Sunday, August 5, 2012

Hiring Qualifications Don't Justify Wage Discrepancies (After a Time, Anyway)

(This entry courtesy of my associate here in Chicago, Susan Baker).

Gender-based pay discrimination is under a political and legal spotlight and has been since the Ledbetter case several years ago.  Accordingly, it’s crucial for employers to understand if and how their employment policies result in compensation disparities and when these disparities have to be remedied.  It’s also important for a company to understand that potential plaintiffs have more than one option to sue their employers--Title VII or the Equal Pay Act (“EPA”) or both--and those options vary significantly in terms of their process and requirements.

Under Title VII, a gender discrimination plaintiff has to prove that her employer intended to discriminate against women by paying them less.  In its defense, an employer need only provide a legitimate, nondiscriminatory reason for its actions.  But in an EPA case, once a pay disparity is established, the employer has to prove that the difference in pay is the result of a factor other than sex.  In other words, the employer must prove that its legitimate business policies (which can't be based on gender in any manner) accounted for the difference in pay.

In many cases, we see such gender-neutral policies at work in hiring.  An employer may favor hiring people with advanced degrees, or particular work experience, or some type of specialized education, that results in women starting at lower salaries than their male counterparts.  The key point to remember is that these types of criteria should only have an effect on the initial compensation decision--once the employees have been working under an employer's performance standards for a while, the hiring criteria should diminish in importance, and the company's performance requirements should dictate compensation levels. 

These were the tough lessons learned for an employer in a recent Seventh Circuit opinion. The plaintiff brought a gender-based pay discrimination claim under Title VII and the EPA and succeeded on both after the Court engaged in a detailed audit of the employer’s pay practices.

As we've noted before, one of the pleasures of working in Chicago is reading the oft entertaining opinions of the Seventh Circuit.  In demonstrating the diminishing utility of hiring criteria over time, Judge Easterbrook here used an analogy that resonates with all dejected law school applicants  who fared poorly on the admissions test, the LSAT.  He explains that although the notorious exam affects the probability of admission to law school, it has no effect on a student’s grades once enrolled, nor does it affect future job opportunities.  This, Easterbrook declares, is just like a sex discrimination claim arising under the EPA:  nondiscriminatory reasons for pay disparities such as education and experience, for example, can properly affect the differences in starting salaries between men and women, but such factors do not, and should not, affect increases in pay once the person is steadily employed.  At that point, performance on the job is what counts, and any original gap in starting salaries should begin to close so that employees doing the same job under the same standards receive the same compensation.

This case emphasizes that employers must be keenly aware of pay disparities and the reasons behind them.  Any factors affecting employees’ starting salaries should gradually disappear, and, eventually, there should be no difference in compensation between employees who work in the same position and contribute to the company on the same level.  This remains true even if it means that women receive greater compensation increases as compared to men in order to close that gap.

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