Welcome to the May edition of the HR Advisor Newsletter. This month we explain why courts, states, and employers are focused on pay equity, when you’re not allowed to take a deduction from an exempt employee’s salary, and how the latest federal budget amended the Fair Labor Standards Act. Thank you for reading!
Why Courts, States, and Employers Are Focusing on Pay Equity
|The federal Equal Pay Act went into effect in 1963, but it hasn’t brought an end to pay disparities between men and women. Neither have state laws with the same objective. Long story short: the laws weren’t strong enough, and they didn’t account for all the causes of unequal pay. In many cases, it has been possible for an employer to comply with these laws while still giving unequal pay for equal work.
Often, it’s not that employers have deliberately chosen to pay women less than men for the same jobs. In many cases, the basis for pay differentials has seemed sensible, such as salary history. But it turns out that basing pay on salary history perpetuates discrimination over an employee’s career. Mindful of these facts, some states across the country have instituted salary history bans and implemented other legal measures to strengthen pay equality. And the 9th Circuit Court of Appeals issued an opinion recently that significantly strengthened the federal Equal Pay Act.
In this article, we’re going to look at that ruling as well as some of the state legislative efforts. But, first, let’s review the federal Equal Pay Act, since that law affects all employers.
The Equal Pay Act
The Equal Pay Act makes it illegal for employers to pay unequal wages to men and women who perform jobs that require substantially equal skill, effort and responsibility, and that are performed under similar working conditions within the same establishment. Job duties, not job titles, will determine whether jobs are substantially equal. Each of the relevant factors are summarized below:
Under the EPA, pay differentials are permitted when they are based on seniority, merit, quantity or quality of production, or a factor other than sex. These are known as “affirmative defenses” and it is the employer’s burden to prove that they apply. In correcting a pay differential, no employee’s pay may be reduced.
The 9th Circuit Ruling
The 9th Circuit Court of Appeals ruled last month that salary history is not an acceptable reason for pay differences under the EPA, even when used in conjunction with other factors. The new reading of the law impacts employers in Alaska, Washington, Montana, Idaho, Hawaii, Oregon, California, Nevada, and Arizona, but since Circuit Courts often rely on one another’s rulings, it’s very possible that the impact of this decision will spread.
As written, the EPA allows for pay discrepancies for the following reasons:
Employers, including the defendant in this case, have often used salary history to help determine a new employee’s starting salary, and assumed that this would count as “any factor other than sex.” The court did not claim that this is an unreasonable reading of the law. Rather, it said that such a reading is contrary to the point of the law, as an employee’s past salary is likely to be impacted by gender-based pay discrimination.
The Court also established that “any factor other than sex” is limited to legitimate, job-related factors, such as experience, education, and ability. The catch-all provision does not include business-related reasons, such as an individual’s willingness to work for lower wages or the need to offer higher wages to candidates in a more employee-friendly market. Essentially, the opportunity for cost-savings is not an acceptable reason for a pay differential.
The Court, however, deliberately stopped short of saying whether individualized salary negotiations—which may involve some reliance on past salary—would provide a defense, but it suggested a future court could rule on that issue.
State Bans on Salary History Inquiries
So far, California, Oregon, Delaware, and Massachusetts (as of July 1) have banned salary history inquiries. Washington allows employers to ask about salary history, but it prohibits employers from using that history as the basis for pay differentials.
The salary history bans are an effort to break the cycle of lower pay. These cycles happen all the time. Maybe it started with an employee’s first job or somewhere along the way, but at some point, the employee received pay lower than a male co-worker who was in a similar position with similar qualifications. Perhaps the cause of was deliberate discrimination. Or perhaps she simply requested lower pay than her male peers, and her employer saw no need to argue. In any case, she received less pay than she should have. If her future salaries are determined with reference to this salary, then the original disparity will stay with her over the course of her career. Salary history bans are an attempt to end such cycles and reset wages at equitable levels.
If you are in the 9th Circuit and among the many employers who have based employee wages to some extent on salary history, that practice should be stopped immediately, and different wages adjusted or accounted for. Also look for factors that contributed to pay differentials that were business-related rather than job-related. Remember that you cannot reduce someone’s pay as a remedy under the EPA.
Stop Asking About Salary History
There are very limited circumstances under which an employer is allowed to take a deduction from an exempt employee’s salary, and employers who take a deduction when they shouldn’t risk the employee’s classification. This means an employee who had been classified as exempt could claim that the employer was treating them like an hourly employee by taking the prohibited deduction. The employee could then sue for back pay for all overtime they had worked without additional compensation.
Deductions are not allowed for the following:
- Any partial day absence, for any reason, whether 15 minutes or 7.75 hours. If the employee does any work at all they must be paid for the entire workday.
- Any full day absence for sickness or disability if the employer does not offer a bona fide sick leave plan. Bona fide sick leave plans offer at least five days of paid leave per year that may be used for illness. If a bona fide plan is offered and an employee has used up all of their time, the employer may make a deduction for a full day absence only in the case of sickness or disability.
- For absences resulting from jury duty, serving as witness, or temporary military leave, unless the employee performs no work at all during the workweek. Employers may, however, reduce pay by any amount received for those services (such as a $15/day stipend paid by the county for serving on a jury).
To learn more about acceptable and unacceptable deductions, bona fide sick leave plans, and best practices for exempt employees, use the search bar in the HR Support Center and type in Exempt Deduction.
|FLSA Amended to Allow Tip Pooling if No Tip Credit is Taken|
|The rules around tip pooling have been mired in litigation since 2011, when regulations came into effect that forbid tip pooling between employees who customarily receive tips and those who do not. The recently passed federal budget bill has created clarity by amending the Fair Labor Standards Act (FLSA) and eliminating that rule for employers who do not take a tip credit. Since the rule has been eliminated entirely, court decisions interpreting it—such as Oregon Restaurant and Lodging Association, et al v. the U.S. Department of Labor—are irrelevant.
The amended portion of the FLSA, while allowing for tip pooling between front and back of house employees if no tip credit is taken, clearly states that tips cannot be shared with managers or supervisors. To determine if someone is a manager or supervisor for the purpose of the tip pooling statute, employers should apply the White Collar Executive duties test below. An employee is only disallowed from sharing in tips if all of the following are true:
Given the specificity of the test, a fair number of workers who operate in a supervisory capacity on an occasional basis, or while performing their own customer service tasks, will likely still be eligible to share in tips.
Employers who do take a tip credit are still prohibited from enforcing any tip pooling system that shares tips with employees who do not customarily receive tips.
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