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Critical Steps for Employers to Legally Close the Wage Gap

June 9, 2022, 8:00 AM

In recent years, states and municipalities across the country have enacted a host of laws designed to promote pay equity. In tandem with these developments, various courts have issued employee-friendly decisions that strengthen the force of the longstanding federal Equal Pay Act (EPA).

Drawing on this proliferation of legislation and rulings, we offer a number of concrete steps that employers, including law firms, can take to close the gender wage gap and build a more equitable workforce.

Which Employees Should Receive Equal Pay?

Many employers think too narrowly when deciding which employees deserve equal pay.

The EPA mandates equal pay for equal work—but equal work need not be identical. As the U.S. Supreme Court declared decades ago in 1974, a plaintiff must only demonstrate that her and her comparator’s jobs are “substantially equal.”

In this vein, a number of federal courts have thought broadly about which employees deserve equal pay.

As examples, courts have allowed EPA cases to move forward where the pay disparities involved athletic coaches who coached different sports, professors who worked in different departments, and employees with the disparate titles of student loan clerk and financial aid assistant.

Illustration: Jonathan Hurtarte/Bloomberg Law

The U.S. Court of Appeals for the Ninth Circuit in 2021 held that a jury could find that university professors held substantially equal jobs, even though they taught different students and courses, conducted different research, ran different centers, and had different funding sources. Critically, the Ninth Circuit has admonished against “granular” comparisons in jobs, cautioning that such comparisons would eviscerate the EPA.

In the last few years, a number of states (including New York, New Jersey, California, Illinois, and Massachusetts) have gone further than the EPA and passed expansive pay equity laws that mandate equal pay for “substantially similar” or “comparable” work, as compared to the “substantially equal” standard.

Given the new legislation and the Ninth Circuit’s recent ruling, employers should consider a broad pool of comparators when setting pay and evaluating compensation practices, as jobs may be considered “substantially equal”—and certainly “substantially similar” or “comparable”—despite differences between employees in their titles, supervisors, classifications, departments, and geographic locations.

Such an approach is especially critical for law firms looking to fix pay disparities. Particularly in states with expansive standards for equal pay comparisons, courts that engage in holistic, fact-intensive assessments of attorneys’ job duties may well find that a female attorney in a counsel role deserves the same pay as a male junior partner, or that a female attorney who specializes in trust and estates should be paid the same as her male counterpart who specializes in mergers and acquisitions.

Notably, New Jersey in 2020 issued interpretive guidance that specifically greenlights broad comparisons between attorneys who review contracts and attorneys who litigate, even though the job duties are not identical. The lesson is clear—law firms should avoid drawing fine-grained distinctions among attorneys when setting pay.

Stop Setting Pay Based on Prior Salary

The Ninth Circuit recently recognized what pay equity advocates have long argued—that “setting wages based on prior pay risks perpetuating the history of sex-based wage discrimination.”

The Ninth Circuit ruled in 2020 that employers cannot invoke prior salary as a valid defense to defeat plaintiffs’ EPA claims. While this decision does not transform the EPA into a federal-level salary history ban, it means that employers in the Ninth Circuit can no longer rely on a common driver of wage discrimination to justify unequal pay.

In addition, many states and local jurisdictions have passed some form of a salary history ban since 2016. Some of these laws simply ban questions about past salary, while others go further and categorically prohibit employers from using past pay to set wages.

Still, the basic takeaway is the same. Employers nationwide should tread carefully when it comes to relying on salary history.

For law firms hiring lateral partners or associates, the most prudent course is to set pay based on the job duties of the position, rather than the attorney’s prior compensation package.

Don’t Rely on Bonuses as a Fix

It’s a common misconception that employers can use year-end bonuses or commissions to fix pay inequities. Equal Employment Opportunity Commission regulations squarely prohibit employers from “paying higher hourly rates to all employees of one sex and then attempting to equalize the differential by periodically paying employees of the opposite sex a bonus.”

Also, a recent ruling from the U.S. Court of Appeals for the Fourth Circuit underscores this principle.

The Fourth Circuit held in December 2021 in Sempowich v. Tactile Systems that equal pay violations can occur even when a woman is paid more in total compensation than her male counterpart.

In Sempowich, the female plaintiff outperformed her male colleague and earned more in sales commissions and total compensation, but she received a lower base salary. The Fourth Circuit allowed the plaintiff to proceed with her EPA claims, ruling that rate of pay, not total compensation, is the proper metric for determining pay discrimination.

The bottom line is that base salary and hourly rates must be set equally—employers cannot evade liability by simply throwing higher bonuses or commissions at their underpaid female employees. At law firms, for instance, paying large bonuses or origination fees to a female attorney will not insulate a firm from liability if the female attorney’s salary is discriminatorily low.

Act Promptly to Fix Pay Disparities

Companies that fail to heed employee concerns and fix pay disparities risk hefty damages awards. The EPA permits employees to recover up to double their back pay damages and has a statute of limitations of three years, in the event of willful violations.

Meanwhile, various states have passed equal pay laws that provide even steeper penalties.

In New York, for example, employees with pay discrimination claims can recover up to four times their losses. In New Jersey, employees who win their pay discrimination cases are entitled to mandatory treble (i.e., triple) damages.

Moreover, New York and New Jersey both allow pay discrimination victims to recover up to six years of back pay, giving employees more time to ferret out pay discrimination and placing employers on the hook for extended back pay damages.

Employers should take note of these robust laws and act promptly to stave off substantial damages down the line.

The gender pay gap stubbornly persists across the workforce. The wave of legislation and recent court rulings provide a critical road map for how to close the gap (and how not to).

Now, we need employers to step up to the plate and take action.

This article does not necessarily reflect the opinion of The Bureau of National Affairs, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.

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Author Information

Alexandra Harwin is the executive chair of the Discrimination and Harassment Practice at Sanford Heisler Sharp. Her practice is focused on representing clients in discrimination, harassment, and retaliation settlements and lawsuits.

Melinda Koster is the co-chair of the Discrimination and Harassment Practice at Sanford Heisler Sharp. Her practice is focused on representing individuals and classes in discrimination, harassment, retaliation, and wage and hour cases.