Courts generally have given employers wide latitude to identify, as affirmative defense to claims of pay discrimination, any “factor other than sex.” The federal appeals court in St. Louis, however, has ruled that market forces and economic conditions, in some circumstances, may not justify pay differentials under the Equal Pay Act and the Iowa Civil Rights Act. Dindinger v. Allsteel, Inc., No. 16-1305 (8th Cir. Apr. 3, 2017). This interpretation of “factor other than sex” may have far-reaching implications in pay equity litigation. The Court explained that simply stating market forces and economic conditions is not justification enough. The employer in this case needed to show “how [the employer’s] cost-saving measures caused the plaintiffs to be paid less than their male comparators.”

The Court also upheld the lower court’s admission of testimony from female comparators in different positions claiming pay discrimination, consequently expanding the range of employers’ pay decisions that can come before a jury.

The Eighth Circuit has jurisdiction over Arkansas, Iowa, Minnesota, Missouri, Nebraska, North Dakota, and South Dakota.

Background

Three female managerial employees sued their employer, a furniture manufacturer, alleging pay discrimination based on sex, in violation of the Equal Pay Act (29 U.S.C. § 206(d)), Title VII of the Civil Rights Act (42 U.S.C. § 2000e), and Iowa law.

During the five-day trial, the court permitted the plaintiffs, two safety managers and one community relations plant manager, to introduce “me too” evidence: testimony of other female employees in different positions in the company who claimed they also were paid less than their male colleagues. The employer objected to admission of the testimony as irrelevant, arguing that the other female employees held different positions in the company and were not part of the case.

The employer also presented evidence illustrating that the differences in pay between the female and male employees were because of factors other than sex, such as distinguishable educational differences, levels of outside experience, seniority, and changes in economic conditions following the recession of 2008, which had resulted in workforce changes and layoffs. Additionally, and as part of its affirmative defense, the employer sought to introduce results from a 2012 Office of Federal Contract Compliance Programs compliance audit. The OFCCP had evaluated the company’s compensation information and found no discrimination.

The district court gave the following jury instruction on the “factor other than sex” affirmative defense:

Allsteel cannot rely upon market forces or economic conditions as a factor other than sex to justify any pay differential complained of by [the plaintiff]. These market forces and economic conditions include downsizing, reductions in force, restructuring, and economic downturns. If the pay differential complained of by [the plaintiff] was based in any part upon her sex, market forces and economic conditions cannot justify perpetuation of that differential. It is not a defense under the Equal Pay Act that a woman may be paid less than a man in the same position simply because the woman is willing to accept less pay, or because the man demands more pay.

The jury found in favor of the three plaintiffs on all but one of their claims.

On appeal, the employer challenged the district court’s admission of testimony of other female employees as “me too” evidence, the court’s exclusion of the favorable OFCCP compliance report, and the court’s jury instruction denying the ability of the employer to present economic conditions as a viable affirmative defense showing the pay differential was based on a “factor other than sex.”

Admissibility of “Me-Too” Evidence

The appeals court affirmed the trial court’s decision to admit testimony of other female employees. Referring to Hawkins v. Hennepin Tech. Ctr., 900 F.2d 153 (8th Cir. 1990), the Court suggested that this type of “me too” evidence should be “freely admitted” because it may prove intentional discrimination.

The Court rejected the argument that such testimony should be admissible only if the other female employees had held the same positions in the company as the plaintiffs. It explained that “me too” evidence, unlike differential treatment evidence, does not require all parties to be “similarly situated.” The Court held that for “me too” evidence to be admissible, the plaintiff need only show that other members of the same protected class also faced similar discrimination.

As a practical matter, this means an employer facing pay discrimination litigation must be prepared to defend and explain pay differentials throughout the organization, in addition to the position held by the plaintiff(s).

Viability of “Economic Conditions” Affirmative Defense

Under the Equal Pay Act, a pay differential may be justified as an affirmative defense by any “factor other than sex.” In this case, the employer presented evidence of the effects of the economic recession of 2008 — particularly the rounds of layoffs it conducted from October 2008 through June 2009, the temporary freeze on merit-based pay raises from January 2009 through March 2010, and the restructuring of job responsibilities to help save costs. However, the trial court instructed the jury that market forces and economic conditions could not justify the pay differentials.

The Eighth Circuit affirmed the trial court decision, finding it was an accurate reflection of the Supreme Court’s holding in Corning Glass Works v. Brennan, 417 U.S. 188 (1974), that an employer could not justify paying women less than men “simply because men would not work at the low rates paid women” and market forces had dictated the lower wages.

Although the lower court referenced the employer’s list of supporting cases and determined that economic factors could be a defense to pay differentials, its ruling and affirmation by the Eighth Circuit cast significant doubt on the “market forces” defense. In this case, the Eighth Circuit determined that even if economic conditions justify pay differences, the employer had not offered evidence to show specifically how the 2008 recession had resulted in pay differentials or how implementation of their cost-saving measures or merit-based pay raises had affected wages.

OFCCP Compliance Report “Too Prejudicial”?

At trial, the employer also sought to introduce of the results of a 2012 OFCCP compliance audit on the company’s employment practices, which included information on the relative pay of male and female employees. The OFCCP found the company was compliant with all requirements of federal contractors. However, the court denied admissibility of the report, only allowing company HR representatives to testify on the process of collecting employment data and their conclusions of the audit’s results.

In affirming the lower court’s exclusion of the report, the Eighth Circuit deemed the OFCCP compliance report “too prejudicial.” If admitted, the Court said, the jury likely would rely on the results of the report rather than “its own judgment” in determining whether discriminatory pay practices existed. The Court determined that entry of the report “would amount to admitting the opinion of an expert witness as to what conclusions the jury should draw,” citing with approval other cases discussing the admissibility of administrative findings.

Implications

The Eighth Circuit decision, increasing pay discrimination litigation, and existing and pending state pay equity legislation should have employers considering a privileged audit of their compensation practices to lower the risk of pay equity claims.