Pay Equity Act: Are Employers Ready to Defend Their Pay Practices?

Pay equity issues are hot these days, in the boardroom and in the courtroom. Ask any employment lawyer and they will probably tell you that equal pay is likely to be one of the hottest topics in 2017 and beyond. This is doubly so for New York employers, due in no small part to the state's Achieve Pay Equity Act (APEA).

The law, which went into effect about one year ago in early 2016, greatly expands employee pay equity protection for employees in New York well beyond the federal Equal Pay Act (EPA). Recent high-profiles cases filed in New York federal court, coupled with the treble damages available under the New York APEA, suggest that pay equity litigation will increase in the coming years. Now is the time for New York employers to take action to protect themselves before the likely onslaught of litigation under the state's pay equity statute.

Achieve Pay Equity Act

Prior to last January, New York's pay equity law mimicked the federal EPA. In fact, the two laws still provide for the nearly identical prohibition on unequal pay for work requiring "equal skill, effort, and responsibility, and which is performed under similar working conditions." As the U.S. Court of Appeals for the Second Circuit recently reiterated, in order to set forth a prima facie case under the EPA, a plaintiff must demonstrate that:

(1) the employer pays different wages to employees of the opposite sex;

(2) the employees perform equal work on jobs requiring equal skill, effort, and responsibility; and

(3) the jobs are performed under similar working conditions.

Ultimately, the critical question under the EPA "is the equal work inquiry, which requires evidence that the jobs compared are substantially equal." To make this determination, the court must compare "actual job content; broad generalizations drawn from job titles, classifications, or divisions, and conclusory assertions of sex discrimination, cannot suffice." Id.  Although there haven't been any notable court cases interpreting the APEA to date, the nearly identical language in the two laws prohibiting equal work for unequal pay suggests the requirements for a plaintiff to set forth a prima facie case under New York law will continue to track federal law.

Under the APEA, employers can only set forth an affirmative defense justifying a pay differential if they can prove the differential was based on a bona fide factor other than sex (such as education, training, or experience), whereas the federal EPA merely requires a showing of any other factor other than sex to justify the difference (in addition to both laws allowing a seniority, merit, or quantitative system to justify the pay differences).

Moreover, under New York law, this bona fide factor cannot be based upon or derived from a sex-based differential in compensation, and must be job-related with respect to the position in question and consistent with business necessity. The employer bears the burden of proof on this affirmative defense under both federal and state law; however, that burden is far greater under the APEA.

Next, New York's APEA allows an employee to overcome an employer's affirmative defense of a bona fide factor by showing that (1) the employer's practice causes a disparate impact on the basis of sex; (2) that alternative practices exist that would serve the same business purpose and not cause a disparate impact; and (3) the employer has refused to adopt the alternative practice. The federal EPA does not provide for such rebuttal evidence.

Third, New York's APEA increases the pool of male comparators to which plaintiffs can point to demonstrate a disparity in pay. Under both the EPA and APEA, the relevant comparators must work in the same "establishment." However, New York's APEA expands the definition of "establishment" to include all locations in a "geographical region," no larger than a county.

Finally, one of the major catalysts for the expected future uptick in pay equity litigation in New York is that the APEA greatly increases potential recovery for plaintiffs. Whereas the EPA (and New York law prior to last January) allows for only liquidated damages equal to the differential in wages, New York's APEA now allows for up to 300 percent liquidated damages. By way of example, a pay disparity of only $5,000 per year could now yield damages of $20,000 per year plus attorney fees and costs.

Anatomy of a Claim

The landscape of pay equity litigation in New York has significantly changed with the passage of the APEA. Procedurally, the options to litigants seeking to vindicate their rights under the APEA are very broad: claims can proceed as an opt-out class action, a six-year statute of limitations applies (as opposed to three years under the EPA), and claims are subject to the increased liquidated damages. Thus, the APEA has significant procedural, as well as substantive, advantages over its federal counterpart, and can be a powerful tool for litigants pursuing gender discrimination claims.

Going forward, pay equity litigation likely will include hybrid claims under both the federal EPA and New York APEA. Similar to the significant wage and hour class and collective action litigation under the Fair Labor Standards Act (FLSA) and state law, plaintiffs' lawyers can be expected to take advantage of the collective action notice mechanism under the federal EPA—which provides for notice to employees who are "similarly situated"—while at the same time pursuing state law claims as a class action.

Looking Forward

As 2017 continues, New York employers are likely to see an increase in both class action APEA claims and single-plaintiff APEA claims added to otherwise traditional gender discrimination lawsuits. When all of the changes of New York's Achieve Pay Equity Law are accounted for, it would not be surprising to see pay equity litigation in New York dramatically increase in 2017. While employers will certainly not welcome that development, an increase in filed cases and decisions will have the side benefit of providing more clarity regarding the differences between New York and federal pay equity law.