Several states and cities are passing laws to further bolster the federal Equal Pay Act.

The PayParitysm Post is featuring some of these laws to provide insight into trends in pay equity compliance requirements as more of these laws are considered by states, counties, and municipalities.

In this post, we look at New Jersey’s Diane B. Allen Equal Pay Act.

Get to Know New Jersey’s Diane B. Allen Equal Pay Act

On April 24, 2018, Governor Phil Murphy signed into law the Diane B. Allen Equal Pay Act (“NJ EPA”), which amends New Jersey’s anti-discrimination statute, the Law Against Discrimination. The NJ EPA applies to all New Jersey employers, regardless of size. It is widely considered to be the most aggressive pay equity law in the United States, based on its expansion of protected classes, mandated pay data reporting for companies doing business with the state, and steep penalties for non-compliance.

The NJ EPA went into effect on July 1, 2018. In June 2018, the New Jersey Department of Labor and Workforce Development (“NJ DLWD”) issued pay data reporting instructions and forms.

What Are the Main Requirements of the NJ EPA?

Pay Equity Mandate
The NJ EPA’s most significant change to New Jersey law is its prohibition on compensation discrimination—including benefits—against a member of any protected class in New Jersey. The NJ EPA radically expands the definition of protected class to include: “race, creed, color, national origin, nationality ancestry, age, marital status, civil union status, domestic partnership status, affectional or sexual orientation, genetic information, pregnancy or breastfeeding, sex, gender identity or expression, disability or atypical hereditary cellular or blood trait of any individual, or because of the liability for service in the Armed Forces of the United States.”

Comparable Employees
Like pay equity legislation across the United States and globally, the NJ EPA does not require that all employees across an employer’s workforce be paid the same. Instead, liability arises when disparities exist in compensation between employees who: (1) are within a protected class as compared to those that do not fall into the protected class and (2) perform “substantially similar work, when viewed as composite of skill, effort and responsibility.” Further, under the NJ EPA, comparable employees need not work in the same office, plant, or facility—comparisons may occur across “all of an employer’s operations or facilities.” This creates a much broader comparison pool than the federal Equal Pay Act, which requires “equal pay for equal work” in the same establishment.

Affirmative Defenses
The NJ EPA has only limited exceptions. An employer may pay different rates pursuant to a seniority system or a merit system. Without such a system, the employer has a heavy burden of proof. The employer must demonstrate the pay differential is based on legitimate, reasonably applied factors other than characteristics of the protected class, and that one or more of the factors account for the entire differential. The factors accounting for the differential (such as training, education or experience, or the quantity or quality of production) must be job-related and based on business necessity. Employers will not pass muster if they are found to be paying employees differently despite the existence of other business practices that could serve the same business purpose.

Who is Required to Undertake Pay Data Reporting?
The NJ EPA specifies that any business that enters into a qualifying services or public works contract with the State of New Jersey, a state agency, or a state “instrumentality” must submit an annual pay data report to the NJ DLWD. This includes out-of-state contractors. “Instrumentality” is not defined in the statute or NJ DLWD pay data reporting instructions, but the NJ EPA is clear that the pay data reporting requirement does not apply to county or local government contractors. Neither the NJ EPA pay data reporting requirements nor the NJ DLWD instructions address subcontractors, so for now it is safe to assume the NJ EPA specifically applies to direct contractors with the state.

What Must Be Reported?
The pay data report differs slightly depending on whether the employer is a “qualifying services contractor” or a “public works contractor.” Employers with multiple establishments must submit a report for each establishment.

Qualifying Services Contractors: “services” under the NJ EPA is broadly defined as any “act performed in exchange for payment.” Qualifying services include professional services, but not the provision of goods. Qualifying services contractors must report the following:

Description of job categories mirroring the federal EEO-1 report. All reported jobs must be placed in one of the ten EEO-1 categories.

Identification of employee’s sex, race, and ethnicity. Employers must give their employees the opportunity to self-identify these categories. If specific employees decline, the employer may use employment records or “observer indication” (their best guess). The definitions of sex, race, and ethnicity are also drawn from the EEO-1 report. Sex may be reported as “non-binary.”

Hours worked: For Fair Labor Standards Act non-exempt employees, this means the actual number of hours worked that year. For exempt employees, employers may use a 40-hour proxy for full-time and 20-hour-per-week proxy for part-time employees.

Pay bands: in 2016 the federal Equal Employment Opportunity Commission ( EEOC ) proposed a pay data reporting requirement to be included in EEO-1 reports using 12 pay bands derived from Box 1 of the W-2 form. The pay bands range from “1) = $19,239 and under” to “12) = $208,000 and over.” That rule was rescinded by the Trump Administration in 2017. The NJ EPA resurrects this rule.

Public Works Contractors: “Public work” encompasses almost any conceivable work related to construction on publicly owned property or premises where not less than 55% is leased by a public body. This definition includes building, repair, demolition, painting, and decorating. Public works contractors already submit Certified Payroll Reports required under New Jersey’s Prevailing Wage Law. However, under the NJ EPA, these contractors must now provide pay data broken out by sex, race, and ethnicity. Public works contracts for goods are not included in the NJ EPA’s pay data reported requirements.

How will New Jersey Use the Collected Pay Data?

From the statute and NJ DLWD instructions, it remains unclear as to how the state of New Jersey will use the collected pay data. The NJ EPA requires retention of pay data records for at least five years. Concerningly, anyone who is or was an employee during the contract period may request the pay data from the commissioner of the NJ DLWD and have it made available to them.

What Are the Penalties for Failing to Comply with the NJ EPA?

Employers should be aware of two important developments in the area of pay discrimination penalties. The NJ EPA contains:

1. An expansion of the statute of limitations for compensation discrimination from two to six years. Until recently, it was unclear as to whether the NJ EPA would apply retroactively, thereby creating exposure for employers dating back to 2012. A federal district court in New Jersey has partially resolved this issue, holding that the NJ EPA is prospective, i.e. enforceable only from July 1, 2018 onwards. See Perrotto v. Morgan Advanced Materials, PLC, No. 2:18-13825 (D.N.J. Jan. 15, 2019). However, this ruling is only applicable to federal court cases. A New Jersey state court could read the statute differently and hold that the NJ EPA is retroactive in state court.
2. “Treble” (triple) damages will be awarded in favor of the plaintiff where a jury finds an employer guilty of compensation discrimination.
3. This means that exposure for employers under the NJ EPA is heavy: a successful plaintiff will receive three times (3x) monetary damages. This arises in addition to other remedies available under the Law Against Discrimination, such as for emotional distress, and for payment of attorney’s’ fees and costs.

What Should I Do?

Conduct a Pay Equity Analysis. Many companies have been hesitant to do this for fear of finding a problem. Fight your fear and get this done for your organization. A comprehensive pay equity analysis is the best place to start to understand what your company is doing right, and where it can improve, before the New Jersey Department of Labor and Workforce Development requires submission of pay data. Many employers do not have the technical expertise to conduct this analysis on their own. If your company falls into this category, you should seriously consider engaging a company experienced in pay data and analytics to work with your legal counsel in completing the pay equity analysis and protecting its findings from unauthorized disclosure. This is true for the simple reason that having clean, validated, and segmented data will reduce the risk of misreporting under the NJ EPA. A meaningful review of pay practices depends on the integrity of your employment data.