Under the Allen Act, it is an unlawful employment practice to pay an employee who is a member of any protected class under the Law Against Discrimination less compensation and benefits than employees outside the protected class for “substantially similar” work, unless the employer can demonstrate a recognized justification.

On April 24, 2018, New Jersey Governor Phil Murphy signed into law the Diane B. Allen Equal Pay Act, amending the New Jersey Law Against Discrimination (LAD) to significantly expand pay equity protections for New Jersey employees and impose more stringent requirements on New Jersey employers. The Allen Act will take effect on July 1, 2018.

Over the past few years, New Jersey has taken incremental steps toward addressing pay equity concerns, including:

  • In 2012, the New Jersey Legislature amended the New Jersey Equal Pay Act to require notice to employees of their right to be free of gender discrimination in the workplace, including inequity or bias in pay, compensation, benefits, or other terms and conditions of employment.
  • On August 28, 2013, New Jersey amended the LAD to include a ban on retaliation against employees who ask current or former colleagues for information about the job title, occupational category, rate of compensation (including benefits), gender, race, ethnicity, military status or national origin of any other employee or former employee.
  • On January 6, 2014, the New Jersey Department of Labor and Workforce Development (NJDOL) published the Gender Equity Notice and accompanying regulations, requiring employers with 50 or more employees (regardless of whether those employees work in New Jersey or outside the state) to post and distribute the notice to each employee annually and when requested.

Fast forward to the passage of the Allen Act more than four years later. Although the Allen Act has been championed primarily as gender pay equity legislation, its equal pay provisions are much broader and encompass all protected classes under the LAD, making it one of the broadest pay equity laws in the nation and distinguishing it from similar laws in other jurisdictions. For example, New York’s pay equity law is directed at correcting gender inequity only. The Allen Act is a giant leap forward toward eradicating pay inequity affecting all protected classes in New Jersey and commands the immediate attention of New Jersey employers.

What Does the Allen Act Require?

Under the Allen Act, it is an unlawful employment practice to pay an employee who is a member of any protected class under the LAD less compensation and benefits than employees outside the protected class for “substantially similar” work, unless the employer can demonstrate a recognized justification.

“Substantially Similar” Work and Recognized Justifications for Pay Disparity

Like the California Fair Pay Act, the Allen Act provides that “substantially similar” work will be determined by a “composite of skill, effort and responsibility.” If a discrepancy in compensation exists, an employer may justify the difference based on:

  • A seniority system;
  • A merit system; or
  • A demonstration that the differential is based on one or more legitimate, bona fide factors other than the characteristics of members of the protected class, such as training, education or experience, or the quantity or quality of production.

These exceptions, which create a difficult burden for employers, are similar to the exceptions in place under New York state law since 2016.

Employers relying on “bona fide factors” to justify pay discrepancies must also show that:

  1. Each bona fide factor is applied reasonably;
  2. One or more of the factors account for the entire wage differential;
  3. No factor perpetuates a differential based on sex or other protected characteristics; and
  4. Each factor is job-related and based on a legitimate business necessity, and that there are no alternative business practices that would serve the same business purpose without producing the wage differential.

It remains to be seen how the courts will interpret the factors cited above and whether judicial decisions will affect the ability of employers to succeed in defending pay equity claims based on the three statutory exceptions.

Crucially, New Jersey employers, like California employers, cannot justify differences in pay based on work location. The Allen Act mandates that wage rates of employees performing substantially similar work “shall be based on wage rates in all of an employer’s operations or facilities” without regard to geographic location. For example, this may mean that an employer could not justify lower rates in Salem County relative to pay rates in Bergen County based on location, even though the cost of living in those counties is not the same. This differs from New York’s pay equity law, which allows employers to consider work location within specified geographic parameters.

The Allen Act also expressly prohibits employers from reducing rates of compensation as a means of correcting pay disparities.

Expansion of Anti-Retaliation Protection

The Allen Act significantly expands the existing anti-retaliation provision of the LAD with respect to employees’ inquiries regarding pay equity by prohibiting employers from requiring an employee or prospective employee to sign a waiver or otherwise agree by contract to refrain from making or responding to a protected request.

Statute of Limitations

Unlike traditional LAD claims that have a two-year statute of limitations, absent application of the continuing violation doctrine or the discovery rule, the statute of limitations for pay equity violations under the Allen Act is six years—the same as the New York law. The limitations period starts anew each time “an individual is affected by application of a discriminatory compensation decision or other practice.” Like violations of the Lilly Ledbetter Fair Pay Act of 2009, each paycheck with an unequal pay rate is a separate act of discrimination that restarts the statute of limitations. The Allen Act is clear that employers are forbidden from requiring employees or prospective employees to “consent to a shortened statute of limitations or to waive any of the protections” provided by the LAD. (Emphasis added.)

Remedies for Violations

Consistent with the other expansive rights afforded by the Allen Act, a successful litigant has the right to significantly enhanced damages. An employer who violates the pay equity or anti-retaliation provisions of the Allen Act will have exposure for treble damages (“three times any monetary damages”). The Allen Act does not affect the remedies available under the LAD, which provides for the recovery of compensatory damages, both economic and noneconomic, punitive damages, equitable relief, attorneys’ fees, costs and penalties. It is unclear whether the treble damages provision of the Allen Act applies to all types of monetary damages recoverable under the LAD or just back wages based on the pay inequity.

Additional Reporting Requirements for Companies Involved in Contracts with Public Entities

The Allen Act also imposes new requirements for employers who contract with the state or any other public body to provides services (except for a public work[1]). Such employers must provide a report to the NJDOL commissioner (on a form established by regulation) that includes required information regarding the compensation and hours worked by employees categorized by gender, race, ethnicity and job category.

In addition, any employer, regardless of their location, who enters into a contract with a public body to perform any public work must provide certified payroll records to the commissioner with information regarding the gender, race, job, title, occupational category and rate of total compensation of every employee employed in New Jersey in connection with the contract.

The Allen Act allows the commissioner to make such information available to anyone who is, or was, an employee of the employer during the period of any of the contracts, or any authorized representative of the employee, upon request.

What This Means for New Jersey Employers

To ensure compliance with the Allen Act, New Jersey employers should, at a minimum, consider implementing the following measures:

  • Evaluate their existing pay policies and practices, including reviewing and updating their employee handbooks to advise employees of the added protections under the Allen Act;
  • Conduct pay audits with the aid of counsel to identify existing pay differences based on protected categories under the LAD and formulate strategies for compliance;
  • Analyze hiring and compensation practices and take appropriate steps to document decisions affecting compensation (including base pay at the time of hire, pay increases, incentive compensation and benefits) based on recognized statutory justifications for job-related pay differences;
  • Consider banning the question on job applications about salary history. Even though the Allen Act does not expressly prohibit such an inquiry, the impact of asking may create substantial risks under the Equal Pay Act and other laws, and salary history may not be a justification for a wage difference under the Allen Act;
  • Review internal mechanisms to ensure employees have equal access to opportunities, which often affect compensation;
  • Review job descriptions and job postings to ensure that they accurately reflect duties and responsibilities of positions;
  • Identify any contracts with public bodies and plan for meeting reporting requirements;
  • Investigate complaints promptly and thoroughly, and enforce anti-retaliation protections;
  • Update training of supervisory staff, including human resource professionals, to include education on pay equity requirements; and
  • Confirm compliance with notice obligations established by the NJDOL and the United States Department of Labor.

With the effective date of July 1, 2018, employers should not delay in engaging in privileged reviews of compensation structures and implementing policies and procedures needed to reduce or avoid the risks associated with noncompliance with the Allen Act.