Massachusetts Passed Unprecedented Pay Equity Legislation. What Employers Should Know

On August 1, 2016, Massachusetts Governor Charlie Baker signed into law the Act to Establish Pay Equity (the “Act”) which becomes effective July 1, 2018. The Act makes three significant changes to existing law.

  • First, and most importantly, it prohibits employers from inquiring about a prospective employee’s salary history. This is a groundbreaking provision – the first in the nation of its kind – that broadly applies to all employers, and male and female applicants alike.
  • Second, it amends the existing Massachusetts Equal Pay Act (“MEPA”) to more broadly define what type of work is considered “comparable” for purposes of gender pay equity.
  • Third, the Act gives employers a new self-evaluation affirmative defense to pay equity claims. While this self-evaluation affirmative defense has received little public attention, it is an important new provision of which employers should be aware. If used correctly, it can prove very helpful to an employer.

Salary History: Employers Can’t Ask, But Employees Can Tell (If They Want To)

For as long as many of us can remember, application forms commonly have asked a prospective employee to disclose his or her past compensation. The inquiry assists the employer in determining whether it can afford to hire the prospective employee. But it also can have the effect of perpetuating gender pay disparity over time. As of July 1, 2018, the inquiry will be illegal in Massachusetts. That is the groundbreaking feature of the Act that recently merited a front-page article in The New York Times.

Section 2(c)(2) of the Act changes existing law to make it an unlawful practice for a Massachusetts employer to “seek the wage or salary history of a prospective employee from the prospective employee or a current or former employer or to require that a prospective employee’s prior wage or salary history meet certain criteria . . . .” This means that an application form no longer can ask about compensation history, nor can an employer “seek” such information in interviews. It also would be illegal for the employer to “seek” the information by directly asking the applicant’s prior employer.

There is, however, no prohibition on an employee voluntarily disclosing past compensation. If an employee does this, a prospective employer may confirm the wages disclosed.

The new law leaves some unanswered questions. Take, for example, the hypothetical case of a prospective employee who volunteers, but intentionally overstates, his or her past salary during the interview stage. If the employer extends an offer to match the inflated number, and then learns of the discrepancy after “confirm[ing] a prospective employee’s wage or salary history,” could the employer then rescind the offer, or terminate the employee for making an intentional misrepresentation during the interview? The Act seems to suggest the answer is yes, but ultimately courts will have to decide.

Notably, the Act prohibits inquiry about a prospective employee’s “salary history,” but makes no reference to his or her “salary expectations.” An applicant’s aspirational future salary “expectation” is different than an applicant’s past “salary history.” Asking about “salary expectation” still appears to be legal, but it would certainly give employers some additional comfort if the Attorney General’s Office – which will enforce the Act – were to endorse that interpretation as well.

The Act also prohibits so-called “pay secrecy” policies, through which an employer requires its employees to refrain from discussing their wages. While employees may discuss wages freely without fear of retaliation, employers are not required to disclose an employee’s wages to any other employee or third-party.

To give some teeth to this provision, the Act creates a private right of action for individuals (and class action suits) for violations of this section, which permits recovery of double the amount of the unpaid wages. The damages recoverable are not entirely clear in cases when an employer asks for an applicant’s salary history. This is another issue that the courts will need to address.

Enhanced Pay Equity Provisions: Equal Pay For “Comparable Work”

The Act’s basic prohibition against unequal pay for equal work is not new. At the state level, Massachusetts enacted an Equal Pay Act (“MEPA”) in 1996. At the federal level, the Lilly Ledbetter Fair Pay Act was enacted in 2009.

Existing Massachusetts law, i.e. the provisions of MEPA now codified at G.L. c. 149, § 105A, currently provides that:

No employer shall discriminate in any way in the payment of wages as between the sexes, or pay any person in his employ salary or wage rates less than the rates paid to employees of the opposite sex for work of like or comparable character or work on like or comparable operations; provided, however, that variations in rates of pay shall not be prohibited when based upon a difference in seniority.

Section 2(b) of the Act strikes that language, and replaces it with the following:

No employer shall discriminate in any way on the basis of gender in the payment of wages, or pay any person in its employ a salary or wage rate less than the rates paid to its employees of a different gender for comparable work; provided, however, that variations in wages shall not be prohibited if based upon: (i) a system that rewards seniority with the employer; provided, however, that time spent on leave due to a pregnancy-related condition and protected parental, family and medical leave, shall not reduce seniority; (ii) a merit system; (iii) a system which measures earnings by quantity or quality of production, sales, or revenue; (iv) the geographic location in which a job is performed; (v) education, training or experience to the extent such factors are reasonably related to the particular job in question; or (vi) travel, if the travel is a regular and necessary condition of the particular job.

The basic concept – equal pay for “comparable” work – is the same. But the Act now further clarifies what types of gender pay discrepancies in a particular workplace will be considered justifiable (i.e. those based upon merit, seniority, geographic location, etc.). The Act does not define what types of “merit systems” will be considered bona fide, and which will not. We can expect counsel for aggrieved employees to scrutinize carefully employers’ “merit systems” for hints of gender bias in future lawsuits regarding the Act.

Employers should also take note of the new requirement that maternity, paternity, and family and medical leave cannot reduce seniority for purposes of justifying discrepancies. So a female employee who has worked for a company for five years, and has taken two separate six-month maternity leaves during that time period, cannot be paid less than a male employee who has worked for the same company for the same five year period and has performed “comparable” work (setting aside other factors such as merit, productivity, etc.).

The Act leaves unchanged the damages available to aggrieved employees. That is, damages still are “the amount of the employee’s unpaid wages, and in an additional equal amount of liquidated damages” (i.e. double damages) plus attorneys’ fees.

Importantly, the Act significantly expands the statute of limitations for pay equity violations from one year (existing MEPA) to three years. Moreover, each time the employer issues a paycheck reflecting the discriminatory compensation practice, a new three-year statute of limitations clock starts ticking. This adopts one of the most important reforms of the federal Lilly Ledbetter Fair Pay Act. The Act also clarifies that pay equity claims, unlike discrimination claims, are not subject to the 300-day administrative filing requirement at the Massachusetts Commission Against Discrimination (“MCAD”).

Lest any employer think the Act relates only to “wages,” such that discrimination in the payment of commissions, bonuses, and profit-sharing is acceptable, think again. The Act provides that “wages” “shall include all forms of remuneration for employment.”

New Affirmative Defense For Employers Conducting A “Good Faith” “Self-Evaluation”

Yet again, the Massachusetts Legislature has enacted a new law designed to protect employees, but filled with vague language that seems to invite costly litigation. Does the Act offer anything to employers who are acting in good faith to avoid such litigation? Based upon Section 2(d) of the Act, the answer is “yes.” Section 2(d) provides:

An employer against whom an action is brought alleging a violation of subsection (b) and who, within the previous 3 years and prior to the commencement of the action, has both completed a self-evaluation of its pay practices in good faith and can demonstrate that reasonable progress has been made towards eliminating wage differentials based on gender for comparable work, if any, in accordance with that evaluation, shall have an affirmative defense to liability under subsection (b) and to any pay discrimination claim under section 4 of chapter 151B. For purposes of this subsection, an employer’s self-evaluation 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.

What does that mean for employers? It means that if the employer regularly completes a self-evaluation of its pay practices and can “demonstrate that reasonable progress has been made towards eliminating wage differentials”, then it will face no pay equity liability, even if a particular plaintiff could otherwise prove that he or she was victimized by a pay equity violation. If the employer conducts the self-evaluation, but cannot demonstrate that it was “reasonable in detail and scope”, then liability exists, but is capped at single damages, not double damages. The employer’s self-evaluation is generally inadmissible to prove a pay equity violation under Massachusetts.

Importantly, that the self-evaluation is a potential defense to pay equity violations under Section 2(b), but is not a defense to the prohibition against inquiring about salary history under Section 2(c).

Takeaways

Massachusetts employers have until July 1, 2018 to come into compliance with the Act, but they can and should begin preparing now. Here are some recommended steps.

  • First, employers can begin striking salary history inquiries from employment applications, and begin exploring other ways to determine what market rates should be offered to prospective hires.
  • Second, employers can begin preparing to conduct annual self-evaluations of its pay practices. This will require careful and detailed study by the employer to classify what types of positions involve “comparable work.”
  • Third, employers should begin adjusting their merit systems to comply with the Act’s requirement that maternity, paternity, and family and medical leave does not “count against” an employee’s seniority for pay scale purposes.

Every workplace is different, and there is no cookie-cutter solution as to how to comply with the Act. If you have any questions about the Act’s new requirements and how it affects your business, please contact one of Conn Kavanaugh’s employment lawyers for assistance.

ANDREW DENNINGTON

Andrew is a partner at Conn Kavanaugh and has a diverse litigation practice primarily focused on business litigation, professional liability defense, and employment law.

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ALEXIS THERIAULT

Alexis joined Conn Kavanaugh in 2011 and practices in the area of business litigation and professional liability.

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