EEOC Targets Equal Pay

Contributed by Jon Hoag

The EEOC has identified enforcement of the Equal Pay Act as a top priority in its strategic enforcement plan for fiscal years 2013 – 2016.  Importantly, the EEOC has authority to request employer compensation information and launch an investigation without receiving a charge from an individual.  The Commission is currently initiating such audits through a pilot project.  Illinois employers beware that the pilot project includes the Chicago office.  While preliminary reports about this pilot project indicate that the audits are “non-adversarial”, employers should be prepared for increased scrutiny regarding wage data and compensation plans in the coming years.

The EEOC has cautioned that “broad band” compensation systems might create difficulties for employers to explain the differentiating factors attributable to the gaps in pay.  Many employers adopted broad banding due to the performance management advantages, but this form of compensation might make it more difficult for employers to defend against equal pay claims.  Employers can defend against equal pay claims by establishing that the pay is set by:  1.) a seniority system; 2.) a merit system; 3.) by quantity or quality of production; or 4.) any other factor other than sex.  A broad banding system groups a large number of employees together in a “band” that covers a very large pay range, which makes it more difficult to objectively justify large differences in pay.

A common employer defense to pay disparity claims is that the difference in pay results from the market conditions.  In other words, the higher starting salary was required to successfully recruit the employee.  Generally, courts have decided that differences in education and experience are legitimate reasons for variance in starting salaries, but courts have specifically noted that the expectation is that the pay gaps converge over time for men and women that are equally good at doing the job. 

The Equal Pay Act is certain to receive increased attention in the next few years.  Employers should conduct a compensation analysis now to be sure that any glaring pay gaps (including all forms of compensation) for “equal work” can be justified on a basis other than sex.  We expect the term “equal work” to be further litigated in the future, but for now the term has been interpreted to mean that the jobs are substantially equal in the required skill, effort, responsibility, and working conditions.