Seyfarth Synopsis: The Massachusetts Attorney General’s office (“AGO”) issued Guidance on March 1 about the changes to the Massachusetts Equal Pay Act (“MEPA”) that will take effect July 1. Employers preparing to comply with MEPA should review the AGO’s Guidance carefully and determine whether to conduct a pay equity audit before the law takes effect. Employers are also invited to attend a webinar presented by Genevieve Nadeau, Chief of the Attorney General’s Civil Rights Division, the Associated Industries of Massachusetts, and Seyfarth attorneys Rob Fisher and Hillary Massey.

Effect of the Guidance

The amendments to MEPA expressly instruct the AGO to issue “regulations interpreting and applying” the statute. Such regulations would be entitled to substantial deference from the courts in interpreting the statute, if they were propounded pursuant to requisite administrative procedures. The AGO has elected not to pursue that course, at least for the time being, and to issue an informal statement of its views regarding the statute. The Guidance is, therefore, not binding on the courts, and judges may disregard the AGO’s stated views as stated in that document, to the extent that they are unconvinced by the AGO’s reasoning.

Applicability of MEPA

The statutory amendments to MEPA do not specify who is covered by the law. In the Guidance, the AGO takes the position that MEPA applies to all employees with a primary place of work in Massachusetts, regardless of where the employees live or whether their employer is located outside of the Commonwealth. The Guidance provides examples, including an assertion that telecommuting to a Massachusetts worksite satisfies the requirement. For new employees, the Guidance advises employers to make a “reasonable assessment” of employees’ anticipated primary place of work, without further specifics.

Comparable Work

In order to comply with the law, employers must determine which employees perform “comparable work” to each other. MEPA defines “comparable work” as work that requires substantially similar skill, effort, and responsibility, and is performed under similar working conditions. Consistent with the AGO’s efforts to broaden the statute beyond the concept of equal pay for equal work, the Guidance further defines these terms, explaining that “substantially similar” means that skill, effort, and responsibility “are alike to a great or significant extent, but are not necessarily identical or alike in all respects.” Notably, the AGO takes the position that an employer may not determine comparability based on job titles alone:

Q: Can an employer rely on job titles or descriptions to determine which positions are comparable?

Not necessarily. A determination as to whether two jobs are “comparable” under MEPA should focus on the skill, effort, and responsibility actually required to perform the jobs, irrespective of job titles or descriptions. While an employer may not rely on job descriptions alone, job descriptions that accurately reflect the skill, effort, and responsibility required to perform jobs may be helpful in identifying which jobs are comparable.

The AGO defines the key terms as follows.

Skill

“Skill” includes such factors as experience, training, education, and ability that are required to perform the job. As an example, the Guidance explains that employees doing similar work on different lines of business for an employer may be similar, e.g., “employees selling different types of insurance may be performing work requiring comparable skill unless one of the types of insurance requires salespeople to have meaningfully different levels or degrees of knowledge or expertise.” This assertion emphasizes that scrutiny of an employer’s pay practices under MEPA may involve comparison of employees working in entirely different business units, even if the employer would not otherwise consider those employees to be doing similar work.

Effort

The AGO explains that “effort” refers to the amount of physical or mental exertion (including mental fatigue and stress) needed to perform a job. As an example, the Guidance states that a job that requires standing all day likely does not compare to a sedentary job. Aside from these extremes, the Guidance provides no insights as to how an employer may assess whether two jobs that involve differing types of mental effort (e.g., financial calculations vs. legal research) or different types of physical effort (e.g., occasional heavy lifting vs. long periods of standing) might be deemed similar enough for two jobs to be deemed comparable. Similarly, the Guidance does not discuss how “alike” the effort required by two different jobs must be in order for the work to be deemed comparable. For example, employers are left to make their own determination as to whether a job that involves occasional lifting of 25 pounds might be comparable to a position that involves lifting 40, 50 or 100 pounds.

Responsibility

“Responsibility” reflects the “degree of discretion or accountability involved in performing the essential functions of a job,” including whether an employee supervises others and similar factors. The Guidance explains that an employee responsible for executing legal documents may have a different level of responsibility than an employee who drafts the documents. Again, the Guidance provides no standard by which to determine whether two jobs that involve different levels of responsibility may be similar enough in that regard to be deemed comparable under MEPA.

Similar Working Conditions

“Working conditions” includes factors such as the “physical surroundings and hazards encountered,” including extreme temperatures, noise, fumes, heights, and dangerous equipment. According to the AGO, working conditions “can take into account meaningful differences in the days or times shifts are scheduled,” such as overnight shifts.

The Guidance defines each of these terms -- skill, effort, responsibility and working conditions --but does not address how employers should analyze them as a whole. In order to be comparable, jobs must be substantially similar in all of these respects. Thus, the comparability test will fail if employees are different with respect to any one of these factors.

If Work Is Comparable, Wages Must Be “Equal”

According to the AGO, “wages” includes any type of pay or compensation for work, including profit sharing, deferred compensation, vacation time, car allowances, retirement plans, insurance and the opportunity to participate in benefit programs (whether or not the employee takes advantage of them). The Guidance asserts that compensation must also be paid in the same method: an employer may not pay “an employee an extra annual bonus in order to make up for the fact that he or she has a lower base salary.” If the AGO’s position in this regard is credited, employers are limited in their options for remediating disparities in total compensation between employees, requiring that each component of compensation be equal. This position also leads to the curious result that two employees making exactly the same amount in total compensation may still have significant equal pay claims under the statute. For example, if a man who is paid a salary of $75,000 and a bonus of $25,000 is deemed to be doing work that is comparable to that of a woman who is paid a salary of $25,000 and a bonus of $75,000, both workers will have a claim against the employer for $50,000 per year, plus double damages and attorneys’ fees, even though their total pay is equal.

Factors Available To Explain Wage Differentials

The AGO has offered guidance on the factors -- which, according to the AGO are the only factors -- that employers may use to explain wage differentials between employees of opposite genders performing comparable work:

(1) Seniority system

A seniority system compensates employees based on their length of service, without reducing seniority based on time due to pregnancy-related conditions and other protected leave. The Guidance explains that a “system” is must be “predetermined or predefined; used by managers or others to make compensation decisions; and uniformly applied in good faith without regard to gender.” In other words, according to the AGO, it’s not sufficient for seniority to be used after the fact to explain a wage disparity; it must actually be used in determining compensation. Because such formal systems are relatively rare, the AGO’s position would significantly limit employers’ ability to defend pay differentials between employees with differing tenure at the organization.

(2) Merit system

“A merit system is a system that provides for variations in pay based upon employee performance as measured through legitimate, job-related criteria, such as a “performance rating plan” that takes performance into account in determining pay. Again, performance ratings must actually be used to determine pay, not relied on after the fact in explaining a disparity.

The remaining 4 factors are self-explanatory, but there is some helpful language in the Guidance:

(3) System that measures earnings by quantity or quality of production, sales, or revenue: includes paying employees differently based on number of hours worked

(4) Geographic location in which job is performed

(5) Education, training or experience (to the extent such factors are reasonably related to the job): does not include salary history; see below

(6) Travel (if a regular and necessary condition of the job)

The Guidance explicitly takes the position that changes in the labor market (i.e., unemployment rate and competition for jobs) cannot be used to justify differences in compensation.

Salary History Ban

The law prohibits Massachusetts employers from requesting the compensation history of an applicant prior to making an offer, unless the applicant “voluntarily” discloses such information. The Guidance takes the position that asking about salary “expectations” is permitted but that employers may not frame the question in a manner designed to elicit information, and that the ban does not apply to internal employees. The Guidance also emphasizes the law’s prohibition on using salary history to explain a wage disparity.

New Self-Evaluation Defense

MEPA creates an affirmative defense to wage discrimination claims for an employer that has (1) completed a self-evaluation of its pay practices that is “reasonable in detail and scope in light of the size of the employer” within the three years prior to commencement of the action; and (2) made “reasonable progress” toward eliminating pay differentials uncovered by the evaluation.

The Guidance explains that whether an evaluation is “reasonable in detail and scope” depends on the “size and complexity of an employer’s workforce,” in light of factors including “whether the evaluation includes a reasonable number of jobs and employees,” and is “reasonably sophisticated.” No more specific standards are provided as to what sort of analysis may be deemed “reasonable.” Given that most employers have never conducted a pay equity assessment, there is no established commercial standard for such assessments, and employers that perform an assessment that is less than fully comprehensive will be left to wonder whether the AGO or the courts may find their efforts to be “reasonable.” The Guidance further opines that, in order for an employer to take advantage of the defense, its self-evaluation must have included the employees or jobs at issue.

Similarly, “reasonable progress” depends in part on the size and resources of the employer, and must “eliminate” the wage disparities in a “reasonable amount of time.” Again, no indication of what period of time may be deemed “reasonable” for the elimination of disparities is provided.

The Guidance makes clear that a reasonable audit that reflects an employer’s good faith determination of what jobs/employees are comparable to each other is not subject to second-guessing: “Whether or not an employer is eligible for an affirmative defense does not necessarily turn on whether a court ultimately agrees with the employer’s analysis of whether jobs are comparable or whether pay differentials are justified under the law, but rather turns on whether the self-evaluation was conducted in good faith and was reasonable in detail and scope.” Thus, independent of the self-evaluation defense, employers should consider conducting an assessment at the pre-dispute phase to set the framework as to which employees are comparable to one another.

The AGO has published a guide, checklist and calculator intended to assist employers with conducting self-audits. Notably, the most difficult and arguably important part of any audit --identifying comparable jobs -- receives only a few sentences of discussion in the guide.

Before using these tools, employers should consider the risks of conducting an audit without the guidance of an attorney. If not adequately protected, any evaluation used to substantiate a defense under MEPA might be used against an employer in litigation under the federal Equal Pay Act or Title VII, which provide no similar defense. Thus, Massachusetts employers should work with counsel in order to protect the assessment process and results with the attorney-client privilege. Without these protections, the self-evaluation (and any wage differentials identified by it) may be discoverable in the event of a lawsuit.

Conclusion

Because the effective date for the amendments to MEPA is now less than four months away, employers should review the AGO’s Guidance, identify any necessary changes to hiring practices, and consider whether and when to conduct a pay equity audit by consulting with an attorney experienced in such evaluations.