Do You Have Questions About Complying with New Jersey’s Equal Pay Act?

Do You Have Questions About Complying with New Jersey’s Equal Pay Act?

If you have questions about complying with the Diane B. Allen Equal Pay Act (Equal Pay Act or Allen Act), you are not alone. The landmark employment law, which took effect in 2018, significantly expanded the equal pay protections under the New Jersey Law Against Discrimination (LAD). In doing so, it also created a number of new compliance obligations for employers.

To help with compliance, and educate the public about the equal pay law, the New Jersey Division on Civil Rights recently issued new guidance. It summarizes the changes that the Equal Pay Act made to the LAD and explains how those changes affect employers and employees. The guidelines contain answers to frequently asked questions about the Act and how it will be interpreted.

Diane B. Allen Equal Pay Act

As discussed in greater detail in prior articles, the Diane B. Allen Equal Pay Act amended the LAD, N.J.S.A. 10:5-12, et seq., to specifically target pay disparity. The Allen Act makes it illegal for employers to pay a member of a protected class less than a member of a non-protected class when both are doing “substantially similar work when viewed as a composite of skill, effort and responsibility.”

Violations of the Allen Act can be extremely costly for New Jersey employers. Firstly, the LAD’s two-year statute of limitations resets each time an employee is paid at the discriminatory rate. In addition, employees can recover up to six years of back pay. Once damages are calculated, the court “must” treble them, which means if the jury awards $2 million, the judge must multiply that amount three times,  to $6 million.

DCR Guidance on “Substantially Similar Work”

The DCR guidelines summarize the key provisions of the Allen Act and explain how such changes to LAD may impact employers and employees. For employers, the DCR’s responses to 43 frequently asked questions (FAQs) may be particularly useful.

The FAQs address the requirement of equal pay for “substantially similar” work. Under the Equal Pay Act, two employees perform “substantially similar work” when their job duties require a similar degree of skill, effort, and responsibility. According to DCR, “When determining whether work is substantially similar, all three factors should be examined together. Work is substantially similar where, on balance, the jobs are substantially similar, but they need not be identical.” The guidance further states, “Minor differences in skill, effort, and responsibility do not preclude work from being substantially similar.”

DCR also clarifies what the term “skill” means in the context of the Equal Pay Act. “This term refers to the skills actually necessary to perform a job, as opposed to the skills a particular employee just happens to have,” the guidelines state. “Therefore, skills not necessary to perform a particular job are not relevant to determining whether jobs are substantially similar.” To highlight this point, DCR provides the following example: For an accountant who happens to have a Master’s Degree in Literature, knowledge of English Literature typically would not be a skill required to perform the job because it is typically not related to an accountant’s job duties.

The DCR also discusses the meaning of “skill.” In the context of the Allen Act, “skill” refers to the “experience, ability, education, and training required to perform a set of job duties,” rather than the “skills a particular employee just happens to have,” according to the guidelines. Accordingly, DCR advises that “skills not necessary to perform a particular job are not relevant to determining whether jobs are substantially similar.” The FAQs provide the following example: If an accountant happens to have a Master’s Degree in Literature, knowledge of English Literature typically would not be a skill required to perform the job because it is not typically related to an accountant’s job duties.

With regard to effort, DCR states that the term refers to the “requirements of a job as a whole and takes into account the amount of physical or mental exertion required to complete a job.” It further notes that an employee’s working conditions may also be relevant to the amount of effort required to perform a job.

Finally, with regard to responsibility, the guidelines provide that the term refers to the job duties required and to the degree of discretion and accountability required to perform the job. “An employee who supervises others, makes high-level decisions, or enacts policies and procedures may have different responsibilities than an employee who does not,” the guidelines state. “However, minor or occasional differences in responsibilities will not prevent jobs from being substantially similar.”

DCR Guidance on Permissible Variations in Pay

The FAQs also address a number of important questions regarding permissible variations in pay. To start, the guidelines emphasize that even when an employer demonstrates that a pay disparity is based on a legitimate, bona fide factor other than a protected characteristic, the employer must still meet the other four requirements under the Allen Act. Specifically, the employer must demonstrate that the factor(s) are not based on, and do not perpetuate, a differential in compensation based on membership in a protected class; that each of the factors is applied reasonably; “that one or more of the factors account for the entire wage differential”; and that “the factors are job-related with respect to the position in question and based on a legitimate business necessity.”

The FAQs also clarify that a “system” is a “plan, policy, or practice that is predetermined or predefined by the employer,” which is used in good faith by managers and others to make compensation decisions. “Ad hoc determinations by an employer regarding what each individual employee is ‘worth’ to the company do not constitute a ‘system,’” the guidelines state.

DCR also emphasizes that even when an employer demonstrates that a pay disparity is based on a legitimate, bona fide factor other than a protected characteristic, the employer must still demonstrate that the factor or factors are not based on, and do not perpetuate, a differential in compensation based on membership in a protected class. “A factor that is not based on, and does not perpetuate, a differential in compensation based on membership in a protected class is one that has not historically been associated with wage gaps for members of LAD-protected classes—for example, sales numbers,” the guidelines explain. “However, if a factor that was previously used to justify pay disparities did not explicitly refer to a protected characteristic but was used as a pretext for or had the effect of discriminating on the basis of that characteristic, that factor could not be used to justify pay disparities under the Equal Pay Act.”

DCR also confirms that geographic differences can be a legitimate bona fide factor justifying a difference in compensation. “[A]national employer could argue that its computer programmers in one city are paid more than its computer programmers in another location because of the higher cost-of-living in the former or because of the higher demand for computer programmers in the former market,” DCR explains. “It would then have to demonstrate that cost-of-living and/or demand are not based on, and do not perpetuate, a differential in compensation based on sex or any other protected characteristic; that both factors were applied reasonably and together accounted for the entire wage differential; and that both were job-related and based on a legitimate business necessity.”

Additional Guidance

The FAQs also address a number of other important topics, such as retaliation, reporting obligations, and penalties for alleged violations. Accordingly, New Jersey employers should review the guidelines in their entirety. For public entities, the Civil Service Commission has also prepared an Appendix for Public Sector Employers in the guidelines. They discuss how public sector employers can self-evaluate to identify possible pay disparities under the Equal Pay Act. Given that violations of the Diane B. Allen Equal Pay Act can be so costly, we encourage employers to discuss any compliance concerns with experienced counsel.

If you have questions, please contact us

If you have any questions or if you would like to discuss the matter further, please contact me, Maryam Meseha, or the Scarinci Hollenbeck attorney with whom you work, at 201-896-4100.