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It’s hard to miss the uptick in litigation against high profile US companies over alleged unequal pay for female employees these days. Cases seem to hit the headlines frequently and several targeted industries include professional sports, professional services organizations, and technology companies. With equal pay protections constantly expanding, and employees often seeking class certification, in 2021, employers should be especially diligent in identifying and rectifying unjustified pay disparities.

So, if you need a New Year’s Resolution, consider undertaking a pay equity audit. This will position your company to determine, at baseline, whether any unjustified pay disparities exist, where those disparities lie and proactively take any remedial measures to help mitigate against becoming a headline. In conducting a pay equity audit, employers should pay close attention to the legal backdrop of pay equity, and how that landscape is changing.

As we head into the New Year, here are several US developments companies ought to know:

California Enacts First Employee Data Reporting Law

On September  30, California Gov. Gavin Newsom signed Senate Bill 973, Sen. Hannah-Beth Jackson’s bill relating to annual reporting of employee pay data. SB 973 requires private employers with 100 or more employees to report employee pay data to the Department of Fair Employment and Housing (DFEH) by March 31, 2021, and annually thereafter, for specified job categories by gender, race and ethnicity. California will be the first state to require employers to submit such employee data.

  • Pay Data Report: The new law takes effect January 1, 2021, meaning, by March 31, 2021, private California employers with 100 or more employees that are required to file an annual Employer Information Report (EEO-1) under federal law must submit a “pay data report” to the DFEH for the prior calendar year (reporting year).
    • The report must include specified information, including the number of employees by race, ethnicity, and sex for 10 job categories established by creating a “snapshot” that counts all individuals in each job category by race, ethnicity, and sex, employed during a single pay period of the employer’s choice between October 1 and December 31 of the “reporting year.”
    • The job categories include: Executive or senior level officials and managers; first or mid-level officials and managers; professionals; technicians; sales workers; administrative support workers; craft workers; operatives; laborers and helpers; and service workers.
    • Employers must also report the number of employees by race, ethnicity, and sex whose annual earnings fall within each of the pay bands the U.S. Bureau of Labor Statistics uses in the Occupational Employment Statistics survey, established by calculating the total earnings shown on the IRS Form W-2 for each employee in the “snapshot” for the entire Reporting Year; the total number of hours worked by each employee counted in each pay band during the “Reporting Year”; and the employer’s North American Industry Classification System (NAICS) code.
    • An employer complies with the new law by submitting an EEO-1 Report that contains the same or substantially similar pay information. Employers with multiple establishments must submit a report for each establishment and a consolidated report that includes all employees. All employers must provide the data in a format that allows the DFEH to search and sort the information using readily available software. Employers may, but are not required to, provide clarifying remarks concerning the information in the report.
  • Application, Maintenance, Distribution, and Enforcement:
    • An employer must count employees located inside and outside of California when determining whether it has 100 or more employees.
    • The DFEH must make the reports available to the Division of Labor Standards Enforcement (DLSE) upon request and maintain the data for at least 10 years. Both the DFEH and DLSE must keep the data confidential, except as necessary for administrative enforcement or through the normal rules of discovery in a civil action.
    • The DFEH may seek an order requiring an employer to comply with these requirements and shall be entitled to recover the costs associated with seeking the order for compliance.
    • Though a laudable effort to promote transparency and further close gender and racial pay gaps, from a practical perspective SB 973 imposes significant burdens on California employers to compile information that could evidence a wage disparity where none exists. SB 973 may or may not help remedy illegal pay gaps, but it is virtually certain to lead to a new “cottage industry” in employment litigation.

Colorado’s New Equal Pay for Equal Work Act (Act)

The Act is intended to increase pay equity and transparency, imposes new notice and recordkeeping requirements, and encourages companies to self-audit their compensation practices. To that end, the Act takes effect on January  1, 2021 and includes a number of new requirements for employers:

  • Equal Pay: Employers may not pay one employee a wage rate less than the rate paid to an employee of a different sex (or sex plus another protected status) for substantially similar work (i.e., work requiring similar skill, effort and responsibility).
  • Salary History: Employers cannot ask about or rely on an applicant’s salary history. Employers cannot discriminate or retaliate against an applicant who fails to disclose his/her wage history.
  • Pay Transparency: Employers cannot prevent employees from discussing their pay with other employees. Employers cannot make an employee sign a waiver that prohibits the employee from disclosing his/her wage rate.
  • Record Retention: Employers must maintain job descriptions and wage-rate history for current employees and, for two years after the employment ends, for former employees.

One of the biggest developments under the Act are the new Equal Pay Transparency Rules, which require employers to disclose compensation in all job postings and to notify employees of promotional opportunities.

  • Compensation in Job Postings: Employers must announce internal openings (more below), and for both internal and external job postings, employers are required to list the hourly rate or salary or range of hourly rate or salary for the position and a general description of the benefits and other compensation offered for the position (e.g., bonus, commissions, etc.).
  • Promotional Opportunities: Employers must make “reasonable efforts” to announce, post, or otherwise make known all promotional opportunities to current employees.
    • To Whom: Employers must notify all Colorado employees of all promotional opportunities and may not limit notice to those employees it deems qualified for the position. That means employer must inform Colorado employees of promotional opportunities regardless of where the opportunity is located. That said, employers may state that applications are open to only those with certain qualifications and may screen/reject candidates based on those qualifications.
    • When Required: A “promotional opportunity” exists when an employer has or anticipates a vacancy in an existing or new position that could be considered a promotion for one or more employee(s) in terms of compensation, benefits, status, duties, or access to further advancement. Notably, ordinary career progression/in-line promotions (from junior to senior positions; for example, Technician I to Technician II) are not excluded from these requirements.
    • Contents: The communication announcing a promotional opportunity must be in writing and include the job title, compensation and benefits, and the means by which employees may apply for the position. An employer may ultimately pay more or less than the posted range, if the posted range was the employer’s good-faith and reasonable estimate of the range of possible compensation at the time of the posting.
    • Methods: An employer makes “reasonable efforts” with any method(s) by which all covered employees (i) can access within their regular workplace, either online or in hard copy, and (ii) are told where to find required postings or announcements. If a particular method reaches some but not all employees, such as an online posting not accessible to those lacking internet access, an alternative method shall be used for such employees.
    • Exceptions: An employer does not have to post about a promotion (or can disclose less) if (i) it has a compelling need to keep an opening confidential because an incumbent employee that does not know he/she will be separated still holds the position; (ii) the promotion is automatic after a trial period (of not more than 1 year); or (iii) the position is to be filled on a temporary basis for up to six months where the hiring is not expected to be permanent.
    • Geographic Limits: The posting requirements do not apply to employees entirely outside of Colorado. The compensation posting requirements do not apply to either (1) jobs to be performed entirely outside Colorado, or (2) postings made entirely outside Colorado (i.e., paper job postings). For example, if a company had a position to be performed in California, there is no requirement to disclose compensation information about the position. However, Colorado employees must receive notice of the opportunity. Please note that remote jobs that could be performed in Colorado must be posted and must contain compensation information.

Salary History Bans Continue to Sweep the Nation

The movement to prohibit the practice of inquiring about an applicant’s salary history continues. Proponents of salary history bans argue that using past compensation in future employment decisions perpetuates existing pay disparities among women and minorities. To help you keep track, here is a running list of states and localities that outlaw pay history questions for private-sector employers with non-unionized workforces:

In “no ask” jurisdictions, it is recommended that employers:

  • Remove all salary questions from hiring forms (including job applications, candidate questionnaires, and background check forms);
  • Update interviewing and negotiating policies and procedures;
  • Train recruiters, hiring managers and interviewers regarding the importance of ensuring that applicants are not pressured (even indirectly) to disclose salary history.

It is further recommended that employers adopt a uniform practice that complies with the strictest “no ask” jurisdiction in which the employer operates. A uniform practice will help to avoid non-compliance.

For assistance developing your compliance playbook as it relates to gender pay and pay equity and transparency obligations in the US and globally, please contact your Baker McKenzie employment lawyer.