Conducting A Self-Evaluation of Pay Practices: An Affirmative Defense to Liability Under the New Massachusetts Pay Equity Law

The Massachusetts Act to Establish Pay Equity (“MEPA”) takes effect on July 1, 2018. The goal of the new law is to reduce pay differentials among men and women doing comparable work. The penalties for violating the new law include back wages, benefits and other compensation, and attorney’s fees. For an overview of MEPA, please see Part I of this two-part series on MEPA.

We are encouraging all of our Massachusetts clients to promptly conduct internal self-evaluations of their pay practices for two important reasons. First, an internal evaluation will uncover any gender-based pay discrepancies that should be remedied. Second, MEPA provides a complete affirmative defense to liability under MEPA if an employer conducts a good-faith, reasonable self-evaluation of its pay practices and makes reasonable progress towards eliminating any unlawful, gender-based pay disparities. Employers may take advantage of this affirmative defense for a three-year period following the evaluation, provided that it is conducted before any MEPA claims are filed against it.

Conducting a Self-Evaluation of Pay Practices

As we discussed in more detail in Part I of this two-part series on MEPA, we are recommending that our clients conduct an initial, attorney-client privileged pay equity self-evaluation followed by a non-privileged self-evaluation. A privileged evaluation is conducted by outside counsel to ensure that the evaluation and its initial findings are protected by the attorney-client privilege.

Either way, conducting a self-evaluation is a lengthy process, and we can help.  A self-evaluation will generally involve the following steps:

1. Design the audit. According to recent guidance issued by the Massachusetts Attorney General’s Office (“AGO”), the self-evaluation must be reasonable in scope and detail based on the specific circumstances, such as the nature of the position, number of employees, type of pay structure, and resources of the employer. 

2. Identify comparable jobs. Identifying whether jobs are comparable for purposes of MEPA may be one of the most challenging aspects of conducting an internal audit. Employers should create job groupings based on job titles and descriptions, but must also consider skill, effort, and responsibility required to perform the job. Jobs in different business units or departments may also be considered comparable unless they in fact require different skill, effort, and responsibility.

3. Gather initial data. Employers should gather data and other information from the past year, including permissible data that may explain any pay disparities.  At a minimum, this data will likely include the following:

• Employee Name/ID
• Gender
• Job Title
• Job grade or band (if applicable)
• Job duties
• Annualized salary or hourly rate (excluding commissions)
• Hours worked (separate regular and overtime)
• Part-time/Full-time status
• Additional compensation (bonus, shift differential, etc…)
• Performance ratings
• Seniority (date of hire/promotion)
• Quantitative measures of performance, such as production or sales
• Geographic location
• Highest level of education
• Special licenses, certifications
• Years of experience
• Frequency of travel

4. Calculate whether men and women are paid equally. Employers must ensure that they compare the pay of each male and female employee within the same comparable job grouping; they may not compare the pay of a female employee with the pay of an “average” male employee. Small to mid-size employers may take advantage of the simple Excel-based Pay Calculation Tool made available by the AGO. For larger employers, or employers who use complex pay structures, a more detailed statistical analysis likely will be necessary. When a detailed statistical analysis is required due to the complexities involved, employers may want to consider hiring an outside consultant to perform the self-evaluation for purposes of efficiency, credibility (an independent neutral analysis offers a more unbiased viewpoint) and expertise.

5. Identify legitimate explanations for any pay disparities. If the evaluation reveals pay disparities, the employer must then determine whether there are any legitimate factors unrelated to gender that may explain and justify the pay disparities. Importantly, an employee’s previous compensation history cannot be used as a defense to a claim of failing to provide equal pay for comparable work. However, the new law may permit a pay disparity if it fits into one of the following six exceptions:

• A seniority system
• A merit system
• A system which measures earnings by quantity or quality of production, sales, or revenue
• Geography in which a job is performed
• Education, training, or experience to the extent reasonably related to the particular job
• Travel, if a regular and necessary condition of the particular job

Whether a factor constitutes a legitimate justification for a pay differential will depend on, among other things, the nature of the business, the particular position, and the particular employee’s background and current performance level. For example, an employer may be justified in paying more to a more experienced employee or to an objectively better-performing employee.

6. Take steps to correct any unexplained pay disparities. If the evaluation discovers a trend indicating that men and women are being paid differently regardless of an examination of the six legitimate exceptions, employers should implement a remedial plan within six months. 

Increasing pay is the obvious and immediate solution to unexplained pay disparities, although other remedial options may include appropriate promotions; reorganizing job responsibilities to ensure equal pay for equivalent work; analyzing hiring and promotional practices for gender bias; and implementing pay policies and performance review procedures. Importantly, employers may not eliminate a disparity by reducing an employee’s pay.

In addition, employers should attempt to determine the reasons for any unexplained differentials and whether they result from hiring manager discretion, starting salaries, or raises over time. Employers can then take steps to eliminate these aspects of the hiring process and instead implement objective standards for setting starting salaries, receiving raises, and other adjustments. We can provide policies and templates to ensure that future salary decisions (whether hiring or promotion-related) are properly documented and based on objective and measured criteria. 

Conclusion 

Under MEPA, there is sure to be an increase in pay discrimination litigation in Massachusetts. Conducting a prompt and appropriate self-evaluation of pay practices now, and taking reasonable steps to eliminate any unexplained pay disparities, may provide employers with an affirmative defense to potential liability under the new law. Importantly, even if a self-evaluation is not deemed to be “reasonable in detail and scope,” but meets the other requirements of MEPA, an employer may enjoy a partial defense and may not be liable for double damages. Therefore, we recommend that employers conduct a self-evaluation as soon as possible. Thereafter, we recommend that employers conduct privileged pay self-evaluation on an annual basis.

If you are a Massachusetts employer and have not already taken steps to conduct your internal pay equity evaluation in preparation for MEPA, you should do so immediately. Please contact Jackie Piscitello ([email protected]) or Gina Wodarski ([email protected]) if you require assistance with developing a new pay equity policy, pay determination templates, amending your current policies, or to otherwise perform a self-evaluation to ensure compliance with the MEPA.