Pay Equity claims - Navigate complex legislation

As pay equity legislation expands, the number of equal pay claims is increasing. More than 950 pay discrimination charges were filed with the EEOC in fiscal year 2022, the first increase in Equal Pay Act pay discrimination charges in three years.

In this article we explore the definition of equal pay, consider the reasons behind the rise in pay equity lawsuits, and offer guidance on how to navigate complex state and federal pay equity laws using pay equity software.

The Equal Pay Act & Title VII of the Civil Rights Act of 1964

Equal pay for equal work is a principle mandated since the Equal Pay Act of 1963 and subsequently reiterated in Title VII of the Civil Rights Act of 1964. An increasing number of pay equity and pay transparency initiatives have been passed at federal, state, and local level, impacting the number of pay equity lawsuits. Navigating the patchwork landscape of pay equity laws can make it difficult for employers to ensure compliant pay equity practices and ensure fair compensation decisions.

Further, an Equal Pay Act (EPA) claim generally places the burden of proof on the employer who must show the absence of discrimination in their compensation practices.

What constitutes equal pay?

To prove a claim under the EPA, an employee must show that the jobs being compared are “substantially equal”. The Equal Pay Act requires:

“… men and women in the same workplace be given equal pay for equal work. The jobs need not be identical, but they must be substantially equal. Job content (not job titles) determines whether jobs are substantially equal.”

However, “equal” work means jobs must be “substantially equal” in their overall content, regardless of different job titles. The Department of Labor states that for jobs to be “substantially equal”, the responsibilities of the post must be “closely related” or “very much alike” and performed under similar working conditions in the same establishment.

In addition, under the EPA, skill, effort, responsibility, working conditions, and establishment must also be considered. Under Title VII, the focus is on “similarly situated” employees, which we explore below.

What is causing the rise in pay equity lawsuits?

Pay transparency laws now provide more comprehensive data to support claims, while employees are becoming more assertive in taking steps to enforce their rights around pay discrimination, and equal pay claims. Pay equity claims are often made together with claims for gender-based discrimination, harassment, or other workplace violations, for example:

Plaintiffs in the Nike pay discrimination lawsuit allege a culture of sexism, bullying and fear of retaliation arising from a toxic “boys’ club culture.”
In the $215 million Goldman Sachs settlement, allegations included systematic discrimination against women, including intentional pay discrimination, and performance reviews which impeded the plaintiffs’ career prospects.
More recently, on June 30th, 2023, plaintiffs alleged in state court in Los Angeles that The Walt Disney Company had systematically underpaid women since 2015, depriving female employees of more than $150M in wages, in violation of California’s Equal Pay Act. Disney faces allegations of discrimination against women who were denied promotions, given smaller pay raises than men or classified in lower-ranking jobs compared to men doing similar work. Out of nine named plaintiffs, five are women of color.

Navigating state and federal pay equity laws

The following demonstrates the complexities employers face when navigating pay equity laws:

In 21 states, plaintiff-employees must prove they were paid less for “equal work.”
Six states assess equal pay claims based on “substantially similar” work.
At least eleven states use “comparable work” to evaluate equal pay claims.

These comparators mean that two jobs may be considered comparable under one standard, but not under another. It is recommended that employers design pay equity audits around protected classes to ensure compliance.

Additional factors to consider in pay equity lawsuits include:

Similarly situated employees: As noted above, in cases under Title VII, employees may be considered similarly situated to the employee-plaintiff if they perform similar work responsibilities. While courts may apply this in different ways, some suggested common factors to determine whether employees are similarly situated include:

Are the employees subject to the same employment rules and policies?
Do the employees carry out similar job responsibilities, including volume, number, weight and duration?
Do the employees report to the same supervisor or manager?
Do the employees share similar performance evaluations or ratings?
Is their disciplinary history similar?
Do they share the same level of experience?

What one state considers acceptable may be deemed pay discrimination in another.

Prior salary justification: Here, legislation is equally complex. The claim against Walt Disney is in part the result of consideration of prior salary justification in setting the starting pay for new hires. When the practice ended in 2017, the pay gap is reported to have fallen. In the recent case of Korty v Indiana, however, prior salary justification was cited by the employer, who won the case.

While prior salary justification is permitted as a valid reason “other than sex” to explain a compensation disparity in the Seventh Circuit, at least six other circuits do not accept prior salary history in pay discrimination defenses. These include the Ninth Circuit, which stated that prior salary cannot justify pay disparities under the Federal Equal Pay Act. That interpretation of the law is shared by the Second, Fourth, Sixth, Tenth, and Eleventh circuits.

Comparators: Recent pay equity lawsuits have focused on the job experience of employee-plaintiffs with their comparators. In 2021, a court in the Tenth Circuit dismissed the plaintiff’s claims under the Equal Pay Act and Title VII as she was a physician in her first year. Her comparators had seven years’ more experience. Integris employees affirmed that the plaintiff’s “relative experience affected her pay and … experience is a factor in setting physician compensation.” Nazinitsky v. Integris Baptist Medical, No. 20-6076 (10th Cir. 2021). Experience was also a factor in Schottel v. Nebraska State Coll. Sys., 42 F.4th 976 (8th Cir. 2022).

Ensuring compliance with pay equity software

Partnering with a pay equity software provider can help to navigate the complex state and federal pay equity laws. Trusaic PayParity^®helps your organization to:

Create equitable and explainable salary ranges: An explainable salary range is one that ensures workplace fairness. In the event of a pay equity lawsuit, it enables employers to show the basis for compensation decisions.

Commit to internal equity: Internal equity recognizes legitimate business reasons for compensation differences based on performance, experience, qualifications, or specialized skills. However, when such differences don’t exist or are insignificant between workers in the same position, ensuring similar compensation becomes crucial. Organizations commit to internal equity by minimizing unwarranted pay disparities through regular reviews considering job responsibilities, evaluations, qualifications, and experience. Balancing recognition of legitimate differences and fair compensation for similar employees is vital.

Comply with evolving state laws: Legislation introduced to enhance pay equity laws, has recently been proposed or passed in states including Colorado, Illinois, Ohio, and New Jersey. The latter is described as “the first of its kind” and it introduces a Temporary Workers’ Bill of Rights with effect from August 5th, 2023. Pay equity software can enable employers to stay ahead of the curve of these changes.

Comply with EEOC Title VII: New guidance makes it clear that employers cannot delegate responsibility for pay discrimination or AI bias to their software vendor, nor rely on their vendor’s assurance that its software is Title VII compliant. If pay equity software violates workplace laws, you, as an employer, may be held liable.

Take your first steps to ensure compliance with complex pay equity laws. Speak to a pay equity expert today.