Today, Canada’s Minister of Labour announced that Canada’s federal Pay Equity Act (“Pay Equity Act”) will come into force on August 31, 2021. This is a big step towards eliminating systemic discrimination, reducing gender wage inequalities that have been exacerbated by the pandemic, and promoting equal pay for work of equal value in the federal sector.

The Pay Equity Act aims to achieve “pay equity” as opposed to “equal pay for equal work”. Equal pay for equal work compares compensation paid to workers who are in the same (or similar) position, whereas “pay equity” compares the compensation provided to workers in different jobs. In particular, pay equity compares compensation provided to “predominantly female job classes” and “predominantly male job classes”.

The Pay Equity Act regulates “compensation” not just “base pay”. Under the Pay Equity Act, “compensation” is defined broadly to include remuneration and benefits provided to employees for the work they perform, including:

  • salaries, commissions, vacation pay, severance pay and bonuses
  • payments in kind
  • employer contributions to pension funds or plans, long-term disability plans and all forms of health insurance plans
  • any other advantage received directly or indirectly from the employer

Under the Pay Equity Act, federally regulated employers with 10 or more federally regulated employees will be required to:

  • establish a representative pay equity committee
  • identify “job classes” and determine their gender predominance (if any)
  • evaluate each job class using a gender-neutral comparison system
  • compare job classes, normally using the “equal average method” or the “equal line method”
  • draft and post a pay equity plan, and provide employees with an opportunity to comment
  • consider employee comments and implement the pay equity plan within three years
  • increase compensation for the predominantly female job classes that are comparatively underpaid
  • maintain pay equity and review the pay equity plan at least once every five years
  • provide certain information to their pay equity committee and certain notices to their employees
  • file information (e.g. annual statements) with the Pay Equity Commissioner

The above list is subject to a very detailed and prescriptive set of rules and requirements established under the Pay Equity Act, and a corresponding regulation which was recently finalized.

Employers who fail to comply with the Pay Equity Act will face consequences. The Pay Equity Commissioner has authority to conduct a compliance audit under the Act, and may make orders requiring employers to comply. Administrative monetary penalties up to $50,000 may be imposed. There will also be a process allowing employees, bargaining agents, and employers to file a complaint with the Pay Equity Commissioner, who may refer the matter to the Canadian Human Rights Tribunal.

Employers should also be wary of the significant and costly harm non-compliance can have on their reputation and employee morale.

In summary, the Pay Equity Act will present unique challenges to federally regulated employers, and compliance will require significant time and attention, particularly over the next three years as pay equity plans are developed and implemented. Federally regulated employers who have not already done so should immediately start to prepare for Canada’s new pay equity regime with input from, among others, qualified legal advisors.

Many thanks to Sandy Park for her assistance with this article.