
• Licensure/certifications
• Performance ratings (if a basis for compensation decisions)
• Contract/CBA information
• Total compensation

Wage analysis: Once the information is gathered, employers need to analyze employee wages and identify any pay disparity for employees performing comparable work. For smaller employers or groups of employees, it may be possible to compare the employees individually, reviewing the factors such as experience, performance ratings and tenure with the employer. For larger groups, employers may need to focus on ensuring that employees performing comparable work are placed in appropriate pay bands or grades, and performing statistical analyses to see if pay for different-gender employees is equal once statistically-permissible factors are accounted for. 

Understanding any wage gap — are pay differentials for permissible reasons? Any variance in wages for different-gender employees performing comparable work must be explained by one of the exceptions in the law, namely:
(i) a system that rewards seniority with the employer; provided, however, that time spent on leave due to a pregnancy-related condition and protected parental, family and medical leave, shall not reduce seniority; 
(ii) a merit system; 
(iii) a system which measures earnings by quantity or quality of production, sales or revenue; 
(iv) the geographic location in which a job is performed; 
(v) education, training or experience to the extent such factors are reasonably related to the particular job in question and consistent with business necessity; or
(vi) travel, if the travel is a regular and necessary condition of the particular job. 
 
Any failure to pay employees equally for comparable work that cannot be explained by one of the six exceptions is not permitted. Notably, and unlike other equal pay laws, the Act does not  have a catch-all exemption for any legitimate, non-discriminatory reason other than sex. This means that employers will no longer be able to rely on reasons such as the employee’s starting salary (or salary from a previous job) or better negotiating skills.

Employers should anticipate that when relying on a “system” of seniority, merit or measuring earnings, they will need to show that there is a meaningful structure or practice — and not just an attempt to explain previously-made pay decisions. Any system an employer will point to as a supportable reason for a pay discrepancy should have objective criteria, be in place before pay decisions are made, and be applied to employees of both genders in a consistent and unbiased fashion. The more objective and standardized the factors going into the performance evaluation process are, the more it will look like a defensible system and not like an after-the-fact justification. 

Reasonable progress toward eliminating gender-based pay disparities: Discovering that there are differences in pay of different-gender employees performing comparable work can be troubling, but the Act contemplates that such disparities may be found to exist. The Act does not require immediate eradication of any wage gap, just “reasonable progress … towards eliminating wage differentials based on gender for comparable work.” What “reasonable progress” will be may vary in each case, but will likely take into account factors such as the extent of the wage disparity identified, how promptly the employer responds to the issue, and the employer’s size and available resources to start remedying the wage gap. In short, an employer will likely need to show that it understands where in the organization there are gender-based disparities, and that it is taking remedial measures as an important and time-sensitive commitment.

If an employer finds a pay disparity between employees of different genders engaged in comparable work, the pay disparity cannot be corrected by reducing the pay of the higher-paid employee. Also, as may be expected, an employer and employee may not agree to unequal pay in violation of the law. 

In addition to correcting any identified wage gap currently existing, an employer should also look critically at those practices which can lead to such disparities. For example, are employees starting at similar rates but growing apart in pay due to gender-based differences in merit bonuses? Employers should also look at determining criteria for and standardizing performance reviews, salary adjustments, transfers and other personnel actions that can affect compensation. 

Self-evaluation — getting started: A self-evaluation of pay practices requires careful planning. Consider who the working group for the project will be. While employers will want to maintain appropriate confidentiality, it will be important to involve those members of the organization who can access the necessary information, explain current pay practices and analyze data. In some cases, this may mean bringing in external resources for functions of the audit such as statistical analysis. Set aside enough time — gathering and organizing the information needed for a thorough analysis is likely to be a time-consuming process, demanding effort and attention from already busy human resources personnel. Involve those stakeholders whose engagement will be necessary to support the audit process — and whose bottom line may be impacted by remedial efforts. 

At the outset of any self-audit, employers should consult with counsel about aspects of the audit such as how to determine where employees are performing comparable work within the organization, what type of analysis is appropriate for the employer’s size and structure, what documents and witnesses will support the audit if challenged in litigation, and creating a strategy for remedial measures.

Additional best practices

Training: Managers, supervisors, and employees involved in the hiring/recruitment process should be trained regarding the Act’s salary history, pay transparency and non-retaliation provisions. Hiring and recruiting personnel need to be aware that they may no longer ask an employee’s pay history prior to an offer of employment with compensation. If an employee does disclose salary history information, recruiting and hiring personnel should still follow best and regular practices with respect to the point in the hiring process in which a candidate’s current or former employer will be contacted. Managers, supervisors and human resources personnel should also be trained that they do not need to give any employee’s pay information to a third party, whether another employee or an outsider (unless that information is a public record, as defined by statute). While employees are free to discuss their pay, managers, human resources and other employees with a reason to know wage information should continue to maintain confidentiality. Likewise, supervisory personnel should be instructed not to engage in any retaliation against an employee who has made a wage inquiry.

Review of policies, handbook and employment applications: Employers should make sure that application forms, job postings and other documents associated with the hiring process do not contain any statements or questions that seek an employee’s wage history. Employers should also review handbooks and internal policies to remove any statements that prohibit employees from discussing their wages. 

In addition, employers should review and revise existing job descriptions to capture key factors about the skill, effort, responsibility and working conditions (and locations) involved. While a job title or job description alone does not determine or control what is “comparable work,” having detailed and accurate job descriptions can be a helpful step for employers assessing what positions may entail comparable work. Well-crafted job descriptions can be a good way to capture what distinguishes one position from another and can be helpful for other workplace issues, such as capturing duties and responsibilities for overtime exemption purposes and identifying essential functions of a position for reasonable accommodation analysis under disability law.

Footnotes

This article is intended for general information purposes only and should not be
construed as legal advice or a legal opinion on any specific facts or circumstances.

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