Pay discrimination, sexual harassment, and biased performance evaluations have called into question the corporate cultures of some of the world’s biggest organizations. Nike has surfaced as yet another company under fire, accused of not providing its employees with equal pay.

On August 9, Kelly Cahill and Sara Johnston, two former Nike employees, filed a lawsuit against Nike in federal court in Oregon on behalf of more than 500 women who worked for the company.

According to the lawsuit, “Nike pays and promotes women less than men at Nike Headquarters. The gender disparities occurred, and continue to occur, because of specific employment policies or practices that are developed and carried out in a workplace that is hostile towards women and where the ultimate arbiters of these policies or practices are a small group of high-level executives who are majority male.”

Among the specific allegations, the lawsuit states:

1. Nike sets starting pay and other compensation-related terms based, in part, on prior compensation, resulting in women receiving lower starting salaries and other less favorable compensation.

2. As part of its annual performance evaluation process, Nike rates each employee utilizing a curve that limits the number of employees at Nike Headquarters who can receive ratings in the top two levels of its ranking system. This system results in women receiving lower ratings than their male colleagues, resulting in receiving less compensation, including smaller annual salary increases, lower annual bonuses, and smaller equity distributions.

3. Nike’s budgeting system adversely impacts women because a disproportionately low amount of the budget is distributed towards women’s annual salary increases and bonuses.

4. Nike’s Organizational Talent Planning system identifies a disproportionately low number of women for promotional opportunities.

5. Nike has a pattern or practice of channeling women into positions and job assignments that Nike views as less valuable, less likely to lead to promotions, and less likely to lead to increased compensation.

Cited in the lawsuit is the decision reached earlier this year in the U.S. Court of Appeals for the Ninth Circuit Court District in California. In that decision, the court ruled that relying on an employee’s prior pay when setting a new salary is in violation of federal law. The court’s ruling prohibits employers within 10 states, including Oregon, and two U.S. territories from using prior salary earnings either solely or in combination with another factor for determining an employee’s salary. Previous factors, such as educational background, work experience, ability, and prior job performance, still are considered to be legitimate factors for pay differences between men and women.

The U.S. Equal Employment Opportunity Commission (EEOC ) provided the court with its opinion that relying on past pay undermined the Equal Pay Act by sustaining gender pay disparities. “A key issue in the case is therefore whether the practice of basing new employees’ starting pay exclusively on their most recent prior pay violates the EPA,” stated the EEOC. “The Commission’s long-standing position is that it does. An employer may consider prior pay in setting starting pay, but it may not be the determining factor.”

The EEOC website provides facts about equal pay and compensation discrimination and how employees can challenge pay discrimination based on sex with the EEOC.

Prior to the lawsuit, Nike made an announcement in July stating it will be increasing wages for 7,000 employees. The compensation increase, in addition to an amended bonus structure that will now be granted on company-wide performance, resulted from the completion of a deep analysis on Nike’s pay information.

It appears that Nike’s efforts may be too little too late, however.

Nike will likely have to pay large back wages to settle the allegations. Other companies such as Daiichi Sankyo Inc. and Publicis Groupe SA have paid several millions of dollars to address pay inequality within their organizations.

The lawsuit raises many issues employers may face as pay equity and other employee protection requirements become more stringent.

Organizations should consider undergoing a pay equity audit to identify any issues relating to pay discrimination to get in front of potential legal liability.

Organizations should also pay attention to their policies for budgeting, salary determinations, and making promotions.

Finally, they should be sure to keep up with the new laws that are popping up across the country addressing pay equity issues, such as banning the use of prior salary to establish employee salaries and discarding job applicants if they have a criminal record.

To learn more about achieving pay equity, click here.