Last week, the 100 year anniversary of the ratification of the 19th Amendment was celebrated across the United States. As we reflect on the advancements of women’s rights on Women’s Equality Day, we do it with the knowledge that gender-based pay disparities still exist today. Unfortunately, employers may not know how to fix the problem, or even what the law requires of them.
Consider the following hypothetical scenario:
You are the owner of a small business, and you plan to increase your workforce from two managers to three. The two managers that you currently employ are both males, one making $104,000 a year and the other making $105,000 a year. You have several good candidates, including one outstanding female candidate. From her resume, you learn this candidate has as many years of industry experience as your other managers. On her application form, she listed that her existing job is paying her $80,000 a year. She also lists $110,000 as her “expected” salary if she is hired.
After a great interview, you offer her the job at $100,000 per year, thinking that she will likely negotiate up. Surprisingly, she accepts your offer happily without any further negotiation. You are thrilled, as you have saved $4,000 in your company’s budget by not paying her the same as her lowest paid counterpart. She is making $20,000 more than she did in her prior role, so you figure her compensation is a fair and significant improvement for her. A $4,000 difference in pay between your employees does not seem significant in your view, though this is how females can find themselves being paid lower than male counterparts for equal work and how discrimination from prior employers can be perpetuated.
This type of scenario is still very common, despite various legislative efforts to remedy the problem.
The History of Pay Equality Statues in the United States
The Equal Pay Act of 1963 codified a simple notion that men and women should be paid the same for equal work.[i] Shortly following the Equal Pay Act, Title VII of the Civil Rights Act of 1964 (“Title VII”) made all types of disparate treatment in employment unlawful for additional protected classes, including race, color, religion, and national origin, and reaffirmed the requirement for equal treatment based on sex.[ii] In addition to headway made by the Equal Pay Act and Title VII, the federal courts slowly invalidated archaic statutes and regulations that imposed unequal standards on men and women. For example, in the 1973 case of Frontiero v. Richardson, for which now-Justice Ruth Bader Ginsberg argued an amicus brief on behalf of the ACLU, the United States Supreme Court invalidated a statute that required female members of the uniformed services to prove dependency of their spouses in order to obtain increased quarters allowances and medical and dental benefits, while male service members did not have to make the same showing of dependency regarding their spouses.[iii]
Fast forward to 2009, when Congress enacted the Lilly Ledbetter Fair Pay Act in response to the case of Ledbetter v. Goodyear Tire & Rubber Co.[iv] There, a 5-4 split United States Supreme Court reluctantly held that an admittedly discriminatory pay-setting decision was not actionable because it had not been timely filed. In response, Congress amended the enforcement provisions of Title VII to state that the statute of limitations for a discriminatory pay-setting decision is essentially revived each time an individual is paid.[v] In the following years, many states have established more comprehensive equal pay laws, such as those that ban employers from seeking salary history of job applicants and using that information on which to base current pay.[vi] Under these laws, prior discriminatory salaries cannot be perpetuated through a new employer.
A statute in Colorado also requires that employers post all promotional opportunities on the same day such opportunities arise.[vii] Unlike many of the equal pay laws, this Colorado statute helps address a tangential and perhaps more significant glass ceiling problem. Historically, women have been both pigeon-holed and drawn to low-paying jobs for which our society does not place enough value—roles as teachers, social workers, nurses, or other care-takers—with little or no opportunity for promotion. Only when this problem is solved will we see more equality in the average national earnings of women compared to men.
Equal Pay Best Practices
Through the case law and various successful and unsuccessful attempts at legislation, the arguments for equal pay have been brought to the forefront and have made clear what best practices employers ought to follow. These practices include:
- Training managers on discrimination and implicit bias;
- Posting promotional opportunities;
- Setting compensation properly upon hire;
- Conducting pay equity studies;
- Fairly establishing standards for raises, bonuses, and promotions; and
- Being transparent regarding compensation issues.
More information on each of these practices follows.
Train Managers on Discrimination and Implicit Bias.
Most professionals know and understand that discrimination is against the law and should not be permitted. However, many do not recognize that the law is the lowest form of protection and that employers should go above and beyond what the law requires. Although not legally required, training on unconscious or implicit bias is a step in the right direction. Even a minimum understanding of these concepts is helpful.
The human brain is programmed to make associations. This is a survival mechanism for when the brain does not have time to send a message to the body that danger is present. For example, we learn at an early age that FIRE = HOT / DO NOT TOUCH. Every image you see and comment you hear creates an association—a shortcut—for the brain, some positive and some negative. If people had mothers who did not work outside of the home or spent time watching June Cleaver, an association was created that WOMEN = HOMEMAKER and not co-worker. These associations are truly a product of your environment and media intake, much of which you cannot control. When we make quick, impulsive, or unthoughtful decisions, those imbedded associations govern and can cause bias decisions without us even knowing. For example, a manager may think a female employee is more likely to want to work less upon the announcement of a new baby, while thinking the male employee is more likely to need a higher income to support a bigger family. By learning about unconscious bias and training our brains to make different associations, we can eliminate bias tendencies.
Post All Promotional Decisions.
Many employers mistakenly believe they know the “best man for the role” and subsequently place that individual in the role without an application or interview process. Their belief rests on the fact that the upper manager has worked with the individual and knows the individual is a strong performer. In this way, however, a woman could never rise up the ranks because she has never been given the opportunity for the upper manager to work with her or know her. The only way to rectify this problem is by widening the applicant pool and giving all potential candidates a fair opportunity to apply. By doing this, upper managers may be exposed to candidates they would have missed or failed to consider and can then truly hire the most qualified candidate.
Properly Set Compensation Upon Hire.
From federal case law and the states that have enacted bans regarding salary history, we know the trend is to ban salary history inquiries nationwide. In order to not perpetuate a previously discriminatory pay-setting decision, it is recommended to remove questions on job applications that seek prior salary. Instead, employers should do market research and set the compensation at what is right for the role, rather than what a certain employee was previously earning.
Further, it is recommended to not focus on how well or how much the job applicant attempts to negotiate, even if negotiations would be part of that individual’s job duties. Because women may be more stereotypically timid and less assertive about negotiating, eliminating such a step will lessen the chance that compensation is set unfairly. Employers may also consider informing final applicants that the company is focusing on pay equity issues and therefore the salary is not negotiable, unless the applicant can provide market/industry data to justify a higher rate of pay.
If market research is scarce, employers can assess what incumbents in the role are making and compare the industry experience, skills, and education of such individuals to that of the job applicant.
Perform a Pay Equity Study.
It is recommended for all employers to conduct regular pay equity studies. This requires a deep assessment of the value of work performed. For large employers, the best place to start is to hire a company specializing in statistical analysis to perform a regression analysis on the demographic data of the workforce. Such an analysis takes into account objective factors that can and should affect pay-setting decisions, including job title, job level, location, manager, tenure in the role, prior industry experience, and education. The regression analysis “equalizes” these factors and then flags individuals whose compensation is not as predicted, after the original factors are equalized. Even without a statistical regression analysis tool, employers can manually assess these factors in reviewing pay.
The value of a statistical regression analysis is that it may be similar to what an expert witness would provide if there were ever a class-action lawsuit filed against the employer.
The statistical regression analysis should then be used as a starting point to conduct an individualized assessment to determine if there exist legitimate, non-discriminatory reasons for each flagged pay disparity. This type of assessment is best done by having legal counsel and/or human resources employees interview managers. Counsel can then assess the defensibility of each employee’s pay.
Salary increases should then be made for all employees whose pay is not easily defensible. Of note, the Equal Pay Act specifically states that, “an employer who is paying a wage rate differential in violation of this subsection shall not, in order to comply with the provisions of this subsection, reduce the wage rate of any employee.”[viii] Thus, the higher paid employee’s salary cannot be reduced, and the pay disparity must be resolved by increasing the lower paid employee’s wage. While doing an “off-cycle” pay raise may raise flags about prior discriminatory treatment, an immediate remedy of the problem is the best way to cut off further liability. Alternatively, if the problem is more minor, the equalization can be done during the next scheduled compensation assessment, when employees normally receive pay increases.
Additionally, once the assessment is complete, if there are any managers that appear to be systematically or regularly making compensation decisions that appear discriminatory, such a concern should be further investigated and remedied through discipline and/or counseling of the manager.
Employ Sound Practices in Establishing Raises and Bonuses.
As noted above, annual raises and bonuses are always a good time to “right size” the compensation for employees whose wages have been deemed indefensible after a pay study is completed. If a formal pay study has not been completed, this is a good time to do a manual check and comparison of salaries. In doing this, employers should assess the most valued factors of employee compensation and should be able to articulate what those factors are, keeping in mind that the Equal Pay Act specifically notes that seniority systems, merit systems, and systems that measure earnings by quantity or quality of work are legitimate factors to utilize.
Employers should also exercise caution when using a percentage system for raises. Say, for example, a company determines that its best performers will receive a 3% raise, average performers will receive a 2% raise, and below-average performers will receive a 1% raise. If the salaries of two best performers were previously set in a discriminatory fashion, the 3% raise for the lower paid employee would be less valuable and, thus, further perpetuate the disparity. This does not mean percentage systems cannot be used, but it is all the more reason to conduct a pay equity study, to determine if salaries were properly set before the raises are implemented.
Perhaps one of the most violated employment laws is Section 7 of the National Labor Relations Act (“NLRA”) of 1935, which grants employees—unionized or not—the right to engage in concerted activity, including the right to discuss the terms and conditions of their employment.[ix] Employees’ rights to discuss their wages, benefits, and other working conditions are paramount to the protections under the NLRA.[x]
In large part, these types of NLRA violations–policies requiring employees to keep their salaries confidential–have contributed to the pay disparity in the U.S. If women (or men) are not permitted to discuss their salaries, they have little means to determine if a disparity exists and, therefore, cannot bring the concern to the attention of management or otherwise seek to resolve the issue. Cases alleging NLRA violations, as well as Equal Pay Act and Title VII violations based on requirements of confidentiality for salaries, are increasing exponentially. For example, Jones Day, a large law firm founded in Cleveland, has been hit with multiple lawsuits based on allegations that its “black-box” compensation system of subjective pay-setting decisions and policies prohibiting associates from discussing their salaries violates multiple laws.[xi] The Jones Day suit is in its early stages, but is certainly one to watch.
While publishing salaries may create complaints and result in more conflict than it solves, informing employees where their salaries generally rank among their co-workers and the reasons why they are so ranked assures employees their pay is set without regard to discriminatory factors. This also serves as a double-check for employers. If the employer is not able to articulate the “why,” that is a strong sign that the compensation may not be legally defensible under the Equal Pay Act.
[i] Sadly and ironically, within the text of the Equal Pay Act itself, it is drafted to presume that the employer—the one paying the wages—is a “he”!; 29 U.S.C. § 206(d)(1).
[ii] 42 U.S.C. § 2000e-2.
[iii] Frontiero v. Richardson, 411 U.S. 677 (1973).
[iv] Ledbetter v. Goodyear Tire & Rubber Co., 550 U.S. 618 (2007).
[v] 42 USCS § 2000e-5; Lilly Ledbetter Fair Pay Act of 2009, Pub. L. No. 111-2, 123 Stat. 5.
[vi] Cal. Lab. Code. § 432.3; 2019 Colo. SB. 85, § 8-5-102 (effective January 1, 2021); Conn. Gen Stat. § 31-40z; Del. Code Ann. tit. 19, § 709B; Haw. Rev. Stat. Ann. § 378-2.4; Me. Rev. Stat. tit. 26, § 628-A; Mass. Ann. Laws ch. 149, § 105A; Or. Rev. Stat. Ann. § 659A.357; Vt. Stat. Ann. tit. 21, § 495m; Rev. Code Wash. (ARCW) § 49.58.___ (added by 2019 c 345 § 2).
[vii] “Equal Pay for Equal Work Act” (SB 19-085).
[viii] 29 U.S.C. § 206(d)(1)(emphasis added).
[ix] 29 U.S.C. § 157.
[x] In re Texas Instruments Inc., 236 N.L.R.B. 68, 72 (1978) (“It would be difficult to imagine a substantive subject in the area of conditions of employment more pertinent to self-organizational activities than the wages an employer pays its entire employee complement. If the employees cannot talk about that, to the public, to possible professional union organizers, to anybody on the sidewalk, they are effectively muzzled where it counts most.”).
[xi] Savignac et al. v. Jones Day, Stephen J. Brogan, and Beth Heifetz, 1:19-cv-02443-RDM (U.S. District Court for the District of Columbia, filed 8/13/19).
Author: Kathryn Dittrick
This article has been prepared for general information purposes and (1) does not create or constitute an attorney-client relationship, (2) is not intended as a solicitation, (3) is not intended to convey or constitute legal advice, and (4) is not a substitute for obtaining legal advice from a qualified attorney. Always seek professional counsel prior to taking action.