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‘Everyone is talking about pay’: Lawyers offer tips on navigating pay equity analyses

Months before the U.S. Women’s National Team secured its fourth World Cup title in July, the team was making news for a fight on a different type of playing field — the courtroom.

In March, 28 members of the soccer team filed a gender-discrimination lawsuit against the U.S. Soccer Federation, alleging they were paid less than their male counterparts — who were less successful on the field — for doing the same job. The lawsuit, which drew widespread national media coverage, followed years of complaints by players regarding unequal pay and bonuses.

Depositphotos.com file photo

Depositphotos.com file photo

Against that backdrop, attorneys who advise companies say the issue of pay disparity between men and women is not going away anytime soon.

At a CLE hosted by the Kansas City Metropolitan Bar Association for in-house attorneys in June, Laura Mitchell and Elizabeth Hernandez, attorneys for Jackson Lewis in Denver, said the issue is dominating much of the public conversation about employment-related issues.

“The public’s talking about pay. Employees are talking about pay,” Mitchell said. “If they’re not talking about pay, they’re thinking about pay, they’re thinking about their coworker’s pay. It is just unavoidable right now. Everyone is talking about pay.”

To underscore the point, Mitchell cited a 2018 “60 Minutes” interview with Salesforce Founder and CEO Marc Benioff, in which he discussed the wage gap revealed by an internal audit of his company.

Mitchell and Hernandez said the term “pay equity” often is used interchangeably in discussions of the pay gap between men and women, but they’re distinct ideas.

“The pay gap is looking at an entire organization and essentially looking at the average, or the mean or median of pay between men and women, not necessarily differentiating or taking into consideration those things that impact pay,” Mitchell said.

She contrasted the pay gap with pay equity — or the process by which it is analyzed, a pay equity analysis.

“That’s where we’re actually grouping employees together based on similar characteristics of what they do, in what area, their level of expertise, and identifying explanations for differences in pay so that we can defend a pay-practice attack,” Mitchell said. “If someone comes up to us asking why Lucy is paid less than Jim, if we’ve done a pay equity analysis, we can hopefully come up with an explanation for that.”

Mitchell said in-house attorneys should be familiar with the distinction so they can better advise their clients.

“You’re going to get questions about what should we be doing in the pay space [and] should we do a pay gap analysis? Should we do a pay equity analysis? Or both?” she said. “The answer really derives from what questions [you are] being asked that actually need to be answered.”

Under pressure

Companies face both internal and external pressures to ensure pay parity, Mitchell and Hernandez said.

“A lot of these organizations that you’re seeing making public announcements about their pay gap or their pay equity principles are not doing so because they want to. They’re doing so because they’re getting pressure,” Mitchell said.

Laura Mitchell

Laura Mitchell

The pressure may come from a company’s board of directors, from its employees and increasingly from shareholders and shareholder activists, Mitchell said. She pointed to Arjuna Capital, which for two years has used an annual report card to measure companies’ pay equity.

She also said companies are feeling pressure from their peers to address pay parity. In addition to pressures to close the pay gap, companies are facing new regulations at the state level.

Because Congress has not acted to update the Equal Pay Act, Hernandez said, states are stepping in to force change.

“I won’t say it’s a trickle anymore. It’s really a daily, a weekly thing,” she said, noting that in recent years, there’s been a rush of states and municipalities passing ordinances related to equal pay.

She pointed to California, which changed its equal pay act in recent years to prohibit employers from paying employees less than other employees of a different gender or another race or ethnicity for “substantially similar” work.

Hernandez said a “famous example” of substantially similar work are the jobs of janitor and housekeeper. She said they are similar, but each tends to skew more towards one gender.

She said more states, including New York, are adopting the California standard. Massachusetts also has followed California’s lead but has adopted a “comparable work” standard, Mitchell said.

“Each state is really expanding the definition of who should be compared for pay purposes, and that’s really the trend that we’re seeing,” Hernandez said. “It’s a patchwork of all these states coming up with their different laws, and while there are some similar threads, all are slightly different.”

Blue states aren’t the only ones passing new laws, Hernandez said. Mitchell noted that this year, Alabama passed a new law which tracks with the federal Equal Pay Act.

“The fact that that’s happening in Alabama shows that there is that pressure nationwide for that kind of movement,” Mitchell said.

Uncovering inequities

Hernandez said a company’s actions in the area of pay will depend on its circumstances, including whether the company is looking to proactively assess pay equity or whether it is under pressure from activists or facing litigation.

Elizabeth Hernandez

Elizabeth Hernandez

Mitchell said a pay gap analysis tells companies only that a pay gap exists, while a pay equity analysis helps employers to gather more information about why a gap exists. A pay equity analysis also can help a company to identify its defenses, should a lawsuit arise.

From the outset of a pay equity analysis, it’s important to do it under privilege by engaging outside counsel, she cautioned.

“Even though we all hope that our pay practices are equitable and good and that we don’t have disparities in pay, that’s not always the case,” Mitchell said. “And our pay equity analyses are designed to uncover those inequities so that we can fix them, but we don’t want that to come back and haunt us.”

Employers don’t want their pay equity analyses to be “Exhibit A to the class-action litigation that gets filed against us,” she added.

While the underlying data isn’t privileged, the analysis to show a disparity is privileged if it’s done at the direction of outside counsel, she explained.

An important consideration at the outset of undertaking a pay equity analysis is to determine if there is appetite for change, should there be a disparity in pay, Mitchell added.

“The worse thing, other than not doing a pay equity analysis, is doing one, showing you have a disparity and not doing anything about it,” she said.