Massachusetts: An Act to Establish Pay Equity
On January 28, the Massachusetts Senate passed S. 2119, titled “An Act to Establish Pay Equity” (the “Proposed Law”). Touted by one of the Act’s co-sponsors as a way to “further close the wage gap between male and female workers in the Commonwealth,” the Proposed Law is claimed to ensure equal pay for comparable work by “establishing pay transparency and requiring fairness in hiring practices.” If enacted, the law virtually assures that there will be new litigation battles fought as employers defend against single plaintiff, class and collective actions asserting unlawful pay disparity. Beyond expensive litigation, another unfortunate consequence of the Proposed Law may be that many employers will assess and reassess whether it makes sense to continue to do business in Massachusetts.
Key provisions of the Proposed Law include:
• Makes unlawful any disparity in the payment of wages (including benefits and other compensation) between different genders for “comparable work”, which is defined as work that is “substantially similar” in that it requires “substantially similar” skill, effort and responsibility, and is performed under “similar” working conditions. “Working conditions” is defined to include the “circumstances customarily taken into consideration in setting salary or wages, [such as] reasonable shift differentials, physical surroundings and hazards encountered by employees performing a job.” The Proposed Law provides no definition or further guidance as to what is meant by “substantially similar,” meaning that any such determination could only be made following an intensive and individualized factually inquiry in the context of litigated cases. Because of this, these cases will be extraordinarily expensive to defend.
• Provides that employers can pay wages (including benefits and other compensation) that are different for comparable work if based upon (1) a “bona fide” seniority system; (2) a “bona fide” merit system; (3) a “bona fide” system that measures quantity or quality of production or sales; (4) the geographic location in which a job is performed; (5) education, training, or experience, to the extent such factors are “reasonably related” to the particular job in question and “consistent with business necessity;” or (6) travel, if travel is a regular and necessary condition of the job. While some of these factors can be objectively measured (e.g., sales production), none of these factors permit differentials based on real workplace differentials influenced by qualitative performance and market differentials. In an economy that is driven by industries such as biotechnology (pharma and device), high technology, education and health care, many of these “exceptions” will have no practical application. As with the definition of comparable work, the one certainty is that there will be time consuming and expensive litigation over what these terms actually mean and their application to specific circumstances.
• The Proposed Law requires pay equity for all compensation and benefits – it expressly provides that it covers “wages, including benefits or other compensation. This presumably includes bonuses, stock options or other equity awards, or any other economic benefit. This will have enormous impact for employers that attract new employees and/or reward top performers with periodic equity awards.
• Provides that an aggrieved employee can bring a lawsuit, whether on his or her own behalf or on behalf of others (i.e, as a class or collective action). If the individual or group prevails, the employer is automatically liable for twice the lost wages (framed as liquidated damages), benefits and other compensation (with lost wages, benefits and other compensation calculated as the difference between what was paid and what should have been paid), and attorneys’ fees. A prevailing employer gets nothing.
• There is a three year statute of limitations.
While The Attorney General also may also bring suit on behalf of one or more employees, it is far more likely that the litigation will be brought by the industry of plaintiffs’ attorneys who stand to be paid their attorneys’ fees, either by settlement or if they prevail .
An employer may defend against a claim if, within three years prior to the commencement of such claim, it completed a self-evaluation of its pay practices (which practices include wages, benefits, and other compensation) and can demonstrate that reasonable progress has been made towards eliminating any gender-based compensation differentials that may have been found. Amazingly, however, an employer that conducts a self-audit and discovers that one or more employees are overpaid in relation to other employees cannot reduce employees’ wages, benefits or other compensation to come into compliance.
In addition, if the Proposed Law is enacted as drafted, employers will not be allowed to:
• Prohibit employees from discussing their own or other employees’ wages (this is already protected by federal law, specifically the National Labor Relations Act and, for federal contractors and subcontractors, Executive Order 13665).
• Screen job applicants based on their wage history, or requesting or requiring an applicant, as a condition of being interviewed or continuing to be considered for an offer, disclose prior wage history. As with all other aspects of the Proposed Law, “wages” includes benefits and other compensation. This will make it very difficult to determine how to make a competitive offer to an individual.
• Seek the compensation history of any prospective employee from any current or former employer, unless an offer of employment has been made and the prospective employee so authorizes, in writing.
• Retaliate in any way against an employee exercising his or her rights under the Proposed Law.
Many employers obviously are concerned about the impact that this Proposed Law will have on their businesses. By way of example only, employers are concerned about the ability to attract talent at market rates that may be different than individuals already employed, as well as the myriad other circumstances where the Proposed Law may impede business decisions and expose them to costly and uncertain litigation. As the Proposed Law has not been enacted, for those employers who are concerned about it, now would be the time to contact industry associations, legislative representatives and any others with political involvement to raise their concerns about the negative consequences of this legislation as presently drafted.
 A published Federal Jury Instructions provides that in order to establish a bona fide merit system, an employer must demonstrate a “structured process under which employees are systematically evaluated according to established standards that are designed to determine the relative merits of their performance”. Such a definition defies the reality that an individual’s performance is measured in multiple ways, many of which are not easily measured (e.g., enthusiasm, commitment to a job, level of effort, etc.).