Massachusetts Pay Equity Act – Prepare Now or Pay Later

December 1, 2016

On August 1, 2016, Massachusetts Governor Charlie Baker signed into law An Act to Establish Pay Equity, sweeping legislation that protects the rights of female employees to be paid the same wage for the same work as their male counterparts, and vice-versa, but also greatly expands the liability that employers might face. In order to temper this vast potential liability while still achieving the Act’s goals, the Act does not take effect until January 1, 2018. Thus, employers have more than a year remaining to review their policies and practices to ensure compliance with the new law and to take advantage of substantial shields to liability that it provides. Moreover, the Act provides for an affirmative defense for proactive employers who make a reasonable assessment of current practices and take good faith efforts to address any pay disparities.

Equal pay laws are nothing new in Massachusetts, as the Commonwealth has long required that men and women receive equal pay for comparable work. The new Act, however, expands the definition of “comparable work,” provides additional requirements employers must meet, and lowers the procedural bar for bringing lawsuits while increasing employers’ potential liability. In a nutshell, the law has expanded liability, increased potential damages, and made class-based lawsuits easier to bring. If ever there was a recipe for increased litigation in a particular field, that is the recipe.

What Protections Does the Act Provide?

Equal Pay for Equal Work

The central protection afforded by the Act is that “No employer shall discriminate in any way on the basis of gender in the payment of wages, including benefits or other compensation, or pay any person a salary or wage rate less than the rates paid to employees of a different gender for comparable work.” There are two key words or phrases in this sentence. The first is “or,” the second is “comparable work.”

By using the disjunctive word “or,” the Act prohibits both overt discrimination in pay and, more importantly, pay inequality for any reason other than those expressly allowed by the Act. Thus, it is unnecessary for inequality in pay between genders to be the result of discriminatory intent. If pay inequality exists, and is not permissible as set forth in the Act, a violation has occurred and the employer is liable.

The second phrase, “comparable work,” is defined in the statute to mean: “work that is substantially similar in that it requires substantially similar skill, effort and responsibility and is performed under similar working conditions; provided, however, that a job title or job description alone shall not determine comparability.” The Act further defines “working conditions” to include: “the circumstances customarily taken into consideration in setting salary or wages, including, but not limited to, reasonable shift differentials, physical surroundings and hazards encountered by employees performing a job.” Thus, under these definitions, a manager could be paid more than a line worker, a night-shift nurse could be paid more than a day-shift nurse, and a carpenter working outside in the elements could be paid more than a carpenter who works inside.

The law does, however, allow for variations in wages between individuals who perform comparable work if those variations are based upon one or more of the following: (1) a bona fide system that rewards seniority with the employer; provided, however, that time spent on leave due to a pregnancy-related condition and protected parental, family and medical leave, shall not reduce seniority; (2) a bona fide merit system; (3) a bona fide system which measures earnings by quantity or quality of production or sales; (4) the geographic location in which a job is performed; (5) education, training or experience to the extent such factors are reasonably related to the particular job in question and consistent with business necessity; or (6) travel, if the travel is a regular and necessary condition of the particular job.

The first three acceptable reasons for variations all require “bona fide systems.” The statute does not define what a bona fide system is; Attorney General regulations, which have yet to be published, may fill in that gap. Nonetheless, it is a safe assumption that, even if it is not required by the statute or the regulations, putting such a “bona fide system” in writing will strengthen an employer’s defense to a pay equity claim. Additionally, to the extent that an employer has maintained such policies in the past, a written description of those policies should be maintained, as it may help to justify existing variations in salary. Similarly, to the extent that the employer varies salary by geography, educational attainment, or travel requirements, those policies should also be memorialized in writing.

Finally, if an employer determines that there is a discrepancy in pay that cannot be justified based on the above reasons, it has only one choice to remedy the variation – increase the salary of the lesser-paid individual. The Act forbids employers from decreasing any individual’s wages to eliminate a pay disparity.

Employers Cannot Ask About Salary, but Employees Can Speak About It

Almost ironically, one of the most talked about elements of the new law is what employers and employees can and cannot say about employees’ current and historical salaries. First, employers can no longer ask in a job application or during the interview process the amount of the applicant’s compensation in his or her current or prior jobs. Similarly, prospective employers cannot request such information from a current or prior employer of the applicant. An employee, however, may provide a prospective employer with written authorization to confirm prior compensation but only after an offer of employment, including the amount of compensation, has been made to the prospective employee.

The objective of this requirement appears to be to eliminate to the greatest extent possible the effect that current disparities in compensation have on future employment.

The second requirement regarding compensation disclosure is that, in almost every case, employers cannot prohibit employees from discussing their wages or the wages of any other employee. The only exception to this ability to speak freely about compensation is that human resources employees, or other employees whose job responsibilities require access to employees’ compensation information, may be prohibited from disclosing such information without written consent from the affected employee.

Finally, to give these requirements teeth, the law prevents any form of retaliation against employees who oppose any practice made unlawful by the law or who discuss salary information as permitted by the law. The Act also requires that employers post notice of the provisions of the Act in a conspicuous place.

Low Procedural Hurdles to Enforcement Against Employers.

In addition to providing employees with additional substantive protections, the Act also makes it easier, and in many ways more profitable, for employees to bring suit against their employers. The Act appears to treat pay inequity in much the same way as the laws treat a failure to pay wages, rather than a discrimination issue. This conclusion is drawn from parallels that exist between the Act’s enforcement mechanisms and the relatively low procedural thresholds associated with claims brought under the FLSA.

First, the Act does away with the requirement that a plaintiff first file a charge with the Massachusetts Commission Against Discrimination. Rather, a plaintiff may proceed directly to court with any claims he or she may have.

Second, the statute of limitations has been extended to three years, and the Act expressly adopts the continuing violation theory. Thus, every time disparate wages are paid, a new violation occurs, and the statute restarts.

Third, the Act provides that employees who establish a violation of it are automatically entitled to double damages, as well as attorneys’ fees.

Finally, the Act allows a plaintiff to bring an action on his or her behalf, as well as on behalf of all “similarly situated” employees. Again, this language was imported from the FLSA. Courts have interpreted this language in the FLSA context to provide for a class-action type mechanism, but with a much lower standard to determine whether the action is suitable for class treatment, at least during the early stages of a case. Whether Massachusetts courts adopt a similar approach to cases brought under the Act remains to be seen.

Thus, the Act lowers the hurdles to bringing suit by allowing them to be brought directly in court, allows for liability, multiple damages, and attorneys’ fees without the apparent need for proof of discriminatory intent, and provides an easy mechanism for bringing cases on a class-wide basis. It would be reasonable to assume that the plaintiffs’ bar is lining up to bring these cases.

What Steps Can You Take to Avoid Liability?

Despite this grim outlook for employers, all is not lost. Employers still have more than a year to prepare for the effects of the Act, and the Act provides for substantial protections for employers who take adequate steps to address pay inequity.

As an initial matter, the easiest adjustments to make likely concern issues surrounding privacy and disclosure of compensation information. Job applications should be amended to remove requests for salary information. Interviewers and recruiters, both internal and external, should be trained to understand that such information is off-limits during discussions with prospective employees. Employee handbooks and policies should be altered to state that employees can discuss salary information without fear of reprisal, and policies against retaliation should be updated to be consistent with this law. Finally, human resources and compensation and benefits personnel should sign agreements stating that they will not disclose other employees’ compensation information accept for legitimate business purposes or with an employee’s consent.

Employers should also review current criteria for determining rates of pay for employees in similar job classifications to determine whether they are consisted with the six criteria set forth in the Act. In addition, employers should determine the current ranges of salaries for certain positions to ensure that they are consistent with company policy and to ensure that new hires into similar positions are properly compensated.

Finally, that Act provides an affirmative defense to employers for disparate pay practices, if the employer makes an effort to audit its pay practices and address any perceived disparities. The Act provides little guidance regarding what type of self-audit employers should perform but merely states that the evaluation may be of the employer’s own design, so long as it is reasonable in detail and scope in light of the size of the employer. If such an evaluation reveals gender-based pay disparities, the employer must then take action to correct this disparity and be able to demonstrate that it made reasonable progress towards eliminating compensation differentials based on gender for comparable work. If the employer can meet this burden, it will be shielded from liability in a pay inequity case.

By using the word “reasonable” to describe both the detail and scope of the audit and the employer’s progress toward eliminating pay inequity, the Act leaves itself open to interpretation and litigation. To achieve more certainty, the Act also provides for audits that are “consistent with standard templates or forms issued by the attorney general.” To date, however, the Massachusetts Attorney General has not issued any such templates or forms. Because there is more than a year left before the Act goes into effect and no forms or templates are available from the Attorney General, it makes sense to hold off on performing such an audit until the early part of 2017. If the Attorney General issues such forms, they will provide a valuable tool to help comply with the statute, as following these templates should remove one of the issues that could provide fertile ground for litigation – whether an employer’s audit was reasonable in detail and scope.

Once such an audit is complete, it provides a defense to an action brought under the Act for the following three years. Thus, compliance does not end with the completion of the audit, and employers should determine a reliable means to ensure that similar audits are undertaken at least every three years going forward.

There is a high likelihood of litigation for Massachusetts employers under the Pay Equity Act. At the same time, the Act provides employers with powerful defenses to liability. Although employers do not yet have all of the tools necessary to ensure compliance, they should begin developing a plan for compliance today.