By Mark F. Kluger and William H. Healey
On March 26, 2018, the New Jersey legislature sent an unprecedented equal pay law to the Governor who will likely sign it. The draft legislation, which is modelled on the ground-breaking federal Lilly Ledbetter Fair Pay Act of 2009, leaves Lilly in the dust with its 6 year statute of limitations (Lilly’s is 2 ) and its treble (as in 3 times) damages provision.
The new law, will amend the New Jersey Law Against Discrimination and is touted as a remedy for the gender pay gap, but actually applies to the compensation of all classes of employees protected by NJLAD. Specifically, the law makes it unlawful [f]or an employer to pay any of its employees who is a member of a protected class at a rate…which is less than the rate paid by the employer to employees [of the other sex] who are not members of the protected class for substantially similar work, when viewed as a composite of skill, effort and responsibility. The first burden for employers will be to figure out which jobs are substantially similar relative to the skill, effort and responsibility involved.
Bob in Accounts Receivable has 6 accounts for which he is responsible and Cindy has 10. Among Bob’s accounts are 3 multi-national companies with complex payment terms, letters of credit and many disputes and delinquencies. Cindy’s accounts are straight forward. If Bob is paid more than Cindy, the challenge will be to prove the non-discriminatory reasons for the disparity with objective evidence.
Under the law, employers can defend compensation differences if based on established seniority or merit systems but without those, only distinctions in training, education, experience or quality or quantity of work will suffice to justify the pay disparity. The compensation differences must also be job related and based on legitimate business necessity. As if the burden is not high enough, the law also provides that [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. Fine, so split the complex accounts between Bob and Cindy but if the quality or quantity of [her] work is not sufficient, the employer is in a tough spot to prove the non-discriminatory basis for the pay disparity.
If the burden of proof doesn’t kill you, check out the potential damages. Every paycheck containing an allegedly discriminatory payment constitutes a new violation and automatically restarts the statute of limitations. If a jury finds the employer did discriminate in compensation, back pay can be awarded for up to 6 years and after that number is calculated, the judge will (shall not may) triple it.
When signed, the law will take effect July 1, 2018. Between now and then, employers should conduct a compensation audit to look for pay disparities among employees in the same jobs and in which an employee in a protected classes is paid less than their unprotected counter-parts. If a disparity is discovered, it is important to figure out why and whether it is for a legitimate, non-discriminatory and most importantly, provable reason. If you do have a legitimate defense, write it down and not in invisible ink and keep it someplace safe. Unfortunately, keeping records for eons will be necessary to defend these cases in the future.
Remember that with each paycheck creating a continuously renewable violation, it may be several generations from now that a lawsuit is filed and your successor’s great, great grandchild may be scrambling to defend a pay disparity which was originally based on a legitimate, non-discriminatory reason determined well before the company moved to the space station just outside of Mars.