I remember the lawyer, half a generation older than I, describing how, as a recent law school graduate she struggled even to get an interview for a job as a lawyer. When an offer came, she eagerly accepted, even though the firm's senior partner told her that, "of course" she would be paid less than the male associates, because she was married and they "had families to support."
The Equal Pay Act, 29 U.S.C. §206(d), was enacted in 1963 "[t]o prohibit discrimination on account of sex in the payment of wages."1 But half a century later statistical disparities still exist between men and women's pay, although the reasons and size of the gap are often debated.2
New York is one of several states3 that have recently enacted legislation to address the lingering gender pay disparity. In October 2015, as part of the broader "Women's Equality Agenda" that expanded protections for women in several other respects, Gov. Andrew Cuomo signed the Achieve Pay Equity Law (S.1/A.6075), which makes significant changes to New York's own equal pay act, N.Y. Labor Law §194.
Effective Jan. 19, 2016, the law has received little attention even though its changes to New York's standards for determining whether women and men are receiving equal pay for equal work will likely require employers to modify or abandon many common compensation practices. And with 300 percent liquidated damages available to prevailing plaintiffs, the law presents a substantial risk to employers who fail to examine closely their existing pay scales and their compensation practices and policies (as well as presenting an incentive for employees to test the meaning and bounds of the new law).4
Under the state Equal Pay Act before the amendment, women and men were to receive equal pay for equal work unless the difference was attributable to a seniority system, a merit system, a system that measure earnings by quantity or quality of production, or any factor other than sex. Under the new statute, employers can no longer rely on "any factor other than sex" to justify a pay difference. Instead, unless one of the other justifications apply, the employer must demonstrate a "bona fide factor other than sex, such as education, training and experience."5
Further, the bona fide factor cannot be based on or derived from a sex-based differential in payment, must be job-related to the position in question, and must be consistent with "business necessity." Business necessity is "defined as a factor that bears a manifest relationship to the employment in question."6
However, even such a bona fide factor will not provide justification for the wage difference if an employee demonstrates that it has a disparate impact on the basis of sex, that an alternative employment practice exists that would serve the same business purpose, and that the employer has refused to adopt the alternative practice.
How does "salary history" play out in this new landscape? After all, employers often use applicants' current salary or salary demands as a guide to what they will pay a new hire: Why pay an employee more than he or she asks for or more than the minimum necessary to hire the employee. "Salary history" is a "factor other than sex." But is it a "bona fide factor other than sex, such as education, training or experience"? Does it meet the "business necessity" definition? Salary history may or may not correlate to these factors. But a priori it is a factor that perpetuates existing pay gaps. And there is some survey evidence (disputed, of course), that women simply don't "ask" for as much as men.7
How about an apparently gender-neutral policy that an employer won't cut an employee's base salary when he or she moves laterally to another job? The following hypothetical is based on a situation that recently confronted one of our clients: Sarah and Sam both graduated in 1993 from similar schools. Both were hired in 2007. Sarah was most recently a highly successful salesperson, selling the company's manufactured products to retail outlets, for which she earned $80,000 base salary plus commission. Sam was also a highly successful salesperson, most recently manager of a small institutional sales team, earning $110,000 base salary because of his managerial role, plus commission. Two national account manager positions opened up (for similar accounts), due to the retirement of two male employees who had each held that position for several years. Due to their tenure in the position, the two recent retirees were earning higher base salaries than either Sarah or Sam (plus commissions and bonuses), although both had started in the position with much lower base salaries. Sarah and Sam both applied for the positions, because the bonus and commission opportunities were much greater than what they were earning in their current jobs. The company is prepared to offer them the positions. The company would ordinarily start these novice national account managers at $90,000 base salary, which would be a $10,000 increase for Sarah, but a $20,000 cut for Sam. However, the company's policy has been not to cut the salary of existing employees who move laterally or into "higher" positions, which this is considered. Can the company justify paying Sam $110,000 while paying Sarah $90,000? The wage differential is arguably due to experience, i.e., Sam's experience as a manager of a small team. But is that experience "job related with respect to the position in question" if the new position does not involve managing a team? Is it consistent with "business necessity"? Again, that requires that the factor bear a relationship "to the employment in question."
And what is the potential annual exposure to the company in the Sarah/Sam hypothetical? Not the $20,000 annual differential between Sarah, who would get a $10,000 raise, and Sam, who would get no raise. Rather, it would be $80,000, because the new law imposes liquidated damages of up to 300 percent on the unpaid wages for a willful violation of §194.8
So here we see two significant and common employment practices, neutral on their face, legal under the law prior to Jan. 19, 2016, and at least suspect, if not illegal, under the new law, that can result in extraordinary liability. Must employers ignore salary history altogether? The Massachusetts Act to Establish Pay Equity9 will require just that, once the law becomes effective in January 2018. So too would a bill to amend the New York City Human Rights Law introduced before the New York City Council by Public Advocate Letitia James on Aug. 16, 2016.10
The law may affect employers' compensation policies in two other respects: First, gender differentials in pay are prohibited even if two employees whose pay rates are being compared work in different locations, if those locations are in the same geographic region no larger than a county, "taking into account population distribution, economic activity, and/or the presence of municipalities."11
Second, employers may not prohibit employees from sharing wage information.12 While this protection is available to most employees under §7 of the National Labor Relations Act (NLRA), New York's Equal Pay Act now extends this protection to many others who are not "employees" under the NLRA, such as supervisors and managerial employees, so they may learn whether co-workers performing the same job are being paid more. The employer can establish reasonable limitations concerning the time, place and manner of such discussions, and the employee need not disclose his or her wages. The prohibition also does not apply to the disclosure of other employees' wages by employees with access to that information as part of their essential job duties. It therefore behooves employers to reexamine their policies concerning the sharing or disclosure of employee wage information, as well as their other compensation policies.
1. P.L. 88-38, June 10, 1963. The "purpose" of the Act does not appear in the codified version.
2. See, e.g., Robert J. Samuelson, "What's the Real Gender Pay Gap?" Washington Post, April 24, 2016; Janet Adamy and Paul Overberg, "Women in Elite Jobs Face Stubborn Pay Gap," Wall Street Journal, May 17, 2016; Bouree Lam, "What Gender Pay-Gap Statistics Aren't Capturing," The Atlantic, July 27, 2016.
3. Including California (Cal. Labor Code §1197.5), effective Jan. 1, 2016, and Massachusetts (Act to Establish Pay Equity, 2016 Mass. Laws Ch. 177), effective Jan. 1, 2018.
Reprinted with permission from the Nov. 7, 2016 edition of the New York Law Journal© 2016 ALM Media Properties, LLC. All rights reserved.