On January 29, 2016, the seventh anniversary of the Lilly Ledbetter Fair Pay Act, the Equal Employment Opportunity Commission (EEOC) announced its proposed addition of pay data to currently required EEO-1 reports. The announcement has been the subject of much speculation for employers and attorneys, with many dreading an additional layer of administrative expenses for businesses. Employers should beware, however, because this effort may be a Trojan horse, intended to facilitate the EEOC’s future litigation efforts.
When would the changes take effect? Which employers are covered?
The proposal is expected to be finalized by September 2016. The first reports are projected to be due in fall 2017, and would cover private employers with at least 100 employees. At this point, however, the rule is only a proposal.
What is the purpose of the proposal?
The new reporting requirements are intended to facilitate equal pay by assisting the EEOC “in identifying possible pay discrimination, and assist[ing] employers in promoting equal pay in their workplaces.” This compensation data would be in addition to employment information employers are currently required to submit annually on race and gender. The collective data would then be published, ostensibly to “facilitate voluntary compliance” with equal pay laws.
What pay data would be reported?
The reported data would include employees’ W-2 earnings and hours worked. This data would be submitted in the aggregate, grouped by salary range and job category. The reports would not include employee names, Social Security numbers, or other identifying information. The EEOC is currently seeking input from employers regarding how to report hours worked for salaried employees who do not usually record their working hours.
What are the practical implications for employers?
The implications are legal, practical, and potentially detrimental to reporting entities. Employers will face an additional administrative burden annually in compiling this significant data, and then organizing findings by race and gender. While it is not entirely clear how the EEOC intends to use this data, it will likely strengthen the EEOC’s (and private attorneys’) ability to affirmatively bring suit for perceived pay discrimination. To avoid exposure, employers will have to engage in further data analysis and, possibly, more detailed explanations for pay discrepancies to avoid the appearance of unequal pay. In addition, some employers may feel uneasy about publishing salary or wage information for certain positions.
What does this mean for the EEOC’s enforcement procedures?
These changes strengthen the EEOC’s ability to sue employers without first identifying a plaintiff, and reflect a trend: the EEOC has become increasingly proactive in seeking evidence of discrimination, as opposed to its prior, predominantly passive role in investigating claims brought before it by employees.
What can employers do now?
Employers should act now to carefully analyze, correct, or be prepared to explain the reasons for any potential disparities when the new reporting requirements take effect. To minimize risk of exposure, employers may wish to conduct internal, privileged audits and look for potential issues before the 2017 start date. For example, an employer might create a report (based on its current understanding of the new EEOC requirements) for the past four or five fiscal years to better understand how its reports will appear to the EEOC, and so it can attempt to correct pay disparities or better understand and identify their legitimate causes, such as differences in education, skill, experience, and productivity. Employers should use the time before implementation to minimize negative impact, and ensure that they are able to accurately track and provide required pay data.
Employers should submit written comments on the proposed requirements prior to April 1, 2016, expressing concern about the administrative burden and the potentially inaccurate assessment of an employer’s pay practices based solely on raw numerical averages. Employers should object to reporting requirements that fail to account for other legitimate factors affecting pay discrepancies, such as education, experience, and skill level. Moreover, small employers should voice concern that, due to small numbers in their total workforce or specific positions, data sampling from such a limited pool is not statistically significant. Indeed, Mark Twain’s famous insight may cut to the core of this issue: there are “lies, damned lies, and statistics.”