The Massachusetts Attorney General has recently published an Overview and Frequently Asked Questions (the “Overview”) regarding the amendment to the Massachusetts Equal Pay Act, set to take effect on July 1, 2018.  The Overview answers many questions that employers have been asking about this wide-ranging new law.  The Overview also confirms the importance of an employer self-evaluation, offering some direction on what types of evaluations are appropriate, and explaining how it could protect a company from liability under the law.

The New Equal Pay Act

Under the new pay equity law, employers are prohibited from paying employees of one gender less than employees of another gender for comparable work, unless the difference can be explained by one of six permissible factors: a seniority system; a merit system; a system based on quantity or quality of production, sales, or revenue; geography; education, training, or experience; or travel.

If there is a gender pay disparity between comparable employees, the pay equity law gives employers an affirmative defense if the employer can show that it completed a good-faith self-evaluation of its pay practices within three years of a claim and has made progress towards eliminating any disparity.

In addition, employers may not prohibit employees from disclosing or discussing their wages; may not ask about or seek the salary or wage history of an applicant (except in very limited circumstances); or screen applicants based on their wage history.  The law also prohibits retaliation against employees for asserting their rights.

The law left open many questions, including the scope of its coverage; what “comparable work” means; what constitutes “wages”; how the six permissible factors for a pay differential are applied; the reach of the ban on salary history inquiries; and how to conduct an appropriate self-evaluation.  The Overview addresses each of these points.

Coverage of the Act

According to the Overview, the pay equity law applies to any employee with “a primary place of work in Massachusetts.”  “Primary place of work” is defined as the location where the employees do most of their work.  Under this definition, employees who spend time in multiple states will be deemed to have their “primary place of work” in Massachusetts if they spend more time in Massachusetts than any other state, or if Massachusetts is their “base of operations,” even if they do not spend a majority of their time in the Commonwealth.  In addition, employees who telecommute to a Massachusetts location will be deemed to have Massachusetts as their “primary place of work.”

The Attorney General’s Office takes the position that only employees “within the same geographic area within Massachusetts” have to be compared.  That being said, the Office also asserts that a company should consider how employees outside Massachusetts are paid if the comparison would otherwise be “unreasonable,” such as where there is only one Massachusetts employee in a particular job category, and only a comparison with out-of-state employees will provide a meaningful result.

What Is Comparable Work?

The centerpiece of the new pay equity law is a revision of the term “comparable work.”  The statute will now define comparable work as “work that is substantially similar in that it requires substantially similar skill, effort and responsibility and is performed under similar working conditions.”  The Overview offers some insight as to each of these terms.

“Substantially similar” is defined as “alike to a great or significant extent,” but “not necessarily identical.”  “Minor differences” are not enough to differentiate employees.  “Skill” is defined as the experience, training, education, and ability necessary to do the job.  It does not mean the actual skill of the employee, but rather the requirements of the position.  “Effort” is defined as the physical or mental exertion needed to do the job.  “Responsibility” is the amount of discretion or accountability involved in performing the job, taking into account factors including the amount of supervision the employee receives, whether the employee supervises others, and whether the employee is involved in decision-making over significant matters.

The Overview offers some illustrations of these points:

• A bookkeeper and an account manager do not perform comparable work, because the positions involve different skills: accounting versus customer service.
• Janitors in an elementary school perform work comparable to employees in food service, because they do not require prior experience or specialized training, and involve roughly the same physical exertion.
• Employees selling different kinds of insurance for the same employer are probably performing comparable work, unless the different insurance products require different levels of knowledge or expertise.
• A job in which a person sits does not require the same effort as one that requires standing all day, and therefore is not comparable work.
• A job that requires a person to sign legal documents and be personally responsible for their content, is not comparable the job of a person who only drafts the documents.

A job must also be substantially similar as to “working conditions.”  This factor takes into account the physical environment of a job.  Thus, a position on a factory floor is not comparable to a position in an office, and a position that is mostly outdoors is not comparable to one indoors.  Likewise, physical and other hazards are considered, such as exposure to chemicals, heights, and dangerous equipment.  Working conditions may also include the days of the week or the times that shifts are scheduled – for instance, weekend or overnight work.

The Overview makes clear that titles or job descriptions alone are not enough to establish that two jobs are, or are not, comparable.

What Are Wages?

The law requires that “wages” and “wage rates” be equal.  According to the Overview, “wages” includes virtually all forms of compensation or benefits received by an employee for work performed – not only hourly pay or salary, but also incentive pay such as commissions, bonuses, or profit-sharing; paid time off, vacations, and holidays; expense accounts and allowances; deferred compensation or retirement benefits; and insurance.  It includes amounts paid both to an employee directly and to a third party on the employee’s behalf.

For fringe benefits, the question is whether an employee is given the opportunity to participate in the benefit, not whether he or she actually participates.  Thus, employees who decline health insurance because they are on a spouse’s plan, or who decline to take part in a tuition reimbursement program, do not receive less in “wages” than a person who receives these benefits.

The Overview states that an employer cannot “pay[] lower wages overall” or “pay[] lower base salaries or lower hourly rates.”  The particular example given is that an employer cannot pay an additional bonus to an employee to make up for a lower base salary. 

The Six Permissible Factors

An employer must justify a disparity in pay between two opposite-gender employees performing comparable work by showing that the disparity is caused by one or more of the six permissible factors set out in the law.  Some of these factors are straightforward, some require more explanation.

A “seniority system” is a system that compensates employees based on length of service.  Time off for “parental, family and medical leave” must still be included for seniority purposes.  The Overview states that only “leave protected by statute” counts as “parental, family and medical leave,” and gives the examples of the federal Family and Medical Leave Act and the state Small Necessities Leave Act, Pregnant Workers Fairness Act, and Domestic Violence Leave Act.  It is unclear whether this interpretation would also include leave taken as a reasonable accommodation under disability discrimination laws, or earned sick time off.

A “merit system” is a system that sets pay on employee performance, based on “legitimate, job-related criteria.”  This factor presumably would cover the standard employee performance rating systems used by many employers.

A “system which measures earnings by quantity or quality of production, sales, or revenue” includes piece-rate pay, commissions, and other revenue-based incentives.  Paying employees by the hour would, of course, also fit within this standard.  The Overview explains that employers can pay part-time employees at different wage rates, or provide different benefits, as compared to full-time employees, and can offer bonuses or other incentives for putting in extra hours.

“Geographic location” may be an acceptable reason for differences in wages when “the locations correspond with different costs of living or differences in the relevant labor market.”  The Overview does not offer any further insight about what qualifies as a “location” or “labor market.”

“Education, training, or experience” may also justify differences in wages if they are “reasonably related to the particular job in question”—that is, if a “reasonable employer” would conclude that the education, training, or experience “would help the employee to perform the particular job in a more efficient or more effective manner.”

Finally, “travel” may support wage differentials if travel is “a regular and necessary condition of the employee’s job.”  Travel is not considered “necessary” because a person prefers or chooses to travel when alternatives are available.  The Overview further states that “regular commuting to or from a work location” does not qualify as “travel” for purposes of this statute; an employer cannot offer one person a higher wage simply because he or she lives farther away.

For these purposes, the Overview defines a “system” as a plan, policy, or practice that is (1) predetermined or predefined; (2) used to make compensation decisions, and (3) uniformly applied in good faith, without regard to gender. 

The law does not allow for any other exceptions or excuses for paying one gender differently from another for comparable work.  Thus, wage or salary history, changes in the labor market, or market forces are not valid justifications for a wage differential.  Likewise, the fact that one person negotiated a higher salary, alone, would not justify paying that person more than someone of the opposite gender.

Discussion of Wages Between Employees

An employer cannot prohibit employees from discussing their own wages or their coworkers’ wages, “or from disclosing wage information to any person or entity.”  On the other hand, employers are not required to publish or otherwise disclose employees’ wages.  Employers can also prohibit human resources employees, supervisors, or other employees whose job gives them access to others’ wage information, from disclosing pay information.

Wage/Salary History Inquiries

The statute makes clear that employers cannot seek the salary history information of a prospective employee, either from the candidate or from a current or former employer.  The only exceptions are where prospective employees voluntarily disclose their wage or salary history, or after an offer of employment, including pay, is made.  This prohibition extends to both the company’s own employees and any agents, such as external recruiters or staffing agencies. 

The Overview answers several commonly asked questions about the ban on pay inquiries. First, an employer can lawfully ask prospective employees about “their salary requirements or expectations.”  The Overview warns, however, that “employers should proceed with caution” in doing so, and should not ask such questions “in a way that is intended to elicit information from the prospective employee about his or her salary or wage history,” such as follow-up questions seeking the basis for any pay requirements or expectations.  Second, the restriction does not apply to current employees who apply for an internal transfer or promotion.  Third, employers can ask about prior performance – for instance, whether candidates met their sales quotas at their previous job – so long as the questioning does not include asking about their commissions or other compensation information.

An employer may seek salary or wage information from public sources, if available.  However, past salary or wage history cannot be used in setting a prospective employee’s compensation, and an employer cannot screen candidates based on that history.

With respect to the scope of the ban on salary or wage history inquiries, the Overview focuses on whether the person will have a “primary place of work” in Massachusetts.  It is unclear whether this portion of the law will be interpreted more broadly, for instance, for Massachusetts residents applying to work outside the state.

The Self-Evaluation

An employer has an affirmative defense under this law if it can prove that it “completed a self-evaluation of its pay practices in good faith,” and “that reasonable progress has been made towards eliminating wage differentials based on gender for comparable work.”  The Overview offers insight into this defense.

“Good faith,” for this defense, means “a genuine attempt to identify any unlawful pay disparities.”  An employer must act in good faith both in determining which employees are performing comparable work, and in analyzing pay differentials.  An employer cannot conduct a self-evaluation to achieve a pre-determined result, or to simply justify known disparities.

The self-evaluation must be “reasonable in detail and scope.”  The Overview offers little concrete guidance on this element, stating only that it will be determined on a case-by-case basis, taking into account: (1) whether the evaluation includes a “reasonable number” of jobs and employees; (2) whether it takes into account “all reasonably relevant and available information;” (3) and whether it is “reasonably sophisticated” with respect to “potentially comparable jobs,” compensation, and the six factors.  Of course, to take advantage of the affirmative defense in a lawsuit, the self-evaluation must have included the plaintiff.

A self-evaluation alone is not enough; to establish the defense, the employer must also show that it made “reasonable progress” towards eliminating pay disparities.  This showing takes into account a number of factors, including: (1) the amount of time that has passed since the self-evaluation; (2) the “nature and degree” of the progress “as compared to the scope of the disparities identified;” and (3) the size and resources of the employer.  If disparities are not yet eliminated, the employer must show that they will be “in a reasonable amount of time.”  Notably, the Overview states that an employer is not required to pay employees retroactively for historical pay disparities, but rather needs only to make the changes going forward.  Also, an employer may not reduce the wages of any employee in reaction to pay disparities.

It may be the case that an employer does not know why one employee is paid more than another – for instance, where the employees are long-tenured, or a manager is no longer with the company.  Even under these circumstances, an employer may take advantage of this defense if the self-evaluation showed that pay disparities were justified by one of the six explanations described above, or that it has made reasonable progress towards eliminating the disparities.

Employers are not required to conduct a self-evaluation, and will not be penalized for choosing not to do so.  Generally speaking, a properly-conducted self-evaluation and any remedial steps will not be admissible as evidence of a violation in court.

The Overview includes as an appendix a “Basic Guide” to conducting self-evaluations.  It contains six (somewhat general) steps for employers to consider:

• Step 1: Gather relevant information. Collect data relevant to the issue of pay equity.  The Overview lists 24 categories of information but cautions that “additional information may also be relevant.”  The Overview recommends that the audit include all current and former employees over the past year, though it is unclear whether that is a guideline or requirement.

• Step 2: Identify comparable jobs. Create job groupings based on the relevant factors: skill, effort, responsibility, and working conditions.  The Overview emphasizes that titles and job descriptions alone will not determine comparability, and that jobs in different business units or departments may be comparable.

• Step 3: Calculate whether men and women are paid equally. This is the heart of the analysis.  Here, the Overview offers only four “general guidelines,” with the caveat that they are “only a starting point” and “alternative approaches that are based on valid methodologies used or recommended by professional economists or statisticians” may also be used.

  Where there are “small, clearly defined groupings of comparable jobs” and “relatively simple pay structures,” a simple analysis looking at averages between men and women may be used.  When there are more than 30 employees in a job grouping, or “the pay structure is complex,” a statistical analysis may be necessary.  Outliers – employees “whose compensation is significantly above or below the average” – should be given special attention.  The Overview also states that “one-to-one comparisons” between male and female employees may be needed, because “each male employee within a comparable job grouping is a potential comparator for the female employees (and vice versa).”

• Step 4: Assess whether differences in pay are justified under the law. Consider whether any pay disparities can be explained by one of the six permissible factors allowed by the law.  For smaller groupings (the Overview says up to 30 employees), considering employees on a person-to-person basis may be appropriate.  For larger groupings, a multi-variable regression analysis may be necessary.  Most employers performing self-audits under other statutes (such as the federal Equal Pay Act) have found regression analysis to be a successful way to examine what is often complicated data regarding pay.

• Step 5: Remediate any disparities. Employers should work to fix any pay disparities by setting up a remedial plan “as soon as practicable.”  Remediation may be by formula, such as “providing all affected employees the same amount or percentage increase,” or the adjustments “may be more targeted.”

• Step 6: Adjust pay practices. The Overview states that employers “should attempt to determine the reason(s) for [the] differentials,” and “take steps to prevent them in the future.”  It is unclear whether this is a guideline or a requirement, as it seems to go beyond the text of the statute.

Understandably, the Overview notes that “the complexity of the analysis required will vary significantly depending on the size, make-up, and resources of each employer,” and thus the steps are “intended only as general guidelines.”  Employers should strongly consider consulting with legal counsel before conducting any self-evaluation.

Finally, the Overview includes a checklist for reviewing policies and practices in anticipation of the new law going into effect.  This review does not constitute a self-evaluation, but the checklist is a good starting point for a broader business review.

Conclusion

This article provides only an introduction to the Attorney General’s lengthy Overview of the new pay equity law. The full Overiew is available here. Employers should review it in depth and consult with counsel if they have any questions.  As a reminder, this law goes into effect July 1, 2018.