Last month, Maryland Governor Larry Hogan approved legislation significantly expanding the state’s existing equal pay statute. The legislation, which is scheduled to take effect in less than four months, on October 1, 2016, creates entirely new areas of risk for Maryland employers and provides a direct path to court for employees to challenge alleged wage disparities.

Key Provisions

Maryland Labor and Employment Code section 3-301, et seq., currently prohibits employers from paying employees of one sex at a rate less than the rate paid to employees of the opposite sex under certain circumstances. Employer is broadly defined to include a person “engaged in a business, industry, profession, trade or other enterprise in the State.” Described in the Washington Post as “the most comprehensive equal-pay legislation to become law this year,” House Bill 1003, makes a number of substantial changes to existing law. Most notably, the legislation:

  • Adds gender identity protections;
  • Expands the scope of prohibited discrimination to include any measure that “provid[es] less favorable employment opportunities”;
  • Expands the group of comparators to include those who work in the same county, even if the employees work at different offices;
  • Adds two new exemptions from liability for discrimination, where pay differences are based on performance systems that measure quality or quantity of production, or where they are based on a bona fide factor that is job-related, necessary to the business, and entirely explains any wage differential;
  • States that employers may not prohibit discussions about wages or retaliate against employees who engage in such discussions; and
  • Provides for a private right of action for injunctive, compensatory, and liquidated damages (a plaintiff has up to three years after receiving termination wages to bring an action).

Expanded Protections

Maryland’s equal pay statute previously prohibited employers from paying male and female employees different wages for work of “comparable character.” HB 1003 expands the reach of the statute by prohibiting employers from paying employees of one gender identity at a rate less than employees of another gender identity if both employees work in the same establishment and perform comparable work.

The bill also dramatically expands the scope of the statute beyond pay differentials to prohibit employers from “providing less favorable employment opportunities based on sex or gender identity.” Providing less favorable opportunities is defined to include:

  1. assigning or directing the employee into a less favorable career track;
  2. failing to provide information about promotion or advancement opportunities; and
  3. limiting or depriving an employee of employment opportunities that would otherwise be available but for the employee’s sex or gender identity.

Comparators

The current statute permits employees to draw comparisons between “employees [who] work in the same establishment and perform work of a comparable character or work on the same operation, in the same business, or of the same type.” In the past, the phrase “same establishment” was undefined, but the same phrase under federal law has routinely been interpreted to mean the same physical site of employment. However, the new statute expressly states that prospectively, the phrase “same establishment” will include every “workplace[] located in the same county of the State.” Thus, to the extent Maryland employers previously considered the universe of comparators to be limited to employees in the same office, the new statute may widen that universe substantially depending on the number of offices and employees an employer has within the same county.

Defenses

Existing equal pay law in Maryland includes five exemptions from prohibited acts for wage variations based on: (1) a non-discriminatory seniority system; (2) merit increase system; (3) jobs with different skills or abilities; (4) jobs that require different duties or services; or (5) work that is performed on different shifts or at different times of day.

HB 1003 adds two new employer exemptions for:

  1. a system that measures performance based on a quality or quantity of production; or
  2. a bona fide factor other than sex or gender identity, including education, training, or experience.

However, the criteria for asserting a bona fide factor other than sex or gender identity may make it difficult in practice to use. A bona fide factor cannot be “based on or derived from a gender-based differential in compensation” (a cryptic, circular, and unexplained limitation), must be “job-related and consistent with business necessity,” and must account for “the entire differential.”

Moreover, if the employee can show that the asserted factor really is a pretext for discrimination on the basis of sex or gender identity, the employee will prevail.

Wage/Pay Transparency

On top of its expanded discrimination protections, HB 1003 adds another category of prohibited conduct intended to allow for more frank discussion of employee wage rates. Under the new section 3‑304.1, an employer may not:

  • Prohibit an employee from discussing or disclosing the wages of the employee or another employee, or from requesting an explanation of his or her wages;
  • Require an employee to waive the right to disclose or discuss the employee’s wages; or
  • Retaliate against an employee for engaging in activities protected by the act.

An employer may establish “reasonable workday limitations” on the time, place, and manner for inquiring about, discussing, or disclosing employee wages, as long as the policy is in writing and provided to all employees. Any wage discussion limitations must be consistent with other federal and state laws (employers should be mindful of federal labor law, which may similarly prohibit rules that seek to curb such discussions), and the employer may prohibit employees from involuntarily disclosing the wages of other employees.

Enforcement

One of the major changes imposed by HB 1003 is that employees now will have a right to private civil enforcement on behalf of themselves and other similarly situated employees. Previously, only the Commissioner of Labor and Industry could address a violation of the law by informal mediation or requesting that the Attorney General bring an action on behalf of an applicant or employee. The new legislation provides individuals with a private cause of action for injunctive relief and to recover actual and liquidated damages. The new statute does not specify proposed amounts for or limits on liquidated damages (the legislature rejected a provision permitting liquidated damages in an amount up to three times the total amount of wages found to be due). Employees also may recover reasonable attorneys’ fees, costs, and prejudgment interest.

An action under the act must be filed within three years of receipt of termination wages.

Posting

As a reminder, all Maryland employers are required to keep a copy of the entire Equal Pay law “posted conspicuously in each place of employment.” Employers should be sure to update their current copies to reflect the new text as soon as it takes effect.

Equal Pay Commission

In a second, related bill, HB 1004, the Governor created an Equal Pay Commission that will investigate and report annually on pay differences based on sex and gender identity, as well as pay differences based on race. The bill further tasks the Commission with establishing mechanisms to collect data from employers for use in analyzing wage disparities.

The addition of race and language regarding wage data collection in HB 1004 hints at further expansions of Maryland equal pay laws that may include protections based on race and require employers to provide information to the Equal Pay Commission. HB 1004 is scheduled to take effect on June 1, 2016.

Next Steps for Employers

Maryland’s expansion of its equal pay laws comes on the heels of similar actions in California in late 2015, and signals how important it is that employers pay attention to compensation decisions and related complaints. Effective October 1, 2016, Maryland employees who previously lacked an effective venue to challenge wage differences will have a direct path to court to seek compensatory, injunctive, and punitive relief on behalf of themselves and similarly situated employees.

Employers with operations in Maryland should become familiar with the new laws immediately and review related policies and practices, including any policies regarding the confidentiality of employee wages, to ensure compliance.