On June 14, 28 companies signed the White House Equal Pay Pledge to address gender pay inequality within their organizations. This event follows on the heels of a number of significant legal developments in the last year regarding pay equity.
Most large private employers in the United States (not just federal contractors) may soon have to submit to the Equal Employment Opportunity Commission (EEOC) data regarding employees’ W-2 earnings by gender, which the government will use to identify and investigate pay disparities. Similarly, large employers in the United Kingdom will have to publish reports regarding pay disparities in their organizations, and the government will identify examples of “good practice” and noncompliant companies on a website. California and New York have also passed laws making it easier for plaintiffs to prevail on pay discrimination claims.
In addition to these legal developments, a number of companies have faced proxy season votes and direct shareholder pressure to publish information regarding whether there are any gender-based pay disparities and, if so, the extent of those gaps.
With the push toward pay equality reaching a fever pitch, companies should consider how they prepare for the new reporting requirements and for an anticipated uptick in pay equity litigation. Morgan Lewis’s systemic employment litigation practitioners are at the forefront of helping clients navigate pay equity issues and have experience working with experts to conduct privileged analyses to assess the effect of these developments.
We caught up with labor and employment partners and co-leaders of our Systemic Employment Litigation team Grace Speights and Michael Burkhardt to discuss the recent wave of pay equity laws and their effect on companies.
What are your concerns regarding the reporting requirements under the proposed EEOC rule?
There is the obvious burden on employers to maintain, gather, and produce the additional data regarding W-2 earnings and hours worked required by the proposed EEOC rule. More significantly, there are several methodological issues raised by the government’s proposed reporting requirements. The EEOC is proposing that employers report the number of employees by ethnicity, race, and sex that fall into 12 pay bands based on their W-2 earnings for each of the 10 EEO-1 job categories. These reports do not permit an analysis of pay among similarly situated employees and instead rely on broad job categories that can include multiple different positions. W-2 earnings reflect all remuneration paid to an employee during a calendar year, and this may include a series of compensation decisions that took place during the calendar year that do not sync up with the company’s actual practices (e.g., a merit increase cycle that takes place along a fiscal year calendar). Further, although the EEOC maintains that it will keep company-specific EEO-1 reports confidential, it may disclose the reports if a Title VII proceeding is instituted that implicates the data. The EEOC recently announced on June 21 that it will be issuing a revised version of this rule this summer and will provide interested parties with an opportunity to offer feedback on the revised rule. (UPDATE: The EEOC issued its revised proposal on July 13, 2016. Read our LawFlash on the proposal.)
How does the proposed UK reporting rule differ from the proposed EEOC rule?
The two laws have many differences, but one of the most important differences is that while the proposed EEOC rule focuses on gathering data for government investigations, the UK strategy is focused on requiring companies to publish pay-gap data on their own websites and highlighting on a government website good practice and noncompliant companies. Due to their public nature, the proposed UK reporting requirements increase the risk of reputational harm, negative publicity, employee morale issues, and increased discrimination or equal pay claims based on the information in the public reports.
Why do you believe the new California and New York laws will make it easier for plaintiffs to bring pay equity claims?
Both of the new state laws ease the standards plaintiffs must satisfy to prove a pay equity claim. For instance, California’s Fair Pay Act requires equal pay for “substantially similar work” rather than the stricter “same work” standard as previously required, and it no longer requires that the employees work in the same physical location. It also makes it harder for employers to establish the business justification defense, as employers must show that the business justification accounts for the entire wage differential and that they applied it reasonably.
Similarly, the New York Achieve Pay Equity law relaxes the requirement that employees must work in the same establishment by providing that the same establishment means workplaces in the same geographic region, no larger than a county. Both laws make it easier for employees to learn of wage differentials, as it prohibits employers from forbidding its employees discussing their wages or the wages of others.
How can we assist clients in assessing the effect of these legal developments for their businesses?
We are working with many clients to navigate these pay equity issues and to conduct privileged, pro-active pay equity analyses, with the goal of (1) identifying areas where there may be statistical disparities adverse to protected group members, (2) working with the clients to develop remediation strategies and methodologies to eliminate or reduce the pay disparities and any potential litigation risks, and (3) preparing for the revised pay reports that will have to be submitted to the government and preparing to explain the reasons for any pay gaps. We have the experience to help clients navigate these issues and relationships with experts to use appropriate statistical models to assess whether similarly situated employees are paid comparably. We also can structure the process for such analyses so that our clients are best positioned to conduct these reviews under privilege.