The new Massachusetts Equal Pay Act goes into effect on July 1, 2018. The basic concept of the statute is that you cannot pay employees differently based on gender. You are busy running your business, but don't ignore this statute. You could face lawsuits that result in high damages awards and an award of the plaintiffs' attorneys' fees and litigation costs. There are attorneys who will be actively targeting your company to find violations. The statute will be irresistible because any employee will be able to show a prima facie case if he or she is paid less than employees of another gender for comparable work. The statute is unclear on the employee's burden of proof, but it may fall to the employer to justify any discrepancies in pay.
In my opinion, while the statute is generally well crafted and has laudable goals, there are going to be some unintended consequences that will interfere with an employer's legitimate business judgment. It doesn't even matter if you did not knowingly violate the statute because it is a “strict liability” statute. The statute is tricky because you cannot necessarily pay an employee more who has a higher skill level. You cannot necessarily pay an employee more because the employee commands a higher salary on the open market. If you have a few outlier employees who have high earnings on your payroll, you cannot lower their compensation to bring your company into compliance with the statute. You will either have to pay other employees performing comparable work at the same rate (unless you can justify the higher rates based on a specific factor in the statute), or you will have to fire your highly paid outliers.
You also cannot rely on a contract. Even a shareholder, minority owner/LLC Member with a specific contract, operating agreement or shareholder agreement could have a claim under the statute even if he or she expressly agreed to the compensation. Under the express language of the statute, it would not matter if that person contributed less initial equity to the corporation or LLC, because that is not a specific factor in the statute that can justify a discrepancy.
I recently attended a continuing legal education course on the new statute, Mass. Gen. Laws c. 149, §105A. A representative of the Attorney General's Office spoke at the seminar, so I have a pretty good idea of what the AGO will focus on. The AGO has released some thorough and well-drafted guidelines for employers, including guidelines for performing self-evaluations (discussed below). The AGO is not out "to get" employers, but it does want to eradicate gender-based pay discrepancies. There are ways to reduce your risks under the statute, but you need to act very soon. The four big takeaways are: (1) transparency; (2) salary history ban; (3) comparable work; and (4) self-evaluation.
Transparency simply means that employees cannot be prohibited from discussing salary. You may want to check all your policies and contracts to make sure that there is nothing that prevents employees from discussing wages (limited exception for HR or managers who have access to other's compensation). Consider even putting out a new policy when the statute takes effect.
Salary history is another target of the Massachusetts Equal Pay Act. Not only can you not ask about it, you can't use salary history to justify unequal pay. It is potentially even dangerous to ask about salary expectations unless you are just using the expectations to see if they are in the ballpark. The thought is that women workers are not as aggressive at negotiating. You can't base salaries on negotiating skill.
Employees can volunteer salary history. Also, employers can seek to confirm salary history after making an offer (although there does not seem to be much of a legitimate reason to do so). You can also ask about an employee's sales volume at a previous employer, but not the earnings from such sales.
Comparable work is another key concept that I expect will be hotly litigated. The basic idea is not simply “equal pay for equal work;” it is “equal pay for comparable work.” One mistake that employers may make is to not compare employees in various divisions. Also, the nature of the work, not the job title, will control. If a worker of one gender is earning less for comparable, you must justify it by one of the specific, limited reasons in the statute.
Self-evaluation. This is a peculiar statute in that it gives employers a chance to carefully evaluate their payrolls to see if there is any gender discrepancies (this is likely because the statute is so potentially dangerous and burdensome). If you make a real effort to do this and to fix discrepancies, you can get a lot of protections against damages claims. Really, even without the protections, every employer should self-evaluate so as to comply with the statute. The existence of the protections makes it a no-brainer. That doesn't mean that there are no risks to a self-evaluation. There are. The self-evaluation could be used against you for alleged violations of federal statutes.
But many employers may conclude that they should still perform the self-evaluation. A lawyer, accountant or another professional can help you with this. Smart, proactive companies are already starting their self-evaluations in an effort to protect their companies from what could be a tide of new lawsuits.
This post merely scratches the surface of this important new statute and how an employer should protect itself. As always, this post is not legal advice.
By Adam P. Whitney, Esq.