The New Jersey state legislature has passed a new pay equity law which will, among other things, make it an unlawful employment practice to pay employees of any protected class under the New Jersey Law Against Discrimination (“LAD”) at a lesser rate than other employees who perform “substantially similar work” unless the differential is based on a legitimate business reason. The Diane B. Allen Pay Equity Act (the “Act”) is now before Governor Phil Murphy (D), who has indicated that he plans to sign the bill on April 24, 2018 in recognition of “Equal Pay Day,” which is dedicated to raising awareness of the gender pay gap. Once enacted, it will become effective on July 1, 2018.

Pay Equity Provisions

Pursuant to the Act, it will be an unfair employment practice for an employer to pay a member of any protected class under the LAD at a rate of compensation (including benefits) lesser than that paid to employees who are not members of the protected class for “substantially similar” work, encompassing “a composite of skill, effort, and responsibility.” Under the LAD, protected classes include sex, race, creed, color, national origin, ancestry, nationality, disability, age, pregnancy or breastfeeding, marital, civil union or domestic partnership status, affectional or sexual orientation, gender identity or expression, military status, and genetic information or atypical hereditary cellular or blood traits.

Compensation comparisons under the Act would be based on wage information “in all of an employer’s operations or facilities.” It is noted, however, that the phrase “substantially similar” work is not defined under the Act, which, barring any further regulations or official guidance, would leave the provision open to interpretation by the courts.

The Act also states than an employer would only be permitted to pay a member of a protected class lower compensation if the employer can demonstrate that the pay differential is based on a seniority system, merit system, or if the employer can demonstrate 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;
  • the factors are not based on, and do not perpetuate, a differential based on sex or other protected characteristic;
  • each factor is applied reasonably;
  • the factors account for the entire wage differential; and
  • the factors are job-related and based on a legitimate business necessity.

However, a factor that is purported to based on business necessity will not satisfy this test if there are alternative business practices that would serve the same business purpose without producing the wage differential. Employers will not be permitted to reduce the rate of compensation of any employee in order to achieve compliance with the Act.

Employers in violations of the Act could face damages including back pay and triple damages awards.

Other notable aspects of the law include:

Statute of Limitations Extended

The Act will extend the LAD’s statute of limitations period for compensation-related claims from 2 years to 6 years. The Act further provides that the limitations period would restart upon the issuance of each paycheck that was made based on a discriminatory compensation decision. In addition, employers would be prohibited from contracting with employees to shorten or waive a limitations period or “any of the protections” provided under the LAD.

Definition of Retaliation Expanded

The Act will expand the definition of retaliation under the LAD to prohibit employers from taking adverse action against an employee who requests from, discusses with, or discloses to: (i) any other employee or former employee, (ii) the employee’s lawyer, or (iii) any government agency:

  • any information regarding job title, occupational category, and rate of compensation (including benefits) of the employee or any other current or former employee, or
  • information regarding the gender, race, ethnicity, military status or national origin of the employee or any other current or former employee.

Such requests would be protected from retaliation even if they are never responded to by the employer, attorney or government agency. This provision therefore would expand the current protections under the LAD, which prohibit retaliation only where the purpose of such a request is to assist in investigating or taking legal action regarding potential discriminatory treatment concerning compensation.

In addition, the Act will protect from retaliation individuals who have sought legal advice or shared information with a government entity or legal counsel in connection with their rights under the LAD, and it will be an unfair employment practice to require that, as a condition of employment, any employee or prospective employee sign a waiver or otherwise agree not to make any such protected requests or disclosures.

Violations of the retaliation provisions of the Act would also be subject to triple damages awards.

State Contractor Reporting Requirements

Under the Act, employers who contract with the State of New Jersey or other public bodies to provide certain “qualifying services” will be required to provide a report to the NJ Commission of Labor and Workforce Development (the “Commission”) for each of its establishments regarding the compensation and hours worked by employees broken down by gender, race, ethnicity, and job category. Such compensation information will be required to be reported in the form of “pay bands” to be established by the Commission.

Employers who enter into public work contracts will be required to provide, through certified payroll records, information regarding the gender, race, job title, occupational category, and rate of total compensation for every employee of the employer employed in the State in connection with the contract.

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New Jersey employers are encouraged to begin reviewing their compensation policies and practices to ensure that they will be in compliance with the law’s requirements.