The New Jersey Division on Civil Rights (DCR) has published guidance on the Diane B. Allen Equal Pay Act (Equal Pay Act), which expands protections against pay discrimination and retaliation under the New Jersey Law Against Discrimination (the NJLAD). The guidance provides employers with insight on the DCR’s determining factors for evaluating whether pay disparities can be considered discriminatory.

Notably, the federal Equal Pay Act applies only to gender-based pay disparities and mandates equal pay for equal work, whereas the New Jersey Equal Pay Act covers all characteristics protected under the NJLAD,[1] (such as race, age, sex, national origin, creed and disability, among others) and requires equal pay for substantially similar work.

Employers should consider evaluating their compensation records and pay determination processes to identify potential exposure to pay disparity claims.

“Substantially Similar” Work

The DCR’s guidance attempts to provide insight on how the DCR and courts will determine whether work is “substantially similar.” The guidance explains that three factors—skill, effort and responsibility—must be examined together and considered on balance. There’s also added clarity on how the three factors should be analyzed.

Skill – In determining whether work requires substantially similar skill levels, employers should consider “the experience, ability, education, and training required to perform a set of job duties.”

Effort – Employers should look at the mental and physical exertion required to complete a job and the employees’ working conditions.

Responsibility – Evaluate the degree of discretion and accountability required to perform a job, which includes whether an employee supervises others, makes high-level decisions and enacts policies and procedures.

There is a caveat to this three-part evaluation, as analysis must focus on the level of skill, effort and responsibility necessary to perform the employee’s job. This has the potential to be the subject of litigation as evidenced by some of the examples in the frequently asked questions. For instance, the guidance provides the following examples, demonstrating that this will be a fact-sensitive analysis:

In a school setting, janitorial and food service jobs may be substantially similar in terms of skill, effort and responsibility because both may involve substantial amounts of lifting and cleaning, even though the job duties are not exactly the same.

Attorneys reviewing contracts versus attorneys litigating cases may be performing substantially similar work in terms of skill, effort and responsibility even though the job duties are not exactly the same.

Permissible Pay Disparities

Not all pay disparities for substantially similar work are unlawful. Employers can defend against a pay discrimination claim either (1) by demonstrating that the pay disparity is the result of a seniority or merit system; or (2) by satisfying a five-part test demonstrating that the pay disparity is the result of one or more legitimate, bona fide factors other than an individual’s protected characteristic.

In its answers to frequently asked questions, the DCR clarified that a seniority or merit system must be a “plan, policy, or practice that is predetermined or predefined by the employer.” This means that any individualized compensation decisions will not be recognized as a seniority or merit system. The FAQs specifically state, “[a]d hoc determinations by an employer regarding what each individual employee is ‘worth’ to the company do not constitute a ‘system.’”

Compensation decisions resulting in pay disparities made outside of a merit or seniority system must satisfy the following five-part test:

1. The pay disparity is based on one or more legitimate, bona fide factors other than the characteristics of the protected class;
2. The factor or factors are not based on and do not perpetuate a differential in compensation based on a protected characteristic;
3. Each of the factors is applied reasonably;
4. One or more of the factors account for the entire wage differential; and
5. The factors are job-related with respect to the position in question and based on a legitimate business necessity.

Interestingly, especially in light of recent New Jersey legislation prohibiting employers from asking about salary history, the DCR explained that reliance on salary history in compensation decisions does not necessarily perpetuate a differential in compensation based on membership in a protected class under the Equal Pay Act. Rather, salary history will only be considered an illegitimate factor when asserted by a member of a protected class for which there is a preexisting wage gap, such as with sex. Other legitimate factors an employer may use include education or experience, training and/or the quality or quantity of production.

Additionally, the FAQs explain that employers can rely on geographical market differences, so long as they can demonstrate that the difference is based on cost-of-living or regional demands for the position at issue. This guidance is particularly important, as the Equal Pay Act did not address this issue, causing concern to many multi-location employers.

Once an employer satisfies the five-part test, an employee can still challenge the decision by demonstrating an alternative practice that would not result in disparate pay.

Self-Evaluations

Appended to the guidance is a self-evaluation guide for public sector employers. While this guide is intended for the public sector, it may also help private employers structure a self-evaluation to evaluate any existing pay disparities. Importantly, the DCR expressed that it would not treat any compensation adjustments made pursuant to a self-evaluation as admissions of liability. Left open, however, is the question of how voluntary adjustments will impact litigated matters. Before conducting a self-evaluation, employers should contact experienced employment counsel for guidance.

In addition to self-evaluations, employers should consider the impact of all future compensation decisions, for both new and existing employees, on potential pay disparity claims. Given the breadth of protections under the Equal Pay Act, and the limited guidance provided by the DCR, compensation decisions expose employers to potential scrutiny. Accordingly, in anticipation of future challenges, employers can take the following actions to comply with the Equal Pay Act and limit such exposure:

• Consider conducting a proactive compensation audit;
• Keep detailed documentation regarding all compensation decisions;
• Analyze whether a formal merit or seniority system would work for your company;
• If a merit or seniority system is already in place, ensure it fits the Equal Pay Act definition of a “system”;
• When possible, base compensation adjustments on objective criteria, such as education, years of experience and productivity (so long as these metrics are necessary for job performance of the position);
• Ensure that all job descriptions accurately describe the functions an employee performs, as the guidance specifically cautions that focus should be on function and not title; and
• Carefully determine the impact of any individualized compensation decisions on your obligations under the Equal Pay Act.

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