Due to recent high-profile lawsuits, government enforcement actions, and increasing activity from state and local legislatures, pay equity continues to be at the forefront of issues facing employers today. For sports and entertainment employers, this has been especially pronounced, from high profile actresses speaking out on pay equity, to members of the women's national hockey team achieving significant pay and other gains in recent negotiations. As employers are learning about the many trends and changes relating to pay equity, they are asking what they can do to protect themselves from potential liability. This article addresses the top ten issues sports and entertainment employers should know about pay equity issues in the United States, from what laws are at play to proactive steps employers can take to ensure they do not have pay equity disparities.
1. What laws provide protection against gender-based pay disparities?
There are a number of state, local and federal laws, plus additional federal regulations, that govern pay equity. The major federal laws at play are Title VII of the Civil Rights Act of 1964 (Title VII), the Lilly Ledbetter Fair Pay Act of 2009, and the Equal Pay Act of 1963 (EPA). The U.S. Equal Employment Opportunity Commission (EEOC) enforces and administers these laws. Certain federal contractors also have pay equity obligations pursuant to regulations and guidance issued by the Office of Federal Contract Compliance Programs (OFCCP). Several states, including California, Delaware, Massachusetts, Maryland, New York, and Oregon, have passed pay equity legislation that provides broader protections to employees than the existing laws, and other states and localities are considering similar legislation. In addition, some cities have started to pass legislation prohibiting employers from asking questions about salary history during the application process as part of a larger equal pay strategy to address the perceived wage gap between men and women.
2. Does pay equity just apply to gender, or does it apply to other protected characteristics as well?
Title VII's prohibition against compensation discrimination applies to the other characteristics protected in that statute, such as race, color, religion, and national origin. Analogous federal laws with similar language prohibiting discrimination in the terms and conditions of employment can support pay discrimination claims as well. For example, the Age Discrimination in Employment Act (protecting employees over age 40 from discrimination) and the Americans with Disabilities Act (protecting qualified employees with disabilities from discrimination) each could support pay discrimination claims. Some of the newer state laws and regulations are expanding pay equity protections beyond gender to include other characteristics such as gender identity.
3. How can an employer determine whether it has a pay equity issue?
The primary way is through a pay audit, either internally or with the assistance of outside counsel and experts. A pay audit typically begins with a fact investigation that provides information about the employer's workforce and its compensation-related policies and practices. An audit may focus on the entire workforce or a subset of the workforce identified by region, job title or classification, department, etc. Employers may want to consider starting with a smaller subset of employees before branching out to analyze larger portions of the workforce. The pay data is analyzed to determine whether there are differences in how men and women (or between other protected classes, as appropriate) within identified jobs are compensated, and whether those differences are statistically significant. If there are particular jobs or areas where the analysis has identified statistically significant disparities, then the pay audit typically focuses on discovering whether there are legitimate factors outside the data set that may justify the pay differences. If such additional factors do not justify the pay differences - or do not justify them entirely - then the employer may need to do further analysis to determine if it has a pay equity problem with respect to those job titles.
4. Should employers conduct pay audits under the attorney-client privilege?
Conducting an audit under the attorney-client privilege may protect certain aspects of the audit from disclosure. Whether an audit is protected by the attorney-client privilege is a function of the state law defining that privilege. While typically the data underlying the analysis would not be privileged, the analysis and conclusions drawn as well as the strategy for addressing any concerns would be protected from disclosure.
5. What types of compensation should be reviewed to determine if there is a pay equity concern?
Arguably, all aspects of compensation may be considered in determining whether there is a pay equity issue - including bonuses and other incentives. In many cases, a pay audit will focus on base pay, as commissions, bonuses, and other incentives may either be uniform or tied directly to objective performance indicators that are less likely to be connected to pay discrimination. If incentive compensation or other aspects of compensation are tied closely to base pay, the audit may need to include those forms of compensation.
6. Who is a "comparator" for purposes of determining if there is a pay equity concern?
Each statute defines the term differently, but a singular focus on job titles will not suffice under either federal law or state law. Under Title VII, a claimant must show that a "similarly situated" employee is compensated more favorably. Under the EPA, jobs that require substantially equal skill, effort, and responsibility would be compared. New state laws have their own definitions. The identification of appropriate comparators is a function of the applicable law and the particular facts concerning the individuals whose pay is being analyzed.
7. How much of a pay difference will be considered a problem?
There is no set dollar amount that renders a pay difference "problematic." In theory, any difference that cannot be explained could give rise to a concern. In reality, whether a pay difference is problematic will correlate to the amount of overall compensation involved and the factors included in the statistical model.
8. What steps can an employer take to make sure that it does not have pay disparities in the future?
A conscientious employer may take a critical look at its existing policies and procedures to identify deficiencies that may be causing pay disparities. Then, the employer can implement modifications to those policies and procedures to prevent pay disparities in the future. For example, if an employer has salary guidelines but decision-makers are not following them (i.e., they are paying some employees below the minimum and/or others above the maximum), there may be an opportunity to make a modification. In this case, the employer may consider issuing guidance regarding utilization of the salary guidelines along with implementing a process that ensures salaries are set within those guidelines (e.g., an additional layer of approval or a human resources information system kick back of any salaries that fall outside the guidelines). In addition, the employer may consider whether the guidelines need updating or whether it needs to conduct further training for its managers.
9. What should an employer do if an employee complains about pay equity?
An employer should promptly investigate all allegations of pay bias, just as the employer would investigate any other internal complaint. Oftentimes, internal complaints are grounded in rumors and suppositions about what another employee makes. Alternatively, if the claim can be substantiated, the employer will have the opportunity to promptly correct the issue and hopefully avoid the possibility of a future claim. Complaining or inquiring about compensation practices is a protected activity, so an employer must not retaliate against an employee who does so.
10. What might we expect in the future?
This issue continues to have momentum. Beginning in late August and continuing through September 2017, the EEOC filed a number of lawsuits against employers alleging various types of discrimination; seven of these involved claims of pay discrimination. There has been an increase in private parties filing charges and litigation alleging pay discrimination, both on an individual and class basis. More states and cities are passing or considering passing strengthened pay equity laws. The risk continues to grow for employers who do not take steps now to identify and correct any potential pay equity issues.
Given the continued scrutiny and proliferation of legislative and regulatory changes, pay equity is an issue that employers need to prepare for and face head on. There will likely be an increase in pay discrimination litigation in states such as California and New York, which have their own pay equity laws. In addition, many of the same issues that would give rise to claims under California or New York law may also give rise to claims under federal law and the pay equity laws of other states. Employers should be proactive in identifying and correcting any unjustified pay disparities now and ensure they are using best practices in making pay decisions going forward.