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Massachusetts Employers Should Act Now To Ensure Compliance With New Pay Equity Law

Massachusetts recently amended its Pay Equity Law. The new law, which goes into effect on July 1, 2018, imposes significant responsibility on Massachusetts employers to ensure equal pay to employees of different genders for comparable work. Most notably, the law broadens the definition of comparable work, extends the statute of limitations and strengthens the remedies for equal pay claims, and mandates greater transparency in employers’ pay practices.

While the law imposes substantial new obligations on employers, it also allows employers to take proactive steps to protect themselves from equal pay claims in the future. Most notably, the law allows employers to conduct a self-evaluation, which may serve as a safe harbor defense. As a result, employers should consider conducting a self-evaluation now, especially employers that will be making salary changes or determinations in the next six months (such as schools, which typically set faculty and staff salaries for the following school year by March). Conducting a prompt self-evaluation will allow consideration of any pay differentials in making such salary decisions. Otherwise, employers may be faced with having to increase employee salaries a second time in order to comply with the new law’s deadline of July 1, 2018.

What Is Pay Equity?

Both federal and Massachusetts law prohibits employers from compensating men and women differently based on their gender for comparable or equal work. Massachusetts employers must comply with both the federal equal pay statute (29 U.S.C., § 206(d)) and the Massachusetts equal pay statute (M.G.L. c. 149, § 105A).

Current Federal Law.

Federal law prohibits employers from paying employees of the opposite sex differently for “equal work” on jobs that require “equal skill, effort, and responsibility” and are performed under “similar working conditions.” Pay differentials are allowed where they are based on: (i) a seniority system; (ii) a merit system; (iii) a system which measures earnings by quantity or quality of production; or (iv) any other factor other than sex. The catch-all exception of “any other factors other than sex” under the federal law is a broad defense that many times allows employers to defend successfully against alleged pay disparity claims.

Current Massachusetts Law.

While Massachusetts law presently prohibits employers from paying employees of the opposite sex differently for “comparable work,” this law is rarely used or enforced because courts narrowly define “comparable work” to only include jobs that have similar duties and require comparable skill, effort, responsibility, and working conditions. As a result, typically only those in the same position with very similar duties are considered to be performing “comparable work.” This law, however, will soon change.

The New Massachusetts Law (Effective July 1, 2018).

On July 1, 2018, the new Massachusetts equal pay law goes into effect. The new law expands the state’s existing equal pay protections by broadening the definition of “comparable work” under the statute.

Historically, the Massachusetts equal pay statute has not defined “comparable work.” Over the years, and in the absence of any express definition, courts have interpreted “comparable work” to mean that: (1) two positions have the same (or very similar) substantive job duties; and (2) the two positions require comparable skill, effort, responsibility, and working conditions.

Come July 1, 2018, the meaning of “comparable work” and other important terms will be expressly defined in the statute. Employers will still be prohibited from paying employees of different sexes unequally for comparable work. However, job titles and duties will no longer be a determinative factor. Instead, the comparable work analysis will focus much more broadly on similarity of skill, effort, and responsibility, and working conditions required for positions, even where the job titles and duties of those positions are different. Unfortunately, this new, vague standard will make it difficult for employers to determine which jobs to compare for purposes of complying with the new law.

What Employers Need To Know

Some of the most important changes in the new law that employers should be aware of include the following:

1. “Comparable Work” Is Not Just About Job Titles Or Descriptions.
“Comparable work” will be work that requires substantially similar skills, effort, and responsibility and that is performed under similar working conditions. “Working conditions” include the environmental circumstances usually taken into consideration in setting a salary or wages, such as shift differentials, or physical surroundings and hazards.

A job title or a job description alone does not determine comparability. Thus, employers should think about the true requirements for a position, and not just about what is on paper, when making pay decisions.

2. “Wages” Means More Than Just Salary Or Hourly Rate.
Under the new law, “wages” includes “all forms of remuneration” for employment. When examining whether two positions are compensated equally, employers will need to assess not just salary or hourly pay, but all forms of compensation, including wages, benefits, bonuses, commissions, employee housing, tuition remission, and other fringe benefits.

3. Six Exceptions Where Pay Differentials Are Permissible.
The new law provides for six (6) exceptions to the prohibition against unequal pay. A man and a woman may be paid different wages for comparable work if the pay difference is based on: (1) a system that rewards seniority with the employer; (2) a merit system; (3) a system that measures earnings by quantity or quality of production, sales, or revenue; (4) the geographic location of a job; (5) education, training, or experience, so long as it is reasonably related to the particular job in question; or (6) travel, if travel is a regular and necessary condition of the particular job in question.

Identifying and exploring which exceptions might apply will be critical for employers in evaluating potential pay disparities. Employers should examine their hiring policies and any performance-based pay increase criteria to see which of these systems, if any, are already in place.

4. Asking About Salary History Will Be Expressly Prohibited – Along With Several Other Employment Practices.
The new law prohibits employers from asking about a prospective employee’s wage or salary history until after an offer of employment has been made, unless the prospective employee voluntarily discloses the information on his or her own. Given the new law’s broad definition of “wages,” it appears employers will not only be prohibited from asking about a candidate’s previous salary, but also about other forms of past compensation, such as commissions or benefits. This restriction could present a difficult hurdle for employers hiring for roles where past compensation may be closely tied to performance measurement, such as sales roles.

The new law also prohibits employers from requiring that employees refrain from discussing or disclosing wage information. (In this respect, the law mirrors the National Labor Relations Act, which likewise gives employees the right to discuss their wages with co-workers.) However, nothing in the new law obligates an employer to disclose an employee’s wage information to other employees or third parties. Similarly, employers can still require employees with access to pay information (like human resources professionals) to keep such information confidential unless written consent is obtained from an employee whose information is to be disclosed.

Retaliating against any employee for opposing unlawful practices, disclosing his or her own wages, or inquiring about or discussing the wages of another employee, is also expressly prohibited. Importantly, employers cannot implement policies or contract around the new law to avoid compliance with any of the law’s protections or prohibited practices. Employers should make certain that both their formal policies and their actual practices do not inappropriately silence employee wage discussions.

5. Employees Can Sue For Double Their Wages, Plus Their Legal Fees – Even If The Employer Had Good Intentions.
Employees can sue employers in court individually, or as part of a class action, within three years of the date of an alleged violation. A violation occurs each time the law is violated, so every discriminatory paycheck constitutes a violation.

An employer that violates the new law will be held liable for the employee’s unpaid wages, and “liquidated damages” (or double damages), plus the employee’s reasonable attorneys’ fees and costs.

The statute makes clear that an employer’s intent is irrelevant. Even an employer that unwittingly violates the law can be on the hook for double damages.

6. A Self-Evaluation Can Provide A Complete Defense For Employers.
Thankfully for employers, the new law provides employers with the opportunity to conduct a self-assessment, which may serve as a safe harbor defense. The law provides for two variations of safe harbor defenses: a full affirmative defense, and a partial defense.

An employer has the opportunity for a Full Affirmative Defense to liability if the employer can show: (a) it conducted a self-evaluation of its pay practices within three years prior to the legal action; (b) the self-evaluation was reasonable in detail and scope, in light of the employer’s size; (c) the self-evaluation was conducted in good faith; and (d) reasonable progress has been made towards eliminating pay issues.

Where an employer’s self-evaluation falls short of being reasonable in detail and scope, the employer still may have an opportunity for a Partial Defense under the new law. Specifically, if the employer can show the evaluation was done in good-faith and reasonable progress has been made towards fixing pay issues, the employer will avoid being held liable for double damages.

Importantly, a self-evaluation may not be used against an employer if a violation occurs before the employer’s self-evaluation is completed, within six months of its completion, or within two years of its completion if the employer has implemented a plan to remedy wage issues in good faith.

7. Employers Cannot Reduce Current Employees’ Wages In Order To Get In Compliance.
Employers that identify impermissible pay differentials will need to raise the bar, rather than lower it. Employers should keep this in mind when deciding whether to do a self-evaluation, and when designing their next budgets.

Getting In Compliance: Steps Employers Can Take Now To Avoid Liability

To get in compliance with the new pay equity law, Massachusetts employers should consider the following steps:

  • Conduct a self-evaluation. The evaluation needs to be conducted in good faith and be reasonable in detail and scope. Employers that will be making salary changes or determinations in the next six months should conduct a self-evaluation now, to allow consideration of pay differentials in making such salary decisions.
  • Employ a three-step analysis in conducting the self-evaluation:
    1. Conduct an assessment of job classifications company-wide in order to identify comparable jobs. Gather information regarding the skill, effort, responsibility, and working conditions of all jobs company-wide. While employers will certainly want to review job descriptions and job duties to help assess job classifications, remember that job titles and duties will no longer be definitive in making classification determinations.
    2. Determine if comparable positions are paid equally. Calculate whether men and women in the job(s) compared are compensated the same. Evaluate the various forms of compensation offered to employees. Remember that compensation can include wages, benefits, commissions, and fringe benefits, including employee housing and tuition remission.
    3. Determine whether any of the exceptions apply, and if not, whether salary increases are appropriate. If employees in comparable jobs are not compensated the same, look for an explanation that could trigger any of the six exceptions. If no exception applies, and a pay bump is required for certain employees, establish a plan for implementing a pay increase. Be careful not to indirectly decrease other employees’ pay.
  • Consider engaging counsel to assist with the self-evaluation. While an employer’s self-evaluation may not be entirely privileged, engaging counsel at the outset of the self-evaluation process will help ensure that the self-evaluation is comprehensive and legally compliant, and will increase the possibility that certain discussions and decision-making regarding the self-evaluation will be attorney-client privileged.
  • Be prepared for the employee response. If a pay disparity is discovered, thus requiring a pay increase for certain employees to close the gap, proceed strategically in rolling out the pay increase, and be prepared to field employee questions and complaints.
  • Review current policies and examine how pay decisions are being made. Employers should review (and update if necessary to comply with the new law): (1) employment applications and pre-employment inquiries; (2) hiring practices; (3) existing employee, faculty, and other handbooks and/or policies; and (4) existing pay structures.
  • Maintain pay equity going forward. After fixing any pay issues, employers should repeat self-evaluations periodically so as not to end up back where they started. Employers should maintain and follow pay equity policies and conduct periodic trainings.
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If you have questions about how to conduct a pay equity self-evaluation, or whether your organization is in compliance with the new law, please feel free to contact us. We can walk you through the process and help you figure out the best course of action.