Pay equity is currently in the news. Although pay equity laws have been on the books for decades, there is a persistent and significant wage gap between men and women. To address this issue, the federal Equal Employment Opportunity Commission (EEOC) is currently seeking to expand the information that it collects from employers to include salary information. In addition, President Obama has been pushing for Congress to enact the Paycheck Fairness Act, which would address some deficiencies in the current federal pay equity law. In her acceptance speech to the Democratic convention on July 28, 2016, Democratic presidential nominee Hillary Clinton expressly included pay inequality as a concern. Massachusetts has now joined this chorus. On August 1, 2016, Governor Baker signed into law pay equity legislation, which substantially revamps the protections in the Massachusetts Equal Pay Act. These changes will go into effect in July 2018.
What does this mean for Massachusetts employers?
The revamped Massachusetts pay equity law eliminates one key and common defense — specifically, an applicant’s or employee’s prior earnings. The law prohibits employers from asking applicants about prior earnings or using prior earnings as a benchmark in setting compensation. The law allows employers to ask about salary information, including contacting an applicant’s former employers seeking salary information, only after an offer of employment with compensation has been negotiated and made to the applicant.
The law makes clear that an employer cannot stop employees from asking about other employees’ wages, or disclosing their own wages, although there is no obligation of an employer to disclose other employees’ wages, and certain personnel (human resources employees and supervisors) may be prohibited from disclosing employees’ salaries without their consent.
Following the lead of the federal Equal Pay Act, the law makes clear that pay differentials are not unlawful when justified by merit, seniority and other specified factors. The newly-enacted amendment makes clear that an employer may not take into account leave time taken for pregnancy-related conditions or for protected parental, family and medical leave in computing seniority.
The revamped law also creates an affirmative defense, allowing employers to escape liability under state law where they have undertaken, in good faith, a pay disparity analysis and have taken reasonable steps to address pay equity issues. To qualify for this defense, the pay disparity study must meet certain criteria, and the statute directs the Attorney General to issue templates or forms that employers may use.
The revised statute increases the statute of limitation for bringing claims from one year to three years, and also makes clear that aggrieved employees do not need to file a claim with the Massachusetts Commission Against Discrimination (as they must with other claims of discrimination) but can go directly to court. The statute expressly allows for class action litigation, stating that employees may proceed on behalf of themselves and other “similarly situated” employees. As before, violation of the statute allows an aggrieved employee to receive the amount of underpayment, plus an additional amount in liquidated damages, and reasonable attorneys’ fees and costs.
To prepare for these changes, employers should take the following steps:
- Employers should review their hiring practices and application forms to make sure that there are no questions regarding an applicant’s former salary.
- For employers who take salary history into account in setting salaries, they should stop this practice as soon as possible, because any pay disparities based on this practice will be unlawful starting in July 2018.
- Employers should also consider the costs and benefits of conducting a pay disparity study. For employers who choose to conduct such a study, a further consideration is whether to involve legal counsel, thereby allowing the attorney-client privilege to protect the study from forced disclosure.
On a federal level, employers should also be aware of the following:
- Proposed EEO-1 Changes: On July 14, 2016, the EEOC issued a revised proposed rule that would change reporting requirements for employers with 100 or more employees. These employers are required to file what is known as EEO-1 reports, which provide demographic information on their employees. The proposed rule seeks to obtain summary pay data, and would allow employers to use the information that they report on W-2 forms for tax purposes to fill out the EEO-1 form. Under the proposed rule, employers would be required to tally the number of employees in 12 pay bands for each EEO-1 job category and for each pay band, employers would enter the number of employees whose W-2 pay for the calendar year falls within that band. Employers will also be required to report hours worked by employees, but can base calculations for exempt employees on an imputed 40 hour per week standard. The revised proposed rule changes the annual filing deadline to March 31, with the first report due in 2018. The EEOC is currently accepting comment on these proposed changes.
- Proposed Paycheck Fairness Act: In January 2016, President Obama issued a statement “renewing his call to Congress to take up and pass the Paycheck Fairness Act.” The Paycheck Fairness Act, which was first introduced in 1997, would revise the federal Equal Pay Act and would address some of the issues that the Massachusetts Legislature addressed in revising the Massachusetts Equal Pay Act. Among other things, the proposed amendment to the federal law would restrict the ability of employers across the country to justify pay differentials based on prior compensation, would make it unlawful to prohibit an employee from disclosing information about the employee’s wages, and would expressly allow for class actions.