Preparing for the New Massachusetts Equal Pay Law, Part I: Whether, When, and How to Conduct a Pay Equity Audit
The July 1, 2018, implementation date for the amendments to the Massachusetts Equal Pay Act (MEPA) is less than a year away. The amendments approved in 2016 will bring about substantial changes to the definition of “comparable work,” employer defenses, statutes of limitations, and prohibited employer practices, such as salary history inquiries. The main reason for the delay in the implementation date of the new law was to give Massachusetts employers a chance to conduct the pay audits contemplated by the new law. The new law provides a two-tiered safe harbor for employers that conduct pay audits. Although the Massachusetts Attorney General’s Office has not yet issued regulations or any other guidance relating to the amendments, Massachusetts employers need not wait for the attorney general’s office to conduct a MEPA pay audit. As explained below, a pay audit may provide your company with valuable protection in the event that a pay differential exists and a pay discrimination claim is filed under state law.
MEPA’s Two-Tiered Safe Harbor Scheme for Pay Audits
MEPA’s new two-tiered safe harbor scheme for employers that conduct pay audits is as follows:
Tier 1 provides a complete affirmative defense to claims under both MEPA and Massachusetts General Laws Chapter 151B, the state’s anti-discrimination statute, for employers that have both completed a pay audit in good faith and can demonstrate that “reasonable progress” has been made towards eliminating wage differentials.
Tier 2 provides relief from liability for liquidated damages under MEPA for employers that have conducted a pay audit in good faith and can demonstrate that “reasonable progress has been made” towards eliminating pay differentials but cannot demonstrate that the audit was “reasonable in detail and scope.”
The new law provides that an audit “may be of the employer’s own design, so long as it is reasonable in detail and scope in light of the size of the employer, or may be consistent with standard templates or forms issued by the attorney general.” As discussed above, the attorney general’s office has not yet issued any guidance on the new law or on what constitutes an acceptable pay audit.
Pursuant to the new law, employers that do not conduct a pay audit will not be penalized in their defense of state law claims as the new law specifically provides that an “employer who has not completed a self-evaluation shall not be subject to any negative or adverse inference as a result of not having completed a self-evaluation.” Further, evidence of an audit or remedial steps undertaken are not admissible in any MEPA or Chapter 151B proceeding as evidence of a violation occurring (1) prior to the date the audit was completed, (2) within six months thereafter, or (3) within two years thereafter if the employer can demonstrate that “it has developed and begun implementing in good faith a plan to address any wage differentials based on gender for comparable work.
Importantly, however, the new law’s safe harbor does not provide any protection for employers against pay discrimination claims brought under federal law, i.e., the federal Equal Pay Act of 1963 (EPA), Title VII of the Civil Rights Act of 1964, or, in the case of government employers, 42 U.S.C. Section 1983. Further, there is nothing in the new law that ensures that the results of a MEPA pay audit will be inadmissible in a suit alleging claims under the EPA, Title VII, and/or Section 1983.
Choosing to Conduct a Pay Audit
Given the lack of guidance from the Massachusetts Attorney General’s Office and the specter of a pay audit being used against an employer to prosecute federal pay discrimination claims, some Massachusetts employers have discarded the idea of conducting a pay audit. However, such employers are losing out on the opportunity to take advantage of a safe harbor that could protect them from liability under what could be the toughest of all the pay discrimination statutes for them to satisfy: the current version of MEPA. If a pay audit is conducted properly, and if needed changes are implemented following the audit, a pay audit can, in some circumstances, allow employers to take advantage of MEPA’s new safe harbors with little risk of the audit results dooming claims under other laws.
Under the current law, which will remain in effect until July 1, 2018, the only defense available to MEPA claims is seniority. In contrast, the federal EPA provides for a host of other defenses that are not currently available under MEPA, such as a merit system; a system that measures earnings by quantity or quality of production; or a differential based on “any other factor other than sex.” While salary history is not a defense to claims under either the old or new MEPA, some federal courts have recognized that salary history can be used as a defense to federal EPA claims in appropriate circumstances. Also, unlike the federal EPA, which makes it illegal to pay discriminatory wages to employees in the “same establishment” (e.g., the same plant or store), MEPA has no geographic limit on comparisons. Importantly, both MEPA and the federal EPA are essentially strict liability statutes, with no showing of discriminatory intent required. However, claims brought under both the state and federal anti-discrimination laws (i.e., Chapter 151B, Title VII, and Section 1983) all require evidence of intentional discrimination. Therefore, evidence of a pay audit, without more, will not be sufficient to sustain a pay discrimination claim under the state and federal anti-discrimination laws, which still require evidence of discriminatory intent.
What does this all mean in determining whether a MEPA pay audit will help a company? If a company has an existing issue with pay equity for individuals working in the same job title or in jobs that are comparable under MEPA’s current definition of “comparable work,” it can be held strictly liable for violating the pre-July 1, 2018 version of MEPA with no defense other than seniority. However, if a company has based its past compensation decisions on something recognized by the federal EPA as a valid defense, such as geography or quantity or quality of production, it may have a legitimate defense under the federal EPA.
Note that under the federal EPA, the point of comparison is employees in the “same establishment, whereas MEPA has no such geographically limiting basis of comparison, which means that pay comparisons can be statewide with seniority being the only allowable defense. A company may even be able to show that such differentials are justified under the federal EPA based on prior salary history. However, absent evidence of intentional discrimination, a company cannot be found liable under any of the other state or federal laws prohibiting pay discrimination. This means that if a company conducts a pay audit now in good faith and can demonstrate that “reasonable progress” has been made towards eliminating wage differentials, it can take advantage of MEPA’s complete affirmative defense safe harbor to avoid liability on the most risky possible claim against it—violation of the current version of MEPA—without jeopardizing its defense to pay discrimination claims brought under other statutes, as long as its pay decisions are defensible under those other statutes.
When to Conduct a Pay Audit
Under the MEPA amendments, audits must be conducted within the previous three years and prior to the commencement of a lawsuit to qualify for the safe harbor. Therefore, Massachusetts employers may want to consider conducting an audit as soon as possible to maximize the usefulness of the safe harbor in barring pre-amendment claims. It is also important to note that employers will need time to correct any pay disparities that are discovered. Plus, in order to conduct both a privileged and non-privileged audit, which employers should consider doing, employers will need time to do so.
Employers need not wait for the Massachusetts Attorney General’s Office to issue guidance or audit templates before conducting an audit. First, it is unclear when the Massachusetts Attorney General’s Office will issue such guidance, and there is also no assurance that it will address the proper scope and contours of a pay audit. Second, the amendments to MEPA specifically provide that an audit can be of an employer’s “own design, so long as it is reasonable in detail and scope in light of the size of the employer.” While this does not mean that a statistical regression analysis is required in every case, it does provide employers with the flexibility to work with outside experts, who are familiar with pay audits and have conducted them before in other contexts, to design an audit tailored to the employer.
How to Conduct a Pay Audit
Unfortunately, a full summary of the dos and don’ts of conducting pay audits is outside the scope of this blog post. Plus, every audit is unique.
In conducting a MEPA pay audit, employers should consider conducting the audit in two phases: a privileged phase and then a non-privileged phase. In the first phase, employers should consider conducting an audit that is protected by the attorney-client privilege so that they can determine whether they have an issue and consider whether they want to take advantage of the MEPA safe harbor under the cloak of the attorney-client privilege. If, after analyzing the results of a privileged audit and analyzing the risks to the company of conducting a public audit, the employer determines that it wants to take advantage of the safe harbor, it should consider a waiver of privilege with regard to some or all of the audit results or conduct a second, non-privileged audit that can be used for the safe harbor.