Proactive pay equity should now be on the radars of most federally regulated employers. Recently, the Government of Canada published the proposed regulations required to bring the federal Pay Equity Act (PEA) into force. When finalized, they will provide key details on how employers must meet their soon-to-be onerous obligations under the PEA.  Stakeholders, including employers, employees and bargaining agents, may provide feedback on the proposed regulations until January 13, 2021.

The PEA establishes a proactive pay equity regime for federally regulated employers with 10 or more employees in both the public and private sectors. It will require these employers to carefully examine their compensation practices in prescribed ways to achieve pay equity. For federally regulated employers with fewer than 10 employees, the current complaint-based regime under section 11 of the Canadian Human Rights Act will continue to apply. 

The government has indicated that the PEA and its regulations are expected to come into force as early as 2021. Employers with 10 or more employees on the day the PEA comes into force will be required to develop a pay equity plan within three years of that date. 

As currently drafted, the proposed regulations provide key details surrounding PEA obligations for employers. We have briefly described them below.  

Posting requirements 

Should they come into force, the proposed regulations would require employers to:

  • Ensure PEA documents required to be posted in the workplace  (e.g., drafts and final versions of a pay equity plan) are (i) in printed or electronic format, (ii) available and accessible to affected employees, and (iii) dated. 
  • Post draft pay equity plans for at least 60 days, and a final pay equity plan until an updated version is posted.
  • Post notices of any compensation increase under a pay equity plan until the later of (i) the sixtieth day after the notice is posted; or (ii) the day the increases to which the notice relates are paid in full.

Time limits for notices and applications to the commissioner

The proposed regulations also set out the following timelines for providing certain notices and applications to the pay equity commissioner, as follows:

  • Employers with fewer than 100 non-unionized employees who voluntarily choose to establish a pay equity committee would be required to first notify their employees, then, within 60 days, the commissioner.
  • Employers wanting to phase in compensation increases over a longer phase-in period than set out in the PEA would have to apply for the commissioner's authorization no later than the day before they post the notice of compensation increases.
  • Employers, bargaining agents or non-unionized employees wishing to apply to the commissioner for permission to establish more than one pay equity plan for the same employer would have to do so within 12 months of the employer becoming subject to the PEA. (Recall that the PEA generally requires the establishment of one pay equity plan for an employer's operations.)

Comparing compensation and determining increases owed

The PEA requires that employers develop a pay equity plan. Broadly speaking, this involves:

  • Undertaking a job evaluation process where job classes are identified, the gender predominance of those job classes is determined, and then the value of the work of those job classes is defined; 
  • Comparing the compensation of female job classes to the male job classes to determine if a wage gap exists; and 
  • Increasing the compensation of female job classes that are compensated less than their male counterparts for work of equal value to achieve pay equity.

The PEA prescribes the methods that can be used to compare compensation between male and female job classes: the (i) equal average method; or (ii) equal line method. The proposed regulations provide the mathematical factor that would allow for the amount of any increase to be precisely determined.

The equal average method requires:

  • Dividing the male and female job classes into bands. A band is a range of job classes that are of equal or comparable value. 
  • Comparing the average compensation of the female job classes within a band to the average compensation of the male job classes within that band.
  • Increasing the compensation of female job classes where the average compensation of female job classes in a band is less than the average compensation of the male job classes within that same band. 

The proposed regulations provide the mathematical factor that will determine the size of the increase for each female job class within such a band, and will ensure it is proportional to the size of the wage gap for that female job class. 

Pay equity is achieved under this method when each of the male and female averages compared is equal after the pay equity increases are applied. 

The equal line method requires:

  • Using statistical analysis for creating regression lines. In simple terms, this means creating a female and male wage line, each of which represents the relationship between job class values and their hourly rates of compensation.
  • Increasing the compensation of female job classes where the female wage line is below the male wage line. 

The proposed regulations provide a formula for this method as well. Applying the formula would ensure that female job classes further below the male wage line for a given job value would receive a larger compensation increase. 

Under this method, pay equity is achieved when, following the compensation increases for the female job classes, the lines coincide. 

The proposed regulations also address the situation where the female wage line and the male wage line cross (indicating not all female job classes are below the male wage line and therefore require compensation increases). If this happens the proposed regulations provide methods that can be used to complete the comparison and determine which female job classes must receive adjustments.

Addressing the absence of a male comparator

Without an appropriate male comparator, pay equity cannot be achieved. However, if a female job class ends up with no male comparator, the proposed regulations provide that employers or pay equity committees would generally be required to use one of the following methods to devise a male comparator: 

  • Proxy method: An employer or pay equity committee would develop “proxy” male job classes in its plan. This would entail selecting three or more male job classes from another employer with similar characteristics and which is also subject to the PEA. 
  • Typical job classes method:  This method relies on fictional male job classes. An employer or pay equity committee would use three fictional male job classes described in the proposed regulation's Schedule. 

When a male comparator is found using either of the above methods, the compensation of the female job classes can then be compared with male ones. 

Updating and maintaining pay equity plans

The PEA requires employers or pay equity committees to update the pay equity plan at least once every five years from the completion of the initial plan. This can be referred to as the “maintenance” process.

To update their pay equity plans, employers (or pay equity committees, as the case may be) would be required to:

  • collect data each year after posting their final pay equity plans;
  • analyze the data collected against updated workplace information (i.e., changes to job classes, gender predominance, compensation and/or duties, responsibilities and working conditions of a job class, and that may have impacted pay equity);
  • prepare an updated pay equity plan within five years of the date they finalized their previous plans; and
  • close pay equity gaps found during the maintenance process by adjusting the compensation of the female job class that is paid less than the male comparators. 

Employers would be required to make retroactive lump-sum payments for pay equity gaps found in any of the five years reviewed.

In many ways, this maintenance exercise essentially requires employers or pay equity committees to re-do the pay equity exercise prescribed by the PEA every five years. 

Note that for unionized workplaces with multiple bargaining units, the proposed regulations prescribe how to address the issue of job classes covered by a non-expired collective agreement and job classes affected by a statutory freeze due to the expiry of their collective agreement. 

Take-aways

Employers would be well advised to seriously consider the extent to which their organization is well or ill positioned – or somewhere in between – to comply with the PEA, and to do so sooner rather than later. The release of the proposed regulations indicates that the government is moving ahead with pay equity in the federal sphere, with both the PEA and finalized regulations expected to come into force in 2021.

While subject to change, the proposed regulations do align with the prescriptive nature of the PEA and the proactive approach to pay equity it seeks to implement.  It is also clear that pay equity under the PEA will be an ongoing process for federally regulated employers, from both a regulatory and preparedness perspective. For some organizations, complying with the new regime may translate into a significant resource-intensive, costly and logistically challenging exercise. Now is the time to get ahead of it.   

To provide feedback to the government on the proposed regulations, please click here. 

As the regulatory process progresses, we continue to assist employers with any questions and concerns about the PEA and its proposed regulations.

Originally Published by Norton Rose Fulbright, December 2020

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