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New Jersey Encourages Pay Equity Audits

OutSolve

The New Jersey Division of Civil Rights (DCR) published its guidance on enforcing the Diane B. Allen Equal Pay Act (“Allen Act”)

New Jersey joins several other states that have already implemented pay equity legislation. The guidance can be found here. The guidance includes several provisions that promote pay equity, limited employer defenses to charges of discrimination, broad anti-retaliation provisions, and employer pay data reporting responsibilities. The Guidance also includes a Frequently Asked Question section that provides employers with a broad range of assistance.

The states that have already implemented pay equity laws include different variations of a safe harbor for employers. The Equal Pay Act encourages New Jersey businesses to conduct equal pay audits, “DCR encourages employers to take proactive steps to address pay disparities among their employees and to ensure they are in compliance with the Equal Pay Act. In proceedings before DCR, if an employer has proactively conducted a self-evaluation of its pay practices and then made adjustments in compensation based on that self-evaluation, those adjustments will not be treated as an admission of liability.”

The employer benefits from conducting equal pay audits because the state agency will not penalize employers for their proactive efforts. This is a type of mini safe harbor. The state says that it will not treat the employer’s action to conduct equal pay audits as an admission of an equal pay violation in administrative proceedings before the state agency, e.g., not in court or arbitration.

Employers should be aware of the penalties for violations of the Equal Pay Act which could include an order to pay monetary damages, implement policy changes, ongoing monitoring, and all or some of the following remedies:

  1. An order requiring the employer to cease and desist from the unlawful employment practice;
  2. Lost wages and benefits (including 3x damages for equal pay or anti-retaliation violations);
  3. Hiring, reinstatement, or promotion as appropriate, with back pay and interest;
  4. Emotional distress damages;
  5. Reasonable attorneys’ fees if the complainant was represented by counsel;
  6. Out-of-pocket expenses associated with pursuing the complaint; and
  7. Punitive damages (in cases filed in Superior Court only).

Employers should also carefully review the pay differential exemptions defined in the Allen Act. The Allen Act includes exemptions that prohibit an employer from paying an employee who is a member of a protected class less for equal work than an employee who is not a member of that protected class. The exemptions are much narrower than the federal Equal Pay Act of 1963 (EPA). Under the Allen Act, the pool of comparable candidates is much broader. The EPA standard is “equal pay for equal work” in contrast to the Allen Act’s standard of “equal pay for substantially equal work.” The Allen Act also permits pay differentials for employees performing similar work only when payment is made pursuant to a seniority system or a merit system. The following item must also be true for pay differentials:

  • “That the [pay] differential is based on one or more legitimate, bona fide factors other than the characteristics of members of the protected class, such as training, education or experience, or the quantity or quality of production;
  • That the factor or factors are not based on and do not perpetuate, a differential in compensation based on sex or any other characteristic of members of a protected class;
  • That each of the factors is applied reasonably;
  • That one or more of the factors account for the entire wage differential; and
  • That the factors are job-related with respect to the position in question and based on legitimate business necessity. A factor based on business necessity shall not apply if it is demonstrated that there are alternative business practices that would serve the same business purpose without producing the wage differential.

Employers should consider pay equity analyses as part of their normal business practices. Pay Equity audits can benefit an employer’s compensation programs by reducing risks from unexpected legal challenges, ensuring that all employees are paid equitably, and aiding in the attraction and retention of talent. It is a common practice to conduct all pay equity audits under attorney-client privilege.

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