Beyond Base-Pay: EEOC Settlement Targets Sales Representative Commissions

For some workers, the bulk of their income is commissions or other incentive-based pay, not their salary or base wage. For years, the Equal Employment Opportunity Commission, sales employees, and class action plaintiff attorneys have been interested in fair pay for sales workers and, in particular, pay discrimination involving female sales workers. A recent EEOC settlement demonstrates the need for employers to separately analyze all components of incentive-based workers’ pay.

EEOC is not the only agency interested in incentive-based pay. For federal contractors, an audit by the Office of Federal Contract Compliance Programs means turning over to the agency not just base wage and salary data, but also separately identifying for each employee other significant components of pay, “such as bonuses, incentives, commissions, merit increases, locality pay or overtime….” This requirement is based on the agency’s recognition that analyzing base pay alone may not get to the heart of a wage-gap or fair pay issue.

The case brought by EEOC alleged violations of the Equal Pay Act and Title VII of the Civil Rights Act based on the assertion the company paid female sales representatives a lower base pay than male sales representative, and that females did not operate on a level playing field regarding commissions. EEOC alleged female sales representatives were required to sell more than males to earn the same commission.

The company settled the matter without admitting liability. However, a proactive and thorough analysis by the employer of both base pay and commissions likely would have revealed these issues, or at least prompted questions designed to reveal the issues, and avoid the claim in the first place. As part of any analysis of pay components, such as commissions and overtime, employers should be asking not only how much is earned, but also exploring the terms and conditions on which those incentives are earned. Strategic analyses can and should include exploration of how assignments are made and whether objective and defensible criteria are used uniformly and consistently to distinguish the earnings of one employee from another. Likewise, any analysis should ask whether such decisions adversely affect any race or gender group, and why. For example, how are sales territories or overtime hours assigned?

For the same reason, OFCCP requires contractors to separately identify each pay component for every employee and employers should analyze each component separately. Analyzing “total compensation” may mask significant and, perhaps, indefensible differences in one or more components of pay. In addition, an assertion that total pay is fair cannot legitimately defend a claim that any one component is discriminatory.

A proactive pay analysis with experienced attorneys (subject to the attorney-client privilege) should look at all significant components of pay separately. Likewise, it also should look beyond how much employees earn to the terms and conditions dictating how incentive pay is earned. Such analyses may turn up interesting issues that, if timely addressed, may help avoid employee and government agency claims.

Localities and the Compensation History Ban: Next Stop Albany County

New York Governor Andrew Cuomo has long supported measures related to pay equity. In 2015, he signed a pay equity law that prohibited an employee from being paid a lower wage on the basis on gender. Similarly, in early 2017, Cuomo signed an executive order prohibiting state agencies from making pre-employment offer inquiries about a candidate’s prior or current salary. [https://www.jacksonlewis.com/publication/new-york-toughens-equal-pay-laws-state-contractors-must-disclose-salary-data-state-agencies-cannot-ask-applicants]

Unlike California, Delaware, Massachusetts, and Oregon, which have passed statewide “salary history ban” legislation, New York has yet to pass its own uniform “salary history ban.” Instead, areas of New York have begun individually to prohibit asking an applicant for his or her salary history. New York City put into effect a salary history ban on October 31, 2017. Albany County is next.

Albany County’s compensation history ban goes into effect Sunday, December 17, 2017. At the pre-offer stage, employers who employ at least four employees or employment agencies will not be permitted to seek the salary history of any job applicant from applicant’s current or former employers. In addition, applicants cannot be “screened” based on their current “wage” (including benefits or other compensation, or salary history), such as requiring an applicant’s prior “wage” satisfies minimum or maximum criteria as a threshold for further consideration. A job applicant also may not be requested or required to disclose prior wages or salary history as a condition of being interviewed or for further consideration of employment. Only after an offer of employment with compensation is extended to the job applicant can an Albany County employer or employment agency obtain salary history information. Even then, the employer or employment agency can collect the information only for the sole purpose of confirming the applicant’s prior wages, including benefits or other compensation, or salary history. (Inquiries relating to compensation, therefore, can be much broader than just “salary.”)

Potential penalties include compensatory damages, reinstatement (with or without back pay), and/or oversight imposed by the Albany Commission on Human Rights. The Albany County Human Rights Law also allows a potential private right of action filed by the aggrieved individual.

Albany County employers and employee agencies should take steps now to update their pre-employment practices to comply with this local law and New York pay equity initiatives. Employers and employment agencies should ensure that any discussions about compensation history are not affirmatively engaged in during pre-offer stage, including by asking such information on an application form.

Local jurisdictions likely will continue to consider salary history ban legislation, both in New York State and across the nation, so employers should stay alert for additional legislation.

It’s the Most Wonderful Time . . . For a Pay Equity Update

‘Tis the season . . . for state legislatures to close for the year. While we’re seeing legislative activity at the state level slow down, the past few months brought a flurry of activity in the area of pay equity and bans on salary history inquiries.  Here is a recap of recent activity and noteworthy developments.

Albany County, New York

In October, the Albany County Legislature unanimously passed a salary history ban ordinance, Local Law P, which will prohibit Albany County employers with four or more employees and employment agencies in the county from

  • Screening job applicants based on their current or prior salary;
  • Requiring that an applicant’s salary history satisfy minimum or maximum criteria;
  • Requesting or requiring that a job applicant disclose his or her salary history as a condition of being interviewed or considered for an offer of employment; and
  • Seeking an applicant’s salary history from any current or former employer.

Under the ordinance, “salary history” includes “benefits or other compensation.” Additionally, the ordinance contains an exception.  Employers may confirm an applicant’s salary history only after an offer of employment with compensation has been made, and if the applicant provides written authorization to contact previous employers.

Albany County Executive Daniel McCoy signed the bill into law on November 6, 2017. It will go into effect on December 17, 2017.

California

The California General Assembly ended its legislative session in October. Before it did, the state enacted a statewide prohibition on asking for applicants’ salary history (A.B. 168).  Beginning January 1, 2018, all private and public-sector California employers will be prohibited from

  • Relying on an applicant’s salary history as a “factor” in determining whether to offer employment to an applicant or what salary to offer; and
  • Seeking an applicant’s “salary history information” orally or in writing, directly or indirectly. Salary history includes both “compensation and benefits.”

However, employers may consider or rely on salary history information if an applicant “voluntarily and without prompting” discloses his or her salary history to a potential employer. Keep in mind, even with this exception, the new law does not change a previous amendment to California’s Fair Pay Act, which prohibits an employer from relying solely on salary history to justify a disparity in compensation.

In addition, California employers must, upon reasonable request, provide an applicant with the pay scale for the position to which the applicant applied. The new law does not define “reasonable request” or “pay scale.”

A violation will not constitute a misdemeanor under the relevant section of the California Labor Code, but the law does not specify any penalty or other remedy for non-compliance. As the January 1, 2018 effective date draws closer, we may receive further guidance from the California legislature and state administrative agencies regarding the means of enforcement.

While California passed one equal pay law, Governor Brown vetoed the Gender Pay Gap Transparency Act, A.B. 1209, which would have required employers with 500 or more employees in the state to biennially provide information on their “gender pay differentials” to the Secretary of State.  Under this law, a large employer would have been required to report on the difference between the mean and median wages of male and female exempt employees by job classification or title.  Similar information would have been required for male and female board members.  The bill had support in the Legislature, but Governor Brown vetoed it with concerns that it was ambiguous and would encourage more litigation than pay equity.  Governor Brown also noted in his veto message that the State’s Pay Equity Task Force was in the process of developing guidance and recommendations to assist employers in assessing their current wage practices.

The Governor’s veto could be overridden by a two-thirds vote of both California legislative houses. While Democrats currently have a supermajority in both chambers, meaning they have the numbers to override a veto, the Legislature has not overridden a veto since 1979 when Brown previously was governor.

San Francisco

In addition to the new statewide ban on salary history inquiries, private and public employers registered to do business in the city of San Francisco must also comply with the city’s salary history inquiry ordinance, which takes effect July 1, 2018.  While the ordinance is similar to the statewide law, it includes some additional restrictions and affirmative requirements.

Illinois

Illinois failed to join the salary history inquiry “ban” wagon in November when the Illinois Senate failed to override Governor Rauner’s veto of a salary history ban. As discussed in an earlier post, the Illinois state legislature passed H.B. 2462 which would have prohibited employers from seeking salary history and also would have amended the state’s equal pay law, replacing the requirement that an employee prove that the jobs being performed require “equal skill, effort, and responsibility” with a “substantially similar” standard.

On October 25, 2017, the Illinois House voted 80-33 to override the Governor’s veto, but the vote in the Senate was 7 “yeas” short of the three-fifths required to override the veto and become law.

Notable Pending Bills

While many legislatures have closed or are closing for the year, there are several pay equity bills still lingering, due in part to the fact that many of these jurisdictions have two-year legislative cycles with “carryover” to even-numbered years, including: Washington, D.C., Georgia, Iowa, Michigan, New Hampshire, New York, North Carolina, Pennsylvania, Vermont, and Washington.

In addition, Florida and New Hampshire have pre-filed equal pay bills for consideration during the 2018 legislative session: H.B. 393 and S.B. 594 (in Florida) and H.B. 1222 (in New Hampshire).  The Florida bills would strengthen the current equal pay law and impose wage transparency provisions and a salary history inquiry ban.  The New Hampshire bill would prohibit employers from requiring an applicant to disclose his or her salary history prior to an offer of employment.

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With several pay equity and salary history laws coming into effect in the coming year, employers should review their application forms and hiring and pay practices, educate recruiters and managers on how to comply with salary history prohibitions, and consider conducting a privileged proactive pay analysis.

Jackson Lewis’s Pay Equity Resource Group attorneys are available to provide strategic guidance. Stay tuned for updates.

NYC Issues Additional Guidance on Upcoming Salary Inquiry Prohibitions

As discussed in an earlier post, effective October 31, 2017, New York City employers generally may not inquire about or rely upon a job applicant’s salary history in making employment decisions. The New York City Commission on Human Rights (NYCCHR) previously released an Employer Fact Sheet and a Job Applicant Fact Sheet to assist employers and employees with understanding the law.  The NYCCHR has now added a “Salary History Law: Frequently Asked Questions” section to its website.  Click here to read the full article on these developments and the implications for employers.

Delaware Compensation History Ban: Another State Making A Pronouncement About Pay Equity

With another Labor Day approaching, employers are once again thinking about the many tasks that need to be completed before year end. Let’s add one more – remembering to add Delaware to the list of jurisdictions prohibiting employers from asking applicants’ compensation history pre-offer.  The synopsis of the law states that when an employer affirmatively asks about pay history, it perpetuates gender disparities from one job to another.

Delaware’s compensation history ban goes into effect in December 2017. At the pre-offer stage, employers are not permitted to inquire about an applicant’s “compensation,” which includes salary as well as benefits and other forms of compensation.  Once an offer is extended and accepted, then a Delaware employer can obtain such information for the sole purpose only of confirming the applicant’s compensation history. (Note the term compensation is much broader than just “salary.”)

The law, similar to other compensation history bans, does not preclude the applicant’s voluntary disclosure of compensation during the interview process. Rather, the employer, at all times during the interview process, cannot affirmatively seek compensation history during discussions and any negotiations.  What if an applicant uses an outside recruiter?  Answer: The same “compensation history ban” rules apply.  While there may be a discussion or negotiation about compensation expectations with the employer or employer’s agent, the applicant cannot be required to disclose compensation history.  Employers should be pro-active and provide their outside recruiters and any other “agents” who may assist in the screening process with clear notice of this law’s requirements.  Delaware law, however, provides an avenue for employers to avoid liability for the actions of their agents who seek compensation history from applicants pre-offer if they can demonstrate that their agents were informed of the compensation ban requirements and advised to comply with the ban.

The Delaware Department of Labor enforces the salary ban law. Civil penalties can be steep, with $1,000-5,000 for the first offense, and not less than $5,000 nor more than $10,000 for each subsequent violation. While the authors recently were told that typically the State Department of Labor attempts to give warnings first before imposing civil penalties as a way to educate employers about new laws, employers should be aware that any actions by the employer or employer’s agent relating to screening an applicant based on his or her compensation history or inquiring about compensation history can be considered a “single” violation.

The take aways from Delaware’s law are:  1) clear notice should be provided to employer’s agent as described above to avoid liability under the compensation ban law; and 2) the employer should take steps by the law’s effective date to make sure any discussions about compensation history are not affirmatively engaged in by employer pre-offer, including asking such information on an application form.

Illinois Next to Prohibit Salary History Inquiries?

The Illinois state legislature passed House Bill (HB) 2462 which would prevent employers from inquiring about a job applicant’s salary history and lower the burden on employees claiming equal pay violations. The Bill now awaits Governor Bruce Rauner’s signature.

HB 2462, which seeks to amend the Illinois Equal Pay Act of 2003, prohibits employers from: (i) screening job applicants based on their wage or salary history, (ii) requiring that an applicant’s prior wages satisfy minimum or maximum criteria, (iii) requesting or requiring as a condition of being interviewed or as a condition of continuing to be considered for an offer of employment that an applicant disclose prior wages or salary; and (iv) requiring an employee to sign a contract or waiver that would prohibit the employee from disclosing or discussing information about the employee’s wages. Employers also would be prohibited from seeking salary, including benefits or other compensation or salary history, of a job applicant from any current or former employer. HB2462 also lowers the burden on employees claiming equal pay violations by replacing the requirement that an employee prove that the jobs being performed require “equal skill, effort, and responsibility” with a “substantially similar” standard.

Illinois HB 2462 is one of a growing number of state and local jurisdictions to attempt to close the pay gap by restricting employers from obtaining salary history information or using that information to set salary. Delaware, Massachusetts, New York City, Oregon, PhiladelphiaPuerto Rico and San Francisco have passed similar laws, and a number of other jurisdictions, including California, North Carolina, and Pennsylvania, have proposed similar bills.

With no slowdown of this trend in sight, employers should review their employment application forms and hiring and pay practices and begin to educate recruiters and managers on how to comply with pay history prohibitions. Illinois employers also should review any confidentiality agreements that they may use to ensure the language of those agreements cannot be interpreted to prohibit an employee from discussing his or her wages.

Jackson Lewis’s Pay Equity Resource Group attorneys are available to provide strategic guidance. Stay tuned for updates.

San Francisco Joins the Salary History Inquiry “Ban” Wagon

The City of San Francisco (SF) is the latest governmental entity to join the trend towards prohibiting employers from asking job seekers about current or prior salary or wage rate or pegging starting pay to prior pay.  The SF Ordinance is based on the following premise:

The problematic practices of seeking salary history from job applicants and relying on their current or past salaries to set employees’ pay rates contribute to the gender wage gap by perpetuating wage inequalities across the occupational spectrum… In effect, to the extent employers consider applicants’ salary history in setting salaries of new hires, historical patterns of gender bias and discrimination repeat themselves, causing women to continue earning less than their male counterparts and less than they would have earned but for their gender.

While not every employer or social scientist agrees with this statement, New York City, Philadelphia, Delaware and Oregon have passed similar laws.  The State of California also appears poised to pass such a law with A.B. 168 pending in the California Senate.

Each of these laws is subtly different and the parameters of the laws remain to be determined. For example, the SF Ordinance defines “inquire” to mean “any direct or indirect statement, question, prompting or other communication, orally or in writing, personally or through an agent, to gather information from or about an Applicant, using any mode of communication, including but not limited to application forms and interviews.”

The SF Ordinance also broadly provides, “An Employer shall not consider or rely on an applicant’s Salary History as a factor in determining whether to offer Employment to an Applicant or what Salary to offer an Applicant.”

Other Notable Provisions

In addition, the SF Ordinance:

  • Prohibits employers from releasing salary history information for any current or former employee to a prospective employer without written consent, unless required by law;
  • Allows an applicant to voluntarily “and without prompting” disclose prior salary, in which case the employer may consider the prior salary but may not peg the applicant’s salary based solely on prior salary or justify paying the applicant differently than other employees doing substantially similar work;
  • Permits employers to discuss a job applicant’s salary expectations without inquiring about salary history.

The Take-Away

As salary history inquiry laws continue to proliferate, employers in all jurisdictions should review their pay practices and determine whether and to what extent their organizations rely on prior salary to set starting pay and how prior salary factors, if at all, into the employer’s system for determining and defending pay.

New Jersey Governor Chris Christie Vetoes Wage History Legislation

New Jersey Governor Chris Christie has vetoed legislation that would have prohibited employers from requesting salary history information from prospective employees. As previously reported, the prohibition would have been enacted through amendments to the New Jersey Law Against Discrimination.  In vetoing the bill, Governor Christie reaffirmed his commitment to ending wage discrimination but felt the law, as written, was too broad and “would punish, as discriminatory, otherwise innocuous conduct done with neither discriminatory intent nor a discriminatory impact.”

State Assembly member Joann Downey (D-Monmouth), who authored the bill, reportedly decried Governor Christie’s veto as “an insult to New Jersey women and an insult to middle class families who are suffering because of lost wages caused by the gender wage gap.”

This is not the first time Governor Christie has vetoed legislation aimed at remedying pay discrimination. Governor Christie previously vetoed a bill that would have expanded wage protections, including requiring equal pay for “substantially similar work.”

Stay tuned to the Jackson Lewis Pay Equity Advisor blog for updates on new and pending legislation.

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