The EEOC’s latest proposal, requiring employers to report pay data annually on their EEO-1 reports, shows that the Obama Administration means business when it comes to pushing for pay equity—not only for women, but also for racial and ethnic minorities. The proposal, announced January 29, 2016, as part of the White House commemoration of the seventh anniversary of the passage of the Lilly Ledbetter Fair Pay Act, is explicitly intended to develop data that will be used by the EEOC to “focus investigations, and identify employers with existing pay disparities that might warrant further investigation.”

Key Features of the Proposal

Beginning in 2017, every employer with 100 or more employees will be required, in its annual EEO-1 Report, to report by job category the number of employees by race, gender and ethnicity who are paid within each of 12 proposed pay bands, as well as the total hours worked by the employees in each band. “W-2 earnings” would be used to determine the pay band within which a particular employee would fit. The proposal leaves open the question of how “hours worked” would be determined for salaried, exempt employees, and invites employer comment on this issue.

The EEOC maintains that the information provided on the EEO-1 report would be protected from disclosure by Section 709(e) of Title VII, but the information obtained from government contractors will be provided to the OFCCP, and would be held as confidential only “to the maximum extent permitted by law.”

The deadline for written comment on the proposal is April 1, 2016

A link to the full proposal can be viewed here, and a copy of the proposed EEO-1 pay form can be found here.

Major Concerns

From an employer’s perspective, the proposal raises a number of significant concerns.

  1. How will the data be used? The proposal is explicitly intended to develop data that the EEOC can use to investigate pay disparities – and presumably generate pay equity actions. But because the data will not account for such significant variables as education, experience and performance – all of which can explain differences in pay – the data is likely to be highly misleading and not dispositive in determining whether any pay discrimination actually exists. The unreliability is highlighted by requiring pay data without accurate information regarding hours worked. Many employers do not track hours worked by salaried, exempt employees; without taking hours worked into account, no valid comparison of pay can be made.
  2. How will confidentiality be ensured? Second, employers have expressed a legitimate and serious concern over the preservation of confidentiality. Employers will be providing sensitive, confidential information about their compensation practices. The National Academy of Sciences, which was commissioned by the EEOC to conduct a study to assess how to most effectively collect pay data “to support its wage discrimination law enforcement efforts,” has already expressed concern as to the security of the data collected.
  3. Increased burden. While the EEOC insists that any burden on employers for reporting additional compensation data will be “minimal,” the actual expense and burden on businesses will surely increase.  The very fact of gathering the additional data needed for these new EEO-1 forms will impose an additional burden.  One reason the EEOC chose to require W-2 data was ostensibly to minimize burden, but as employers are required to file EEO-1 reports by September 30 under the current EEO-1 reporting schedule, they will need to guess at compensation components such as year-end bonuses. And if employers intend to make any effort to estimate the actual hours worked by salaried employees, that would require substantial additional effort.

The bottom line is: this proposal is likely to entail risks and burdens for employers, without any concomitant benefit to the EEOC and OFCCP in combatting pay discrimination.

Next steps?

The EEOC’s proposal is just that--a proposal. Employers still have an opportunity to help shape its final form, and it is important that the employer perspective be fully expressed and considered. It is essential that employers take an active role in the comment process. One useful proposal, for example, would be to change the EEOC’s reporting cycle from September 30 to mid-February or early-March, when employers would have their W-2 data readily available. Other issues that employers might consider providing comment on include the burden, the lack of reliability, and the risk of disclosure of confidential information inherent in this proposal.

If you have any questions regarding the process for commenting or would like to discuss specific comments, please feel free to contact your regular employment counsel, or any of the lawyers at DWT who are following this proposal most closely.

To what extent should employers review their pay practices in anticipation of the EEOC proposal? Employers will certainly want to review any pay data before filling out an EEO-1 form and providing it to the EEOC and OFCCP. And any review or analysis of employee pay and compensation practices should only be done in a careful, deliberate manner, taking all steps necessary to ensure it will remain privileged with its conclusions protected from disclosure. Employers should be prepared to implement changes if unjustified disparities are found. The most dangerous thing an employer can do, from a liability standpoint, is to conduct an unsupervised, unprivileged compensation analysis … and then fail to take appropriate action to address any findings.