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N.J.’s Equal Pay Act: Employers Beware

Originally published in the November 21, 2018 issue of ROI-NJ

According to statistics, women in New Jersey are paid 82 cents for every dollar paid to men. Until recently, New Jersey’s pay equity protections mirrored those of the Federal Equal Pay Act of 1963, mandating equal pay for men and women performing “equal work.” Under these laws, pay disparities could only be justified if the differential was based on a bona fide seniority or merit system, or “any factor other than sex,” an exception that gave employers significant room to defend wage disparities by pointing to the applicant’s pay history or other factors unrelated to gender.

With the passage of the Diane B. Allen Equal Pay Act in March 2018, New Jersey now takes a more aggressive approach towards eradicating pay disparities. While principally aimed at the gender wage gap, the act applies to all protected classes, thereby paving the way for disparate wage claims on the basis of race, age and any other status protected by the New Jersey Law Against Discrimination. In addition, employees can point to higher rates being paid to counterparts outside the protected class who are engaged in “substantially similar work,” as compared to the narrower “equal work” standard under prior law. “Substantially similar work” will be viewed “in light of the employees’ skills, effort and responsibility.” Because there are no regulations interpreting this ambiguous phrase, employers must look beyond mere job titles to all aspects of all positions to identify those that involve “substantially similar work.”

Moreover, the wage comparison must be across all of the employer’s facilities, thus eliminating any argument that the comparison should be limited to the locale where the challenging employee works. Although it is unclear whether this includes facilities outside the state, it is recommended that they be included in the analysis. If a disparity is found, employers are precluded from lowering the compensation of any individual to correct the wage disparity, but instead must raise the compensation of the underpaid employee.

The act provides three exceptions to the ban on pay differentials for individuals performing “substantially similar work.” It continues to permit disparities based on a seniority or merit system, or any “legitimate bona fide factor.” However, the “legitimate bona fide factor” exception has been substantially narrowed and can only be invoked if the employer can show that:

  • The differential is based on legitimate, bona fide factors, such as training, education or experience, or the quantity or quality of production;
  • The factor(s) do not perpetuate a differential in compensation based on any protected characteristic;
  • Each factor is applied reasonably;
  • The factor(s) account for the entire wage differential; and
  • The factors are job-related and based on legitimate business necessity, and there is no alternative practice that would serve the same purpose without producing the wage differential.

How well-intentioned employers are to apply these factors to justify a wage disparity remains unclear. Yet failure to meet each element of the “legitimate bona fide factor” exception can have serious consequences. The Act mandates an award of treble damages (three times) for the amount of the underpayment. Moreover, while the limitations period for filing claims remains two years, the look-back period for employees to collect damages for past disparate pay practices was extended from two to six years. Finally, successful employees are entitled to reasonable attorney fees.

Given the risks of potentially devastating liability, employers must not remain stagnant despite the act’s lack of clear guidance. Employers should engage legal counsel to oversee a comprehensive review of current pay practices to preserve the position that the audit is protected from discovery under the attorney-client privilege. In addition, legal counsel can assist in addressing pay disparities discovered by the audit, as well as any compliance questions left unanswered by the act itself.

You may read the article available at ROI-NJ’s website here.

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