state pay equity compliance for employers: closing the pay...

State Pay Equity Compliance for Employers:

Closing the Pay Gap and Conducting Privileged

Pay Audits

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WEDNESDAY, SEPTEMBER 11, 2019

Presenting a live 90-minute webinar with interactive Q&A

Stacey A. Bastone, Principal, Jackson Lewis, New York

Mike Delikat, Partner, Orrick Herrington & Sutcliffe, New York

Christopher T. Patrick, Principal, Jackson Lewis, Denver

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The Drivers of the New Equal Pay MovementSeptember 2019

Mike Delikat

[email protected]

212.506.5230

“Women who work full time, year round in the United States are paid just 80 centsfor every dollar paid to their male counterparts. . . . Despite the fact that women havemade enormous gains in educational attainment and labor force involvement in thelast several decades, unequal pay remains pervasive in 97 percent of occupations.”

-National Women’s Law Center

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Scope of the Problem

“[W]omen of color have to work—on average—eight months longer to earn the same as their male counterparts do in one year. . . . Even black women who have earned graduate degrees get paid less at every level. This is as true in inner cities as it is in Silicon Valley.

– Serena Williams, Fortune Magazine, July 31, 2017

“One in three Americans is not aware of the gender pay gap—and men are almost twice as likely as women to think it does not exist.”

– Lean In, April 10, 2018

“Sexual harassment isn’t about sex, justlike pay discrimination isn’t just about pay.Both are about power. They are clearevidence that too many workplaces valuewomen less. That was true for me in the1980s and 1990s when I worked atGoodyear, and it is still true today.”

– Lilly Ledbetter, New York Times, April 9, 2018

Privileged and confidential.

The pay gap measures only the difference in average earnings between all men and all women; it is not a proxy for pay bias—

i.e., the failure to pay women equal pay for equal work.

7

Understanding Pay Equity: “Pay Gap” vs. Unlawful Pay Bias


• Important to distinguish:

– a pay gap (working men earning more on average than working women, regardless of

job, role, or level) versus

– pay equity (men and women performing equal or substantially similar work being paid

equally) versus

– pay discrimination (women being paid less than men because they are women)

• A pay gap, in and of itself, is not unlawful

• Different legal theories entail different proof

• Distinguish from other types of discrimination, where measure of damages may be pay

(e.g., promotions)

8

Pay Gaps v. Pay Equity

9

The Drivers of the New Era of Pay Equity Activism

State Equal Pay LawsState Equal Pay Laws

Federal Enforcement

(e.g., Lilly Ledbetter Fair Pay Act, EEOC, OFCCP, executive actions)

Federal Enforcement

(e.g., Lilly Ledbetter Fair Pay Act, EEOC, OFCCP, executive actions)

Shareholder Activism and Class Action Litigation

Shareholder Activism and Class Action Litigation


10

Federal Law Standards


• Equal Pay Act – prohibits unequal pay for equal work, the performance of which requires equal skill, effort and responsibility under similar working conditions.

– Only covers sex based claims.

• Title VII – prohibits intentional discrimination in compensation and practices with a disparate impact on protected groups.

– Ledbetter Act - Receipt of a paycheck affected by a discriminatory decision makes a challenge to that decision timely.

– Bennett Amendment imports EPA defenses into Title VII.

• Lilly Ledbetter Fair Pay Act of 2009 (signed into law on January 29, 2009).

• Attempts to date to pass the Paycheck Fairness Act:

– Would amend Equal Pay Act of 1963 and Fair Labor Standards Act to provide further remedies for wage disparity based on sex.

– Failed to pass and reintroduced to Congress 10 times since 1997.

– EEOC/OFCCP increased enforcement and reporting focus using existing laws.

11

Federal Focus on Equal Pay


OFCCP Audits and Litigation:

• Responsible for ensuring federal contractor compliance with equal pay laws.

• OFCCP intends to unleash "highly skilled and specialized compliance officers capable of handling various large, complex compliance evaluations in specific industries, such as financial services or information technology.”

• OFCCP Litigation: Oracle, JPMorgan Chase

12

Federal Focus on Equal Pay


• September 2016: EEOC revised EEO-1 form that collects pay data from employers

with 100 or more employees and certain other employers

– Requires reporting of aggregate W-2 earnings and hours worked in twelve pay

bands for each of the ten EEO-1 job categories

– Potential for misleading conclusions from broad “pay gap” reporting

• August 2017: OMB stays form for further review

– Concern that “some aspects of the revised collection of information lack practical

utility” and “are unnecessarily burdensome”

• March 2019: Revised form reinstated by D.C. District Court in

National Women’s Law Center v. Office of Management and Budget, No. 17-cv-

2458 (TSC)

13

The EEOC and the Revised EEO-1 Form

• Activist funds and individual shareholders have filed proposals that, if

passed by shareholder vote, would require companies to disclose

publicly the percentage “pay gap” between male and female

employees and, to the extent it exists, planned steps to address it.

• Arjuna Capital has filed proposals with numerous technology (e.g.,

Apple and Intel) and finance (e.g., Wells Fargo and Citi) companies

seeking public reports on efforts to address gender pay equality. In

April 2018, it released its first annual Gender Pay Scorecard.

• Other sustainable investment funds making similar proposals include

Pax and Trillium.

14

Shareholder Activism


Arjuna Scorecard

15

• Bowen v. Manheim Remarketing, Inc., 882 F.3d 1358, 1362–63 (11th Cir. 2018) (denying summary judgment and noting that for the factor other than sex defense, an employer bears the burden of proving that sex provided “no basis for the wage differential” and must show that no decision-makers were influenced by sex bias).

• Gordon v. United States, No. 2017-1845, 2018 WL 4263304 (Fed. Cir. Sept. 7, 2018) (affirming summary judgment because plaintiffs had failed to establish that the pay differential between the similarly situated employees was “historically or presently based on sex”).

• Chen-Oster v. Goldman, Sachs & Co., 325 F.R.D. 55, 64 (S.D.N.Y. 2018) (certifying pay/promotion gender discrimination class action).

• Moussouris v. Microsoft Corp., No. C15-1483JLR, 2018 WL 3328418, at *1 (W.D. Wash. June 25, 2018) (denying certification of pay/promotion gender discrimination class action)

16

Class Litigation of Pay Equity

• UK regulations on reporting pay data:

– Employers with 250 or more employees in the UK must publish statistics and information relevant to the gender pay gap on an annual basis.

• Germany Equal Pay Act:

– Employees and works councils entitled to receive comparative pay data by gender in companies of more than 200 employees.

– Large companies (more than 500 employees) must adopt internal procedures for pay equity review.

17

Cross-Border Regulation of Equal Pay


• Companies are disclosing pay equity statistics not only in response to activist shareholder proposals, but also to demonstrate social corporate responsibility.

• Primary corporate concerns:

– Getting out ahead of potential shareholderproposals and adverse publicity

– Mitigating litigation risk; and

– Demonstrating social corporate responsibility.

– Achieve a competitive advantage

18

Recent Developments

Privileged and confdential.

ABOUT THE PRESENTER:STACEY A. BASTONE

Stacey A. Bastone is a Principal in the Long Island Office. Ms. Bastonegraduated from Cornell University in 2002 and received her JurisDoctor from Fordham University School of Law in 2005. She is amember of the Firm’s Affirmative Action Compliance and OFCCPDefense Practice Group as well as the Pay Equity Resource Group.

Ms. Bastone assists companies in the preparation of affirmative actionplans and successfully has defended federal government contractorsduring audits conducted by the United States Department of Labor’sOffice of Federal Contract Compliance Programs (OFCCP) includingclaims of pay inequities and disparate impact in employee selectionpractices. She works closely with national clients to prepare andimplement affirmative action compliance procedures relating torecruitment, applicant tracking, compensation systems and otherdiversity and affirmative action compliance obligations. Stacey alsofrequently works with national clients to design and conduct pay equityanalyses.

Before joining Jackson Lewis, Ms. Bastone was an Assistant DistrictAttorney in Manhattan where she prosecuted felony and misdemeanorcases ranging from violent crimes to fraud.

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STATES AND LOCALITIES TAKE ON THE PAY GAP

20

Expanded State and Local Laws

State Effective Date

California January 1, 2016 (amendments effective January 1, 2017)

Maryland October 1, 2016

Massachusetts July 1, 2018

New Jersey July 1, 2018

New York January 19, 2016 (NYC - October 31, 2017)

Oregon January 1, 2019

Puerto Rico March 8, 2017 (penalties not recoverable until March 8, 2018)

Delaware December 1, 2017

Washington June 1, 2018

Michigan January 8, 2019

Alabama September 1, 2019

Colorado January 1, 2021

21

22

Expands definitions of which employees are comparable

Limits the reasons acceptable to explain pay differences

Expands recoverable damages available

Protects employees against retaliation

Restricts access to prior salary history

Encourages self-analysis

New State Law Themes

California – “substantially similar”

Oregon – “work of a comparable character”

Massachusetts – “comparable work”

New Jersey – “substantially similar”

Washington– “similarly employed”

States With Aggressive New Standards for Pay Comparisons

44

California Fair Pay Act Led the Way…

Effective January 1, 2016 (amendments effective January 1, 2017)

Protected categories: sex, race, or ethnicity

Equal pay for “substantially similar work, when viewed as a “composite of skill, effort, and responsibility, and performed under similar working conditions”

• Compares employees across locations

• Must explain the “entire wage differential”

Liquidated damages, equitable & injunctive relief, attorneys’ fees

Salary History Ban

Pay Transparency

24

Massachusetts Equal Pay Act (Amended): The Basics

Effective July 1, 2018

Protected category: gender

Equal pay for “comparable work” that requires substantially similar skill, effort, and responsibility, performed under similar working conditions

• MA AG Office Guidance issued March 1, 2018

Double damages and attorneys’ fees

Salary History Ban

Pay Transparency

Self-Evaluation is an Affirmative Defense (“Safe Harbor”)

• Good faith self-evaluation of pay practices conducted in the last 3 years before action commenced and reasonable progress made towards eliminating gender-based differentials and analysis is “reasonable in detail and scope” given employer size

25

26

An employer can typically avoid liability for the wage deferential if it can show that the differential is based upon a bona fide factor other than sex, such as education, training, or experience.

What Defenses Are Available to Employers?

“any other factor other than sex”

“any bona fide factor other than

sex”

27

Examples include:

• Seniority system

• Merit increase system

• System that measures earnings by quantity or quality of production

• Geographic location in which a job is performed

• Jobs that require the regular performance of different duties or services

• Work that is performed on different shifts

• Travel, if the travel is a regular and necessary condition of the particular job

What Defenses Are Available to Employers?

28

Is asking for salary history . . . history?

Enacted salary history laws

• Alabama, California, Colorado (effective 2021), Connecticut, Delaware, Hawaii, Illinois, Maine, Massachusetts, New Jersey, New York, North Carolina, Oregon, Pennsylvania, Puerto Rico, Vermont, Washington

• New York City, Albany County, Westchester County, San Francisco, Suffolk County, Kansas City, Montgomery County, Louisville, Chicago

• Cincinnati (employers with more than 15 employees)

Michigan – forbids localities from adopting salary history inquiry bans

Wisconsin – forbids local governments from prohibiting employers from soliciting the salary history of candidates

Spotlight on Salary History

Prior Salary Tips & Workarounds

Request applicant salary expectations

Provide applicants a salary range for the position; let them self-select out

Set fixed starting salaries by position

“Matrix approach” that puts a dollar value on job-related attributes, such as years of prior experience

Prepare analyses and make pay adjustments where prior salary explains pay gaps

29

National Labor Relations Act

• Cannot fire or otherwise discriminate against employees for asking about, discussing, or disclosing pay

Executive Order 11246 (includes applicants & supervisors)

Passed: CA, CO, CT, DE, DC, HI, IL, LA, ME, MD, MA, MI, MN, NV, NH, NJ, NY, OR, PR, VT, WA

Proposed: ID, IN, IA, NC, PA, SC, TN, VA, WV

Pay Transparency

20

EEO-1 Pay Data Reporting

EEO-1 Component 2 – All employers with 100+ employees mustfile EEO-1 Component 2 Pay Data by September 30, 2019.

31

Component 1 - due5/31/19

• Current EEO-1• Counts of employees

by race/ethnicity and gender in each of the 10 EEO-1 Categories

Component 2 - due 9/30/19

• Aggregate compensation data and hours worked

• Organized by 10 EEO-1 Categories

• 12 specified pay bands

Component 2 - What Data is Required?

Must file two “snapshots” – 2017 & 2018

• Do not need to use the same snapshot dates and populationsthat were used for Component 1 reports.

Pay Data - W2 Wages

• For each snapshot report, you need to report the counts ofemployees under twelve “Pay Bands”

• Use IRS Form W2 - “Box 1”

- Use the Exact Dollar Amount

32

Component 2 - What Data is Required?

Hours Worked Data

• For each employee on each snapshot, you need to report thetotal number of hours worked from January 1 through December31

• Exempt/Salaried Employees

- You may use actual hours worked, if work hours are tracked

- If hours are not tracked, use 40 hours per week for full timeemployees and 20 hours per week for part time employees

• Non-Exempt/Hourly Employees

- Report actual “hours worked” and exclude any paid, non-work hours

- Paid vacations, holidays, leaves, etc. must be excluded

33

EEO-1 Pay Data Reporting

Considerations:

• Are you able to pull the data you will need? Don’t wait until thelast minute to find out!

• Can you access data for employees on your 2017 EEO-1 report?

• Pay data - is there an easy source of W2 wage information?

• Hours data - how does your company distinguish between “workhours” and other hours that are paid, but not worked (vacations,holidays, leaves, etc.)?

• If you are pulling data from multiple systems, how are we goingto make sure the information can be aligned across reports

34

ABOUT THE PRESENTER:CHRISTOPHER T. PATRICK

CHRIS PATRICK is a Principal in the Denver, Colorado, office of Jackson Lewis

P.C., and a member of the firm’s Pay Equity Resource Group and Affirmative

Action Compliance and OFCCP Defense Practice Group. His practice focuses

on strategic legal counseling about issues of equal employment opportunity

(EEO), including pay equity counseling and analysis, affirmative action

planning, EEO compliance, statistical analyses of employment practices,

diversity, and defending employment practices during Department of Labor

Office of Federal Contracts Compliance Programs (OFCCP) audits and

investigations.

Jackson Lewis’s Pay Equity Resource Group consists of roughly 35 attorneys

partnering with a team of Ph.D.- and Master’s-level Statisticians and Data

Scientists to conduct privileged, proactive pay analyses to assist employers

identify and address “pay gaps,” provide advice and counsel on how to design,

implement, and improve pay systems to provide equity and minimize liability,

and defend employers in investigations and in litigation under Title VII, the

Equal Pay Act, and state fair pay laws.

Privileged & Confidential

BEST PRACTICES

Privileged & Confidential36

How Are Courts Treating It? Critically important to involve counsel early (and

substantively)!

• Get your attorney involved before conducting pay analysis

• The government & plaintiffs’ attorneys know companies conduct pay analyses and often request copies

• Pay Analysis can be road map to problems

Establish Privilege Protocols at Outset

• Identify team of “need to know” participants

• Prepare memo outlining protocols and tips to avoid waiver

• Mark and treat documents as “Privileged & Confidential”

Establish Privilege


The Sliding Scale of Privilege

38

How Are Courts Treating It? Conduct a Pay Equity Analysis

• Where possible, use regression analysis of “similar” roles

• Research statistically significant differences

• Perform analyses in multiple years to assess trends

• Note: Some jurisdictions offer safe harbor or damage limitationsfor pay equity analyses

Evaluate Necessary Pay Adjustments

• Establish Rules – Who to adjust? Limits on adjustment size? Poorperformers? Adjustment timing?

• Do adjustments resolve differences? Do they create new issues?

Consider Messaging of Adjustments

• Internal messaging? External messaging?

Identify and Remedy Pay Differences


How Are Courts Treating It?1. Identify comparable employees

• Consider what law applies and legal standards

2. Evaluate differences in pay• For large groups, statistical analysis (multiple regression) may

be necessary

3. Determine whether differences are based on job-related factors• What is the root cause of the difference?

• Consider jurisdictionally approved reasons for differences

4. Make “equity” adjustments• Start reserving annual budget for equity

Pay Analysis Strategy


How Are Courts Treating It? Review Your Policies & Practices

• Compensation Philosophy

• Starting Pay Practices

• Performance Review Policy

• Leave Policies (especially parental leave and disability leave)

• Pay Transparency / Non-Retaliation Policies

- Required Disclosure in Job Postings? Upon Request?

Evaluate Opportunities for Manager Discretion

• Discretion is single greatest source of legal risk!

Implement EEO Training

Stop Differences from Occurring


How Are Courts Treating It? Don’t Base Starting Salary on Prior Salary

• If you have to, focus on salary expectations

Separate Starting Pay Decisions from Hiring Decisions

• Removing emotion and investment in candidate from startingpay can lead to more equitable decisions

• Will likely lose some good candidates because they require payoutside of system

Salary History


Example: “Traditional” Pay Approach

Richard and Sally are hired as Analysts

“Traditional” Pay Approach

• Richard: $52,000

• Sally: $43,160 (83%)

- Merit increases 3%


$0

$10,000

$20,000

$30,000

$40,000

$50,000

$60,000

$70,000

$80,000

$90,000

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15

3% Annual Merit Increase

Richard

$

$

$8,840



$0

$10,000

$20,000

$30,000

$40,000

$50,000

$60,000

$70,000

$80,000

$90,000

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15

3% Annual Merit Increase

Richard Sally

$

$

$13,371

$8,840



Example: “Performance” Pay Approach

“Performance” Pay Approach

• Richard: $52,000

• Sally: $43,160 (83%)

• Analyst Market Reference Point: $60,000

- Merit increases depend on compa ratio and performance

Richard performance: Meets

Sally performance: Meets

COMPA RATIO

MEETS

<80% 6.0%

80%-85% 4.0%

85%-90% 3.0%

90%-95% 2.0%

95%-100% 1.0%

100%-105% 0.5%

105%-110% 0.5%

110%-115% 0.5%

>115% 0.5%


$0

$10,000

$20,000

$30,000

$40,000

$50,000

$60,000

$70,000

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15

Merit Increase Depends On Compa Ratio & PerformanceBoth Employees Receive “Meets” Each Year

Richard

$

$



COMPA RATIO

MEETS

<80% 6.0%

80%-85% 4.0%

85%-90% 3.0%

90%-95% 2.0%

95%-100% 1.0%

100%-105% 0.5%

105%-110% 0.5%

110%-115% 0.5%

>115% 0.5%

$0

$10,000

$20,000

$30,000

$40,000

$50,000

$60,000

$70,000

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15

Merit Increase Depends On Compa Ratio & PerformanceBoth Employees Receive “Meets” Each Year

Richard Sally

$

$

Year 10



COMPA RATIO

MEETS

<80% 6.0%

80%-85% 4.0%

85%-90% 3.0%

90%-95% 2.0%

95%-100% 1.0%

100%-105% 0.5%

105%-110% 0.5%

110%-115% 0.5%

>115% 0.5%


“Performance” Pay Approach

• Richard: $52,000

• Sally: $43,160 (83%)

• Analyst Market Reference Point: $60,000

- Merit increases depend on compa ratio and performance

Richard performance: Meets

Sally performance: Exceeds

COMPA RATIO

MEETS EXCEEDS

<80% 6.0% 6.0%

80%-85% 4.0% 6.0%

85%-90% 3.0% 6.0%

90%-95% 2.0% 6.0%

95%-100% 1.0% 6.0%

100%-105% 0.5% 3.0%

105%-110% 0.5% 2.0%

110%-115% 0.5% 1.0%

>115% 0.5% 0.5%


$0.00

$10,000.00

$20,000.00

$30,000.00

$40,000.00

$50,000.00

$60,000.00

$70,000.00

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15

Merit Increase Depends On Compa Ratio & PerformanceRichard Receives “Meets” & Sally Receives “Exceeds”

Richard

$

$



COMPA RATIO

MEETS EXCEEDS

<80% 6.0% 6.0%

80%-85% 4.0% 6.0%

85%-90% 3.0% 6.0%

90%-95% 2.0% 6.0%

95%-100% 1.0% 6.0%

100%-105% 0.5% 3.0%

105%-110% 0.5% 2.0%

110%-115% 0.5% 1.0%

>115% 0.5% 0.5%

$0.00

$10,000.00

$20,000.00

$30,000.00

$40,000.00

$50,000.00

$60,000.00

$70,000.00

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15

Merit Increase Depends On Compa Ratio & PerformanceRichard Receives “Meets” & Sally Receives “Exceeds”

Richard Sally

$

$

Year 6



COMPA RATIO

MEETS EXCEEDS

<80% 6.0% 6.0%

80%-85% 4.0% 6.0%

85%-90% 3.0% 6.0%

90%-95% 2.0% 6.0%

95%-100% 1.0% 6.0%

100%-105% 0.5% 3.0%

105%-110% 0.5% 2.0%

110%-115% 0.5% 1.0%

>115% 0.5% 0.5%

Ninth Circuit rejected use of prior salary as a permissible “factor other thansex”

• “We conclude, unhesitatingly, that ‘any other factor other than sex’ is limited tolegitimate, job-related factors such as a prospective employee’s experience,educational background, ability or prior job performance.”Rizo v. Yovino, 887 F.3d 453 (9th Cir., Apr. 9, 2018)

• Supreme Court vacated (Feb. 25, 2019), remanded to 9th Circuit due to death ofNinth Circuit judge

Tenth and Eleventh Circuits prohibit use of prior pay alone to explaincompensation

Eighth Circuit permits use of prior pay under close scrutiny

Second Circuit permits use of prior pay to explain compensation, butemployer must prove a “bona fide business-related reason exists” for thewage differential

Seventh Circuit has held prior salary is always a permissible “factor otherthan sex” to explain pay differences

Use of Prior Salary as “Factor Other Than Sex”


How Are Courts Treating It? Adopt mindset to “pay for jobs, not people”

• Understand the anticipated pay for each role

Involve multiple managers and Compensation Departmentwhen making pay decisions

• Removes bias, limits impact of discretion

• OFCCP’s Directive 307 identified “best practices” to reduceimproper impact of performance reviews to include:

- Rating criteria that have been confirmed to be job-related,

- Raters who are trained and participate in calibration sessions,

- Using multiple raters,

- Ensuring higher level review of ratings,

- Performing an analysis of ratings by race, sex, and ethnicity is done, and

- Establishing an appeals process

Best Practices


Consider internal peer equity when setting pay &evaluating performance

• Understand skills, efforts, and responsibilities of roles

Document reasons for pay decisions

• Particularly if out of the ordinary

Best Practices


state pay equity compliance for employers: closing the pay...

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