Compensation discrimination claims are no different than any other employment decision. The problem is that this is a doubled-edge sword. An employer need not treat a compensation decision any differently than it treats any other employment decision – conversely, however, an employer that does not treat compensation decisions with the care it treats other employment decisions is needlessly exposing itself to liability.
No federal or Tennessee law imposes any obligation on an employer other than the obligation to not discriminate against an employee because of the employee’s race, sex, national origin, religion, creed, age or disability. So, the very term "fair pay" is misleading. Fair pay isn't required (nor it is an absolute defense), what is required is non-discrimination.
The fundamental complication that compensation discrimination claims raise – a concern not present in any other aspect of the employment relationship – is caused by the sheer number of compensation decisions made each year. Most employers make compensation decisions at least annually with respect to almost every employee. By comparison, some employers are fortunate enough to make only an “occasional” (comparatively speaking) termination or promotion decision.
Think of it this way. How many employees do you know who believe they deserve to earn a higher salary? Now, how many employees do you know who, in your mind, are overpaid? These are the number of potential compensation discrimination claims you could, in theory, face on an annual basis.
When we talk in terms of “compensation discrimination” most employers think about the Equal Pay Act (EPA), 29 U.S.C. § 206(d). This statute, incorporated into the Fair Labor Standards Act, was passed in 1963, a year before Congress passed the Civil Rights Act that includes Title VII, 42 U.S.C. § 2000e-2.
In the decades since these statutes were passed, courts have continued to dispute the interplay between Title VII and the EPA. E.g., Korte v. Diemer, 909 F.2d 954, 957 (6th Cir. 1990) (jury verdict on EPA claim required finding for plaintiff on Title VII claim); contra Fallon v. State of Illinois, 882 F.2d 1206, 1213-18 (7th Cir. 1989) (requiring employee to establish discriminatory intent through the traditional Title VII allocation of proof even if the employee could prove an EPA claim). Some courts (including the Sixth Circuit) generally treat the two statutes as being essentially identical. Other courts have recognized that there are important differences between the two statutes but it is still not clear how these differences will affect employers.
The most notable distinction between the EPA and Title VII is that the EPA only prohibits sex-based discrimination while Title VII prohibits discrimination because of race, sex, religion or national origin. Of course, the prohibitions in the Age Discrimination in Employment Act (ADEA), 29 U.S.C. § 636, and the Americans with Disabilities Act (ADA), 42 U.S.C. § 12101, would also cover discriminatory compensation claims under their respective prohibitions.
The second important distinction is in how the statutes allocate who has to prove whether an employee’s pay is or is not discriminatory. An employee in an EPA case must establish that the employee received lower wages than paid to the opposite sex for equal work on jobs requiring substantially equal skill, effort, and responsibility. See Buntin v. Breathitt Cty. Bd. of Educ., 134 F.3d 796, 799 (6th Cir. 1998) “Whether the work of two employees is substantially equal ‘must be resolved by an overall comparison of the work, not its individual segments.’”
If so, the employer must then prove that the differential is caused by: (1) A seniority system; (2) a merit system; (3) a system that measures earnings by quantity or quality of production; or (3) a differential based on a factor other than sex.
As mentioned previously, the last defense (any other factor other than sex) has generated considerable controversy among the courts and is the current target of a proposed amendment ( a prior post discussed one of the principal effects of HR 11/12 and S.182). The Sixth Circuit adheres to the proposition that the fourth defense “does not include literally any other factor, but a factor that, at a minimum, was adopted for a legitimate business reason.” Beck-Wilson v. Principi, 441 F.3d 353, 365 (6th Cir. 2006). While some courts also impose this requirement, other courts do not. See Wernsing v. Ill. Dept. of Human Servs., 427 F.3d 466 (7th Cir. 2005).
In contrast, under Title VII and all other federal statutes, the employee must prove either (1) that the employer’s illegal motive was the reason for the discriminatory compensation (the traditional “disparate treatment” method) or (2) that a neutral policy had the result of causing discriminatory compensation and that the policy was cannot be justified by a legitimate business reason (the traditional “disparate impact” method).
Under federal law, a disparate impact is found only after the employee has proven a neutral practice causes a disparity between classes of employees that is not justified by legitimate business necessity. Bacon v. Honda of America Mfg., Inc., 370 F.3d 565, 576 (6th Cir. 2004). Once a disparity has been shown to exist, a violation may be proven with evidence that an “alternative employment practice” would have eliminated or resulted in less of a disparity. Compare 42 U.S.C. § 2000e-2(a)(1) (disparate treatment) with 42 U.S.C. § 2000e-2(k) (disparate impact).
This blog is necessarily general. For more specific guidance, employers and their counsel should consult the two sources from the EEOC and the Office of Federal Contract Compliance Programs (or “OFCCP”) have each published guidelines addressing compensation discrimination. The EEOC’s “compliance manual” and the OFCCP’s “interpretive standards.” Each agency states how it will analyze compensation discrimination charges. And while not everything the agencies say on the subject is entirely accurate, it is always helpful to know the agencies' position(s).
Future posts, interspersed around other issues, will address the ways employers can maximize their chances of prevailing in compensation discrimination litigation.
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