Companies cautioned about the potential cost of salary inequity
Companies cautioned about the potential cost of salary inequity
You’re a business owner employing a diverse population — different genders, races, sexual orientations — and one of your employees accuses you of paying them unfairly in comparison to a co-worker who, although working under a different job title, performs similar duties. You realize without malice or ill will that you have been paying…
Under the newly signed Diane B. Allen Equal Pay Act, the answer is yes, and it could cost you in more ways than one: proper salary adjustment and up to triple the cost of six years in back pay.
That’s why labor attorneys across New Jersey suggest business owners conduct company-wide pay audits and ensure job descriptions jive with what employees are actually required to do.
But even a broad analysis of salaries is not a one-and-done exercise, said Steve Adler, a member of the executive committee and co-chair of the Labor and Employment Law Practice Group at Mandelbaum Salsburg PC.
“Especially if you’re acquiring new companies over time, or have a lot of turnover in your workforce, [pay equity] is a moving target,” he said. “It’s not something you can analyze once.”
The bill signed into law last month by Gov. Phil Murphy is set to take effect July 1 and represents the broadest piece of equal pay legislation in the U.S. It applies beyond gender to all 15 protected classes under the New Jersey Law Against Discrimination.
But while other states have laws requiring equal pay for equal work, New Jersey’s requirement for equal pay for “substantially similar work” goes a step further.
“It doesn’t mean the same job title or duties. People can have different job titles but do substantially similar work. That could lead to very broad interpretations, ultimately by the courts,” explained Catherine Wells, who specializes in labor and employment litigation at Chiesa Shahinian & Giantomasi PC.
As pay inequity cases under the Diane B. Allen Act are addressed in court, the true meaning of the law will be fleshed out.
“There’s going to be litigation over what the terms used in the act actually mean, [particularly] ‘substantially similar work.’ New Jersey still has time to implement law to interpret the Law Against Discrimination, but I think a lot of it will be thought out in the courts,” said Neoma Ayala, special counsel at Cole Schotz PC.
The New Jersey Law Against Discrimination has been in effect since 1945, and on some level already protects against pay inequity, according to Adam Gersh, a member of the Labor and Employment and Litigation Practice Groups at Flaster/Greenberg.
“You can’t discriminate in the terms and conditions of employment. That was true without the pay equity law. But what the pay equity law does that’s important and worth noting is that it puts teeth into that rule,” said Gersh.
What Gersh is talking about is the six-year lookback period on which plaintiffs can make their case, the triple damages they’re entitled to receive and anti-retaliation provisions that explicitly disallow employers from preventing employee discussion on wage information. The six-year lookback and triple damages are what lawyers like Gersh say will incite litigation.
“Given the potential damages, I think plaintiffs’ lawyers are going to be instituting more of these actions. Let’s not forget that under the LAD, there is fee-shifting,” Wells said.
That means if a plaintiff prevails, his or her lawyer is entitled to make a fee application, which would then be borne by the defending employer.
“This type of litigation is going to be very costly for employers,” explained Wells.
Mike Wallace, vice president of government affairs at the New Jersey Business Industry Association, expressed similar worry.
“We’re concerned that plaintiffs’ attorneys are going to take advantage of the six-year lookback period without having any merit to their cases,” he said.
Still, the NJBIA pulled their original opposition and remained neutral on the legislation, as the six-year lookback represents a compromise from what was an unlimited lookback in legislation first proposed in 2016.
“The NJBIA supports the intention of the bill because its intention was to address pay discrimination, and we’re not in existence to protect those bad actors,” Wallace said.
A gym owner in North Jersey who asked not to be identified said he believes the new law doesn’t promote business ownership.
“You listen to all the politicians talk about how they’re going to make small businesses great and give them incentives, but this is the first legislation you come out with? How does this create jobs or incentives?” he asked. “What you’re doing is creating more regulation. That forces people to go underground with the economy. Whatever kind of regulations they create sort of handcuffs small business.”
Nevertheless, keeping up with the new legislation is something business owners of all sizes have to do to protect themselves. Kathie Caminiti, who co-chairs the Pay Equity practice group at Fisher Phillips LLP, suggests employers conduct a privileged pay equity audit analyzing their wages company-wide.
Caminiti emphasizes “privileged” because any incriminating information found through a nonprivileged internal audit can be then used against the employer in court.
“In terms of good practice, if you want to be compliant with a law, it’s a good idea to see if they got a problem,” she said. “But of course if they do, they need to take steps to remedy any pay disparities that they can find.”
Although the new pay equity law prohibits lowering someone’s salary to correct a pay disparity, that doesn’t automatically mean lesser salaries will be increased, according to Caminiti. In some instances, she said, employers could instead restructure positions, making sure job descriptions and what individuals are actually doing align and is documented.
“Employers doing an audit might realize it appears that there is a pay disparity because the job titles are the same, but when you look at the description, you’ve got significant differences in experience or performance that warrant a differential,” said Caminiti.
The Diane B. Allen Equal Pay Act explicitly states that pay differential must only be based on “bona fide factors other than the protected characteristics, such as training, education or experience, or the quantity or quality of production,” and that these factors are applied reasonably, do not perpetuate a differential based on protected characteristics, and are based on “legitimate business necessity.”
But with July 1 not far off, the true bite of the new legislation remains to be seen.
“I think this will energize this area,” said Mandelbaum Salsberg’s Adler. “There were not a lot of cases brought on under the New Jersey Equal Pay Act. This is an opportunity for a large case or an individual, or a class action, under this statute.”
Added Ayala of Cole Schotz: “It’ll take a long time for interpretations to trickle down. They’re likely to be litigated or addressed by the administrative tribunals like the Division of Civil Rights. We might not have clarity by July 1 because we don’t know how the act is going to be interpreted.”
The original version of this article said that the NJBIA supported the legislation. It has since been changed to clarify that the NJBIA pulled their opposition and is neutral on the legislation.