By Tracy Sartorius
Pay equity is a major exposure for employment practices liability. Recent changes in state laws promote pay transparency and make it harder for employers to defend unequal compensation. Because of these trends and the related increase in pay inequity claims, private companies should take steps to avoid practices that could lead to discrimination claims.
Equal pay primer
Circle March 31 on your calendar. That’s this year’s Equal Pay Day, a symbolic date intended to highlight how far into the year women would need to work to earn what men earned the previous year. For women of color, the gap extends even further into the year. The date moves depending on the current state of pay equity; in 2019, Equal Pay Day was April 2, and in 2010, it was April 20. According to the U.S. Census Bureau, women earned 81.6 cents for every dollar men earned in 2018.
Enacted in 1963, the Equal Pay Act prohibits employers from paying unequal wages to men and women who perform jobs, under similar working conditions within the same establishment, that require “substantially equal” skills, effort and responsibility.
Why the pay gap has improved
Many states are pushing for public policy reform to strengthen the Equal Pay Act. These reforms include prohibitions on asking job applicants for salary history. In fact, more than one dozen states have adopted laws prohibiting employers from asking job applicants for their salary history during the application process. Some states go even further and prohibit employers from considering salary history even if applicants volunteer it.
Other recent protections remove job titles as a legitimizer of pay inequity: Employers in some states, including California and New York, now are prevented from explaining away differences in compensation packages based on job titles. Instead, these protections encompass “substantially similar work” rather than just “equal work.”
Over the past several years, California in particular has expanded its Equal Pay Act, which was strengthened by the passage of the 2015 California Fair Pay Act. California law:
- Forbids employers from prohibiting workers from discussing their wages
- Eliminates the requirement to compare pay only among workers at the same physical place of business, also known as “same establishment”
- Includes express anti-retaliation protections
It’s worth noting that the District of Columbia and states with progressive pay equity laws, such as California, New York and Florida, have the smallest pay gaps, according to the U.S. Census Bureau.
Trends in pay equity litigation
In its 2019 Enforcement and Litigation Data report for workplace discrimination claims, the U.S. Equal Employment Opportunity Commission (EEOC) reported that only 1.5% of charges filed related specifically to pay inequity. While this percentage is low, it may increase as plaintiffs use unfair wages as a way to prove sex discrimination under Title VII of the Civil Rights Act of 1964.
In fact, the decision in Lenzi v. Systemax, Inc., by the 2nd U.S. Circuit Court of Appeals, found that employees do not need to clear a heightened legal standard to claim gender discrimination due to pay inequity under Title VII. In other words, an employee may claim sex-based pay discrimination regardless of whether or not there is another employee of the opposite sex who holds an equal but higher-paying job, as long as the claim is based solely on gender. In 2019, the EEOC reported that a substantial 32% of EEOC discrimination claims noted sex discrimination in the filed charge.
What employers can do
Some companies are taking a proactive approach to pay equity by conducting pay equity audits, identifying female inclusion in leadership roles and board seats, and using development programs to foster women’s careers. Other important ways companies can manage their exposure include providing training to managers and human resources staff on evolving federal and state laws.
Understanding the risk landscape and claims trends should help employers determine their best next steps. These include evaluating their employment practices liability coverage to make sure it is robust and offers adequate limits. Some coverages to consider include 100% defense cost allocation and broad definitions of harassment and discrimination, such as those offered in Argo Pro’s Private Company PROtectSM.
Tracy Sartorius is an underwriting manager for management liability and the employment practices product lead for Argo Pro.
Learn more about Argo Pro and Private Company PROtectSM.