United States: Preparing For New Pay Equity Requirements

Last Updated: February 27 2017
Article by Kathleen McLeod Caminiti and Sarah Wieselthier

In September, the Equal Employment Opportunity Commission (EEOC) announced its final version of the revamped Employer Information Report, known as the EEO-1, which for the first time will require employers with 100 or more employees to provide pay data to the federal government. The EEOC will not only publish aggregated 2017 pay data by industry, but also plans to use the data to drive enforcement actions and as a complement to its investigations of alleged pay discrimination.

While the EEOC under the Trump administration may ultimately modify or delay the new EEO-1 requirements, some form of pay data reporting is likely to remain in place for the 2017 pay period. Employers need to take steps now to complete the new report and avoid any surprises.

The Equal Pay Act of 1963 requires that men and women in the same workplace be compensated for equal work with equal pay. California, Massachusetts, Maryland and New York have recently implemented and/or enacted equal pay legislation at the state level. These statutes go beyond the Equal Pay Act to include anti-pay secrecy and anti-retaliation provisions, limit the affirmative defenses available to employers to justify a pay differential, and in some cases, provide for enhanced damages. Other states are actively pursuing similar legislation.

Coinciding with these legislative developments at the state level is a significant increase in lawsuits filed under the Equal Pay Act and similar state laws. The rise in litigation is most notable in the collective action arena, where a lawsuit may be filed on behalf of the employee and "other employees similarly situated."  Under the lenient conditional certification process, opt-in notices potentially could be sent to an employer's entire female workforce. With this rise in litigation, complying with these laws is essential.

Pay disparities between male and female employees likely will be highlighted by the new EEO-1 report. The EEO-1 historically captured demographic information from employers with 100 or more employees on gender, race and ethnicity by 10 different job groupings. The new EEO-1 report adds two significant components: employers must now report employee compensation and the number of hours worked across 12 defined pay bands. The first iteration of this new report, due March 31, 2018, will encompass pay data from Jan. 1 to Dec. 31, 2017, which means the new reporting requirements will have an immediate practical impact upon employers.

Employers should examine their data collection systems and ensure they have ample personnel and financial resources to complete the new EEO-1 report. It is quite possible that the information required for the EEO-1 is not maintained within the same system or cannot be easily exported to the data cells in the EEO-1 form. Consequently, employers should evaluate data systems and possibly invest in system upgrades, or entirely new systems, that will efficiently collect and report this wealth of information in the format required.

The EEOC plans to publish aggregated data from the EEO-1 by industry and use these reports in investigations of charges of pay discrimination, giving both existing and potential plaintiffs a plethora of pay data to support their lawsuits for violations of the Equal Pay Act and parallel state laws. Litigants will likely be able to acquire a company's EEO-1 report through a Freedom of Information Act request, and most certainly will request this report in discovery when a lawsuit is filed. This is most troubling in the collective action arena, where the number of litigants and the potential damages are unbounded. Equal Pay Act collective actions have already become prevalent in professional industries such as law, accounting/financial services and pharmaceuticals, and such litigation is likely to increase once the EEO-1 reports are available.

To minimize these risks, employers should conduct an internal audit of their pay practices. The audit needs to be completed with the assistance of an attorney so that it is protected by the attorney-client privilege. An audit will give employers a chance to examine the compensation afforded to employees performing substantially similar duties and determine whether there are any troubling pay disparities. If such disparities exist, the employer must determine whether they can be explained by a legitimate factor other than gender, such as a seniority system or education level. If not, the employer should take steps to correct the pay disparity, preferably before the new EEO-1 report is due. In doing so, employers need to keep in mind that they are prohibited from reducing the compensation of a male employee to achieve pay equality.

Employers should also review compensation policies and practices and develop programs to ensure compliance with federal and state pay equity legislation. This includes revising employment applications, eliminating interview questions concerning salary history, and training  management-level employees who make compensation decisions.

Compliance with the equal pay provisions of federal and state law can be costly, but failure to address pay disparity can be even more so. Employers need to consider pay equity compliance measures to minimize the costs of future litigation by employees and the public relations nightmare that could ensue from accusations of unfair pay practices.

Originally published in Risk Management

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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Kathleen McLeod Caminiti
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