3 Tips For Businesses Looking To Root Out Pay Gaps

The Employment Law Solution: McFadden Davis, LLC, conducts FLSA & pay gap audits with privileged legal compliance advice. Our audits provide a comprehensive view of a company’s compliance with employment laws that relate to wage and hour, human resources practices, and employment policies and forms. More than identifying potential problems, we help clients implement solutions to avoid and, where need be, remedy potential violations.

Law360 (June 13, 2018, 9:07 PM EDT) — As states beef up their pay equity laws and workers grow more aware of their rights, employers are increasingly examining their payrolls for illegal wage disparities among genders or races — but they need to do it the right way.

A shoddy pay audit may alert workers to potential pay equity claims while failing to detect illegal salary gaps that correlate to factors like gender, race or ethnicity, so conducting an audit can be almost as legally risky as not conducting one at all.

“It’s easy for an employer to fall into the ‘no good deed goes unpunished’ trap,” said Mickey Silberman, a Fortney & Scott LLC shareholder who guides employers through pay equity audits.

Here, Law360 looks at three tips for employers that want to find and iron out potentially problematic pay gaps.

Keep It Private

One of the benefits for businesses of hiring an attorney for any matter is that their talks with counsel can’t be cited in court, thanks to attorney-client privilege. And because employers effectively make their workers’ pay equity case for them when they conduct an audit, they’ll want to make sure the analysis can’t be used against them.

Sometimes, an audit will show an employer pays all of its workers fairly. Other times, an audit will expose issues that businesses will want to fix as quickly as they can. Either way, it’s in the employer’s best interest to keep its findings under wraps, attorneys say.

“When a company embarks on an audit, a lot of times the company doesn’t know what it doesn’t know,” said Denise Visconti, who runs Littler Mendelson PC’s pay equity assessment program. “It can turn out they issue a press release and explain or tell their employees that they’ve done this analysis and everything, [the employees are] being paid equitably, but until they’ve done that there’s no way to ensure that.”

Employers may want to maintain that privilege even in areas where there’s some benefit to auditing pay in the open. Some state laws, like the Massachusetts law that takes effect in July, include safe harbors that protect employers from claims if they voluntarily audit their pay. But while the Bay State can shield employers from liability on its laws, employers that disclose their findings open themselves up to federal claims.

“That does great under state law [but] that can be used against you under federal law,” said Jonathan Segal, who runs Duane Morris LLP’s human resources training arm. “It’s sort of protection that provides none, except for under state law.”

Don’t Get Lost in the Details

Pay equity laws vary by jurisdiction, but they generally bar employers from paying workers at different rates for the same or similar jobs if they don’t have good reasons.

The federal Equal Pay Act, for example, says employers can’t pay men and women differently for “equal work” with a few exceptions, such as when one worker does better work or has more experience than another who performs the same work. By contrast, the California Equal Pay Act bars differences in pay among workers of different sexes, races and ethnicities who perform “substantially similar work,” which is broader than the federal standard.

Many employers that conduct pay audits look too closely at what sets individual workers apart from each other, which risks missing obvious trends in pay among protected groups, said Lieff Cabraser Heimann & Bernstein LLP’s Kelly Dermody.

“If companies don’t want to uncover their issues … they look at the smallest unit they can study and they won’t see the pattern,” said Dermody, who represents workers in pay equity suits. “It’s like looking at the leaves on a tree to see what the tree looks like. You have to look at the whole tree and analyze [comparable people] looking apples to apples.”

Whether workers belong in the same category for purposes of pay analysis hinges largely on what they’re asked to do, Segal said. For example, he said two writers at the same publication who cover different subject matter likely belong in the same category but should be analyzed separately from editors.

It’s a difficult question, so Segal recommends employers hash out job categories in a dialogue with their attorneys.

“When I talk [similar jobs] through with clients, I’ve said, ‘explain to me why they really are different in terms of skills that are required, the expectations, et cetera,” Segal said. “When the client … can’t give me a quick answer, I can smile and say, ‘I don’t really think there’s a big difference.'”

Follow Through

If an audit uncovers pay gaps, employers should close them. But they need to be smart about how they do so, Silberman said.

Silberman told Law360 he advises clients to time their pay audits to finish shortly before they give out annual raises, which lets businesses bring workers’ pay in line without drawing attention to the gaps.

“Don’t make adjustments as off-cycle adjustments, don’t make adjustments as lump-sum payments to employees … because you may get blowback claims from the employees who are getting adjustments or from other employees who learn of it through pay transparency,” he said.

Employers should also root out the issues underlying their gaps to prevent new ones from forming. Attorneys say one of the most common mistakes employers make is asking workers how much they made at their last job. Employers use these salary history questions to figure out the market rate for a job or as a proxy for skill and experience, but critics say they lock women and people of color into lower salaries by carrying pay gaps forward.

A small but growing number of states have made it illegal for employers to ask job applicants about their past salaries; businesses in other jurisdictions do so at their own peril.

Under the federal Equal Pay Act, employers can justify pay gaps by pointing to factors “other than sex.” But several appeals courts, most recently the Ninth Circuit, have limited employers’ ability to use workers’ pay history to justify lower salaries.

And any change a company makes must be explained to its managers, Visconti said.

“A lot of times companies want to train the people who are making decisions about compensation so that the decision-makers who are deciding how to pay people are doing so in according with the company’s policies,” Visconti said.

–Author: Braden Campbell; Editing by Brian Baresch and Alanna Weissman.