This article describes new, wide-ranging pay equity legislation introduced in New Jersey and its potential implications for employers

By: David S. Kim, Salvador Simao

Firm: FordHarrison LLP

Executive Summary

On 24 April 2018, New Jersey Governor Phil Murphy signed into law amendments to the state discrimination law that include sweeping pay equity protections. This amendment makes New Jersey’s law one of the broadest equal pay statutes in the country. Under the new law, it is unlawful for anyone who is in a ‘protected class’ to receive lower pay or benefits for substantially similar work, unless the employer can demonstrate this differential is based on criteria permitted under the law. Employers are also prohibited from reducing employee wages to achieve compliance with the law.

Although the law provides for a six-year statute of limitations, it also adopts a continuing violation doctrine, whereby employees can claim for discriminatory acts that fall outside the limitation period, as long as part of the violation falls within that period. This could make this statute of limitations irrelevant in many cases, potentially resulting in liability for numerous years. The law also provides for treble damages and prohibits the waiver of rights under the Act or the shortening of the statute of limitations by agreement. Due to the already broad nature of New Jersey’s law against discrimination, this amendment further increases the potential for large-scale litigation and large verdicts against employers, specifically those who fail to audit their payrolls for unintentional disparities. The law essentially requires employers to consider the adoption of uniform pay scales or face potential litigation. Interestingly, the most important term in the law, ‘substantially similar work’, is left undefined, meaning it will need to be defined by the courts through litigation. However, the legislative intent is to make this a broader standard than equal work, which is the standard in most states.

Analysis

The bill signed by the Governor amends the state’s Law Against Discrimination (LAD) and prohibits employers from discriminating against workers who are in a protected class by paying them less compensation, including benefits, than employees who are not in that class for ‘substantially similar work, when viewed as a composite of skill, effort and responsibility.’ Under the law, employers may pay employees at a different rate of compensation, but only if the employer can demonstrate that the difference is based on a seniority or merit-based system, or legitimate factors such as training, education, and experience.

Although most people assume the pay equity law was introduced to narrow the pay equity gap between women and men, this bill goes further. The amendment applies not only to gender pay disparity, but to pay disparity based on any protected class, which includes race, creed, colour, national origin, ancestry, age, marital status, civil union status, domestic partnership status, affectional or sexual orientation, genetic information, pregnancy or breastfeeding, sex, gender identity or expression, disability or atypical hereditary cellular or blood trait of any individual, service in the Armed Forces of the United States, nationality, or the refusal to submit to a genetic test or make available the results of a genetic test to an employer. The sheer number of protected classes under state law, combined with the broad protections provided in the amendment, create an almost infinite number of possibilities upon which pay equity allegations can be made.

While employers have the ability to audit their records to determine whether wage disparity exists based on gender or other identifiable characteristics and make appropriate corrections, determining whether pay equity exists across the litany of protected classes under state law will be a significant burden. Additionally, employers must be able to demonstrate they have not engaged in pay disparity by protected class, and the continuing violation doctrine provided by the new law could require employers to maintain business records for numerous years, well beyond the purported six-year statute of limitations.

Impact on Employers

Now that Governor Murphy has signed this measure into law, employers in New Jersey will need to re-evaluate their compensation systems to ensure conformity with the law. Where there are pay disparities in certain situations, employers will need to justify such disparities based on their system of compensation, whether it is seniority-based, merit-based, or based on the other factors listed in the bill such as training, education, and experience. Not only will employers be required to undergo extensive efforts to review their pay practices, they will also be faced with the constant spectre of potential litigation for years to come. Ultimately, employers will need to decide whether to adopt uniform pay scales or prepare to defend against the anticipated onslaught of pay equity litigation.