Category Archives: Salary and Wage

Supreme Court May Decide Whether the Equal Pay Act Allows Employers to Consider Prior Salary in Setting Current Salary

Contributed by Allison P. Sues, January 14, 2019  

wage gap concept with blue figure symbolizing men and red pawn women

The Supreme Court may soon answer a question that divides federal courts: may an employer consider an employee’s salary history when setting pay without violating the Equal Pay Act (EPA)? The EPA prohibits employers from paying wages to employees of one sex less than employees of the other sex for equal work. The EPA holds employers strictly liable for differential pay, regardless of whether the employer had a discriminatory intent, unless the employer can show the difference in pay is based on a seniority system, merit system, quality or quantity of production measurements, or a fourth catchall factor.  Federal courts question whether the fourth catchall factor – “a differential based on any other factor other than sex” – allows an employer to set pay based on an employee’s salary history.

The Supreme Court recently announced it will, for the third time, consider a petition for review of the Ninth Circuit’s decision in Rizo v. Yovino, which signals that the Court may take up the case.  In Rizo, the Ninth Circuit held that an employer cannot consider prior salary in setting an employee’s current salary without running afoul of the EPA. Referring to the gender pay gap as an “embarrassing reality of our economy,” the Court noted that allowing employers to refer to prior salaries enabled the marketplace to perpetuate the gender-based wage differential that fueled the enactment of the EPA in the first place. The Court then clarified the meaning of the fourth catchall exception in the EPA, holding that “‘any other factor other than sex’ is limited to legitimate, job-related factors such as a prospective employee’s experience, educational background, ability, or prior job performance.” 

Should the Supreme Court agree to hear the Rizo appeal, the Court’s ruling would offer some much-needed clarity for the various and conflicting opinions of the federal appeals courts on this issue.  For example, while the Eleventh Circuit has held, similar to the Ninth Circuit, that the catchall exception is limited to “job-related factors,” the Second Circuit has held that this same provision applies to an arguably broader category identified as “business-related reasons.” Taking still another approach, the Seventh Circuit has held that employers may consider prior salary history in setting current pay.  In Wernsing v. Department of Human Services, the Seventh Circuit rejected the argument that basing current salaries on prior salaries inherently perpetuates discrimination. While the court conceded that, empirically, women are paid less than men, the court held that it cannot be assumed that a pay differential is the result of discrimination. Instead, plaintiffs must prove the disparity is based on sex for the specific market at issue. 

While courts grapple with whether the EPA prohibits considering prior salaries, many legislatures are addressing the issue from another angle.  Several states (including California, Massachusetts, Delaware, and Oregon) and cities (including New York City, Philadelphia, and New Orleans) have enacted legislation prohibiting employers from asking employees about their prior salaries in an attempt to ameliorate the gender pay gap. Should the Supreme Court review and affirm Rizo, all employers would be well-advised to follow the lead of these states and cities, and refrain from collecting applicants’ salary histories. Stay tuned as we will continue to provide updates as new information on this area of the law emerges.

The Holidays are coming… Make sure you have addressed your wage and hour compliance

Contributed by Sara Zorich, December 20, 2018

Around the holiday season, many employees take time off and businesses close down. Additionally, some businesses pay out bonuses to employees around the holiday season. All of these scenarios can impact overtime pay for non-exempt employees.

CLOSURE OF BUSINESS

Non-Exempt Employees

Non-exempt employees generally (exceptions follow) only need to be paid for hours they actually work – and not for holidays or weather-related office closings and are entitled to overtime for hours worked over 40 in a workweek. For example:

  1. Non-exempt employees do not need to be paid for New Year’s Day if they are given the day off.
  2. If the business is closed during inclement weather (e.g., snow days, burst pipes), non-exempt employees do not need to be paid when the business is closed and they are not working.
  3. If employees report to work and are sent home early (e.g., due to imminent ice storm), then non-exempt employees only need to be paid for the hours they worked, and not for the time that they were sent home early and are not working.

Where non-exempt employees perform work on a holiday (federal, state, etc.), they only need to be paid overtime (time-and-a-half) if they have worked over 40 hours in the workweek (or 8 hours in a day in some states):  For example: An employee who works New Year’s Eve and New Year’s Day does not receive a shift premium (sometimes referred to as “overtime”) merely by virtue of working a holiday, unless the employee has actually worked more than 40 hours – in which case, overtime is paid only for those hours worked over 40 in the week.

Exceptions: Various state wage laws, employer policies (e.g., employee handbooks) and other contracts may obligate an employer to pay employees for certain holidays or business closings, and even pay shift premiums for working on holidays. Further, an employer policy may state that the holiday is counted as “hours worked” for overtime purposes. Make sure to review your policies carefully when administering payroll for holidays and closure.

Exempt Employees

Exempt employees are those who are not covered by the FLSA’s overtime requirements. When paid on a salary basis, these employees’ salaries may not be reduced in any week in which they work, except for limited circumstances (e.g., the employee’s personal absence not for sickness or disability, first/last week of employment). These exceptions do not permit an employer to reduce a salaried, exempt employee’s wages for holiday or inclement weather closures. Thus, these employees must be paid their regular, full salary, even though the business is closed for a holiday or due to weather (assuming the weather closure was for less than a week).

BONUSES

Employers must be careful when paying out bonuses at the end of the year to non-exempt employees. As with other bonuses, a holiday bonus must be included in overtime calculations for nonexempt employees unless it is completely discretionary or is a gift. If a bonus is promised or expected or is dependent on the quality, quantity or efficiency of production or hours worked, it must be included in the regular rate used for determining overtime pay. This becomes even more complicated at the end of the year. For example, if on January 1, the company promised a bonus if the production department made 10,000 widgets by December 15, 2018. If the production department achieved this goal and each non-exempt employee was paid a $100 bonus, that bonus would have to be allocated over the applicable period (50 weeks from 1/1 – 12/15). Then each non-exempt employee would become entitled to additional overtime for each week they worked overtime during that entire 50 week period based on the fact that the$100 bonus payment increased their regular rate and therefore the applicable overtime rate. 

Bottom Line: Employers need to be cognizant of how holiday closures and bonuses may impact their overtime requirements for non-exempt employees.

Changes in the Air – Employers Considering Prior Salary When Setting Wages Need to Know the Applicable Laws

Contributed by Michael Wong, April 18, 2018

The Equal Pay Act can create significant exposure for employers, if not considered when setting female employees’ wages – especially if you are relying upon a female applicant’s prior salary history and there is a difference in the pay of similar male employees.

33186296 - wage gap concept with blue figure symbolizing men and red pawn women

Wage gap concept with blue figure symbolizing men and red symbolizing women

The Equal Pay Act is dangerous for employers because plaintiffs are not required to prove discriminatory intent by the employer. All a plaintiff must show is that there is a wage disparity for equal work requiring the same skill, effort and responsibility, which is performed under similar working conditions. Once a plaintiff establishes that, the burden shifts to an employer to establish that the difference is based on one of the following four statutory exceptions:

  • a seniority system;
  • a merit system;
  • a system which measures earnings by quantity or quality of production; or
  • a differential based on any other factor other than sex.

Historically, the Equal Employment Opportunity Commission (EEOC) and the federal Appellate Courts for the Second (Connecticut, New York and Vermont), Eighth (Arkansas, Iowa, Minnesota, Missouri, Nebraska, South Dakota and North Dakota), Tenth (Colorado, Kansas, New Mexico, Oklahoma, Utah and Wyoming) and Eleventh (Alabama, Florida, and Georgia) Circuits have taken the position that employers may consider prior salary as a mix of factors to set female employee wages without violating the Equal Pay Act – but prior salary cannot be the sole factor for any wage differential with a male employee in a similar role. On the other hand, the Seventh Circuit (Illinois, Indiana and Wisconsin) has held that using prior salary alone is a basis other than sex for wage differential that does not violate the Equal Pay Act.

Recently, the U.S. Court of Appeals for the Ninth Circuit (California, Alaska, Arizona, Hawaii, Idaho, Montana, Nevada, Oregon and Washington) took its prior decisions a step farther by finding that prior salary does not fit within the exception of a factor other than sex because it is not a legitimate measure of work experience, ability, performance, or any other job-related quality. In doing so, the Ninth Circuit held that allowing employers to consider prior salary would simply continue the gender-based assumptions and discrimination that the Equal Pay Act was intended to stop.

This recent decision falls in line with the increasing number of state and local laws being passed that prohibit employers from asking applicants for prior salary information. States and cities/municipalities that currently have laws prohibiting employers from requesting/considering prior salary information include the following:

  • California (all employers)
  • Massachusetts (all employers)
  • Oregon (all employers)
  • Delaware (all employers)
  • New York (state employers)
  • New Jersey (public employers)
  • Puerto Rico (all employers)
  • San Francisco (all employers)
  • New Orleans (city positions)
  • New York City (all employers)
  • Albany County, New York (all employers)
  • Philadelphia (all employers – currently subject to legal challenge)
  • Pittsburgh (city positions).

With these changes you need to be aware of the laws impacting your operations and if you want to request and/or consider prior salary history when setting wages. If you are not sure, seek legal counsel in reviewing your employment practices.

 

Breaking News! Illinois Senate Refuses to Override Governor’s Veto

Inquiry into Illinois Applicant’s Salary Inquiry Remains Lawful – For Now.

Contributed by Noah A. Frank, November 9, 2017

gavelWe previously reported that Governor Rauner’s August 25, 2017 veto of HB 2462 amending the Illinois Equal Pay Act related to applicant salary history inquiries was subject to be overridden by the General Assembly.  On October 25, 2017, as predicted, the Illinois House voted to override the veto by a vote of 80-33 (less than the initial vote of 91-24 to pass the bill).  On November 9, 2017, the Illinois Senate voted against overriding the veto.  While 29 senators favored overriding the veto, they were seven short of the 36 required to override the veto (and still less than the original 35 to vote to pass the bill).

The battle is not over. 

In his veto, Governor Rauner suggested that the General Assembly adopt legislation similar to another state’s law.  As such, employers should expect legislation in 2018 in line with this new national trend, and prepare to revise job applications and interview questions accordingly.  We will keep you abreast of future Illinois and national developments.

UPDATED: California Bans Applicant Salary History Inquiries

Contributed by Noah A. Frank, November 8, 2017

Add salary history to the growing list of topics that may be off limits on employment applications and during interviews, depending on where your business operates.

32420632 - law gavel on a stack of american moneyCalifornia joins a growing list of jurisdictions banning salary history inquiries. On October 12, 2017, California Governor Brown signed Assembly Bill 168, which prohibits employers from seeking or relying upon applicants’ salary history and using such information as the basis for establishing compensation. The new law takes effect on January 1, 2018.

Like ban-the-box legislation (banning inquiries into criminal conviction history) and sick leave ordinances, this is likely the start of a national trend enacted on a jurisdiction-by-jurisdiction piecemeal basis.  California joins Massachusetts, Oregon, and Delaware, along with several municipalities, such as New York City, Philadelphia, Pittsburgh, and U.S. territory Puerto Rico, to enact such legislation in an emerging national trend.  Indeed, since we reported on Illinois’s forestalled HB1462 amending the Equal Pay Act in September, the Illinois House has overridden the governor’s veto, and the bill is on its way to the Illinois Senate for similar consideration.

The Basics

Like the other jurisdictions’ laws, California’s legislation is meant to remedy past gender-based compensation discrimination.  However, given the broad language, this bill will apply to all protected classes such as (and not limited to) race, religion, military status. Under AB-168, all employers in the state of California:

  1. May not inquire directly or indirectly into an applicant’s compensation and benefits (unless publicly available as provided by other laws).
  2. May not rely on salary history as a factor in determining whether to offer employment to an applicant or what salary to offer an applicant.
  3. Must provide the pay scale for the position to an applicant applying for employment “upon reasonable request.”  Note that this is a fairly unique provision in California’s law (at least for now).
  4. May not allow prior salary alone to justify any disparity in compensation.

Notably, if an applicant “voluntarily and without prompting discloses” compensation history, the employer may then consider it as a factor in determining the salary to offer an applicant.

Compliance Made Easy

In light of these trends in the workplace, employers must ensure that they are compliant with new and emerging laws as enacted, and to also perform routine audits – including employment forms, handbooks, policies, and templates.  As it relates to these salary inquiry laws, employers should (1) ensure job applications are compliant and do not include salary/wage inquiries, and (2) review interview questions, especially “scripts” used by management, and ensure that those conducting interviews are aware of the new unlawful inquiry.

What’s the Bottom Line on Salary History Inquiry Bans? Don’t Ask.

You may not ask applicants “how much do you currently make?” But you may ask: “how much would you like to earn in this position?” or “What are your compensation expectations?” or other similar future-oriented inquiries.

Salary History Inquiry Bill Down But Far From Out

Contributed by Noah A. Frank, September 19, 2017

wage

On June 28, 2017, HB 2462, an amendment to the Illinois Equal Pay Act, passed both chambers of Illinois General Assembly. The bill would have made an employer’s inquiry into an applicants’ wage, benefits, and other compensation history an unlawful form of discrimination. Even worse for Illinois employers, the bill would allow for compensatory damages, special damages of up to $10,000, injunctive relief, and attorney fees through a private cause of action with a five (5) year statute of limitations.

On August 25, 2017, Governor Rauner vetoed the bill with a special message to the legislature that, while the gender wage gap must be eliminated, Illinois’ new law should be modeled after Massachusetts’s “best-in-the-country” law on the topic, and that he would support a bill that more closely resembled Massachusetts’ law.

The bill, which passed 91 to 24 in the House, and 35 to 18 in the Senate, could be reintroduced as new or amended legislation following the Governor’s statement, or the General Assembly could override the veto (71 votes are needed in the House, and 36 in the Senate, so this is possible) with the current language.

Why is this important?

With the Trump Administration, we have seen an increase in local regulation of labor and employment law. This means that employers located in multiple states, counties, and cities must carefully pay attention to the various laws impacting their workforces. Examples of this type of “piecemeal legislation” we have already seen in Illinois and across the country include local ordinances impacting minimum wage, paid sick leave, and other mandated leaves. Additionally, laws that go into effect in other jurisdictions may foreshadow changes at home as well (e.g., Illinois’s governor pointing towards Massachusetts’s exemplary statue).

Had it become law, this amendment would have effective required employers to keep applications and interview records (even for those they did not hire) for five years to comply with the statute of limitations for an unlawful wage inquiry (the Illinois Equal Pay Act already imposes a five year status of limitations for other discriminatory pay practices). By contrast, under Federal law, application records must be kept for only one year from the date of making the record or the personnel action involved (2 years for educational institutions and state and local governments).

What do you do now?

While the law has not gone into effect as of the date of this blog, it is likely that some form of the salary history amendment will ultimately become law in Illinois. Businesses should carefully review their job applications, interview questions, and related policies to avoid inquiries that may lead to challenges in the hiring process.

Additionally, record retention (and destruction!) policies should be reviewed for compliance with these and other statutes – as well as to ensure data integrity and security.

Finally, seek the advice of experienced employment counsel for best practices in light of national trends to remain proactive with an ounce of prevention

IMPORTANT DOL UPDATE: The Final Rule on Doubling White Collar Salaries Is Shot Down By Texas Judge

Contributed by Heather Bailey, September 6, 2017

31096470 - concept of time with businessman that hold an alarm clock

Concept of time with businessman holding a clock

Previously, we reported to you on the U.S. Department of Labor’s (“DOL”) Final Rule that raised the minimum salary threshold required to qualify for the Fair Labor Standards Act’s (“FLSA”) “white-collar” exemptions (executive, professional and administrative classification) from $455 per week ($23,660 annually) to $913 per week ($47,476 annually) as of December 1, 2016 (see our prior articles: U.S. DOL Publishes Final Overtime Rule and; Are you ready for December 1st? The FLSA Salary Changes Are Almost Here).

The Obama administration’s goal with this Final Rule, announced on 5/23/2016, was to give approximately 4 million workers the ability to earn overtime pay, instead of getting paid a fixed salary since many employers would not be able to afford to pay their otherwise exempt employees $47,476 annually. Implementation of this new rule had been temporarily stalled in a federal court in Texas just prior to it going into effect this past December 1st (see our prior articles: Court Enjoins DOL Overtime Rule and; Business Realities Under the Halted DOL Final Overtime Rule).

However, on August 31, 2017, Judge Amos L. Mazzant of the United States District Court, Eastern District of Texas answered many business owners’ prayers by ruling the DOL indeed exceeded its authority by more than doubling the minimum salary threshold for exempting white-collar employees (see the full case here).

The judge did not say the DOL could not raise the minimum salary at all. Rather, relying heavily on Chevron, USA, Inc. v. Nat. Res. Def. Council, Inc., 467 U.S. 837 (1984), the judge stated that by more than doubling the current minimum threshold, the DOL effectively eliminated the need for looking to the employees’ actual duties and responsibilities—which was the essence of Congress’s intent when it created the FLSA white collar exemptions. The judge looked to the plain meaning of what it means to work in an executive, administrative and professional capacity concluding the primary focus was not the salary minimum but instead the actual duties and responsibilities.

What are the ramifications? The Department of Justice voluntarily dismissed its appeal of Judge Mazzant’s earlier preliminary injunction ruling putting the Final Rule on hold, so it seems unlikely it will appeal this ruling. However, this decision could catapult the Trump administration to issue a new rule providing for a more moderate increase in the minimum salary threshold – one that does not vitiate the primary focus of the “white collar” overtime exemptions: the employees’ actual duties and responsibilities.

Practice Tips:

  • The good news for now is that employers can continue to follow the previous DOL regulations for white collar exemptions (i.e., duties test and salary test).
  • If you did not do so previously, analyze your exempt positions to confirm they meet the duties test and are truly exempt positions. For example, is your manager truly a manager or is she really a lead worker? Is this manager hiring, firing and disciplining two or more employees?  Is your payroll clerk clearly just doing data entry or is he exercising independent discretion and judgment?  If the position does not meet the duties test, you transitioning the position to make it overtime eligible.
  • Ensure management is trained to enforce policies related to overtime pay such as those relating to working time, time clock procedures, meal and rest breaks, working off the clock issues, etc.
  • Did you already make changes to your employees’ pay or duties based upon the final rule going into effect on December 1, 2016?  While there are ways to change those decisions (i.e., you can change an employee’s pay moving forward for work not yet performed), you need to keep in mind morale issues for employees whose compensation may decrease either by way of a salary reduction or loss of overtime pay.  In these situations, it is highly recommended that you work with your counsel on determining the best practices for your business and your workforce.

With the judge’s ruling, many business owners will be able to find some comfort in being able to keep their exempt employees on a reasonable salary without having to break the bank.