The countdown has begun: federal sector employers with 10 or more employees now have less than one year left (i.e. until September 3, 2024 for most employers) to develop a pay equity plan that identifies and, if applicable, corrects gender-based wage gaps for employees in predominantly female job classes. As described in our earlier bulletins (Getting Ready for the New Federal Pay Equity Act and The Federal Pay Equity Act Is in Force: What Now?), employers with 100+ employees or unionized employees must develop this pay equity plan in a joint employer-employee committee.
For most employers, there is still a lot to do in order to meet the deadline. In this update, we review the key pay equity milestones for the next year and consider potential options and consequences for employers who cannot meet the legislated deadlines.
Key Pay Equity Milestones
Employers are at various stages of their respective journeys towards compliance with the federal Pay Equity Act (the “Act”). As you develop your organization’s project plan, consider the following key milestones:
- Assessing and, if applicable, applying for multiple plans or to be treated as a group of employers: The standard under the Act is that each employer will establish a single pay equity plan in respect of its employees. However, the Act establishes a process by which employers can apply to the Pay Equity Commissioner (the “Commissioner”) for authorization to establish multiple pay equity plans (and therefore multiple pay equity committees, if the employer is required to establish a pay equity committee). The Act also contemplates a process for multiple employers to apply to the Commissioner to be treated as a single employer that develops a common pay equity plan. The caselaw to-date provides a bleak outlook for employers: these application processes are lengthy and the Commissioner has applied a narrow interpretation of the Act when exercising her discretion. In an earlier bulletin, we describe the first decision from the Commissioner regarding an application for multiple plans in which she denied the majority of the employer’s (CN Rail) requests, granting only one separate plan for a small group of pension investment employees. In the three decisions  that have followed, the Commissioner has denied all of the applications for multiple plans, including in one case where there was support from the employer’s union for the application.  These decisions reinforce the Commissioner’s view that multiple pay equity plans will only be granted in rare and exceptional circumstances.
- Establishing the Committee: Employers with 100+ employees or unionized employees must establish a joint employer-employee pay equity committee, including facilitating the election of a representative(s) of non-unionized employees and the appointment of a representative(s) for each bargaining agent (if applicable) to that committee.
- Developing the Pay Equity Plan: Employers must develop a pay equity plan in accordance with the detailed process provided for in the Act. This includes identifying job classes, determining the gender predominance of those job classes, valuing the work done by predominantly male and female job classes (including identifying a gender neutral job evaluation tool in order to do so), calculating compensation of those job classes (including applying the various exclusions contemplated by the Act) and comparing that compensation to identify gender-based wage gaps. The process of developing a pay equity plan can be particularly time consuming where it is done in a pay equity committee, given the number of decisions to be made and the various different perspectives within the committee. The Canadian Human Rights Commission has issued extensive guidance about how to interpret and apply the legislative requirements when developing a pay equity plan, but there are still lots of unanswered questions and thus potential for debate (and disputes) amongst committee members.
- Posting the Draft and Final Plans: Employers must post a draft of their pay equity plan to facilitate a 60-day period for employee feedback. Employers (or pay equity committees, where applicable) must also consider any employee comments when preparing the final version of the pay equity plan. Practically speaking, this means that employers will need to finalize their work (in committee, where applicable) and post the draft plan by late Spring 2024 in order to meet the September 3, 2024 deadline for posting the final plan.
- Implement Compensation Adjustments: Once an employer has posted its final pay equity plan, it must implement any necessary compensation adjustments by no later than the day after the third anniversary of becoming subject to the Act (i.e. September 4, 2024 for most employers). More specifically, the Act requires an employer to increase “compensation that is payable” to its employees who occupy positions in the predominantly female job classes for which an increase in compensation is required to be made under that plan. It is noteworthy that the Act defines “compensation” broadly and includes not only salaries but also commissions, vacation pay, bonuses, and employer contributions to health insurance plans, among other things.
- Phased In Adjustments? An employer can choose to phase in compensation increases, rather than implement them all at the same time, if the annual increases that are due amount to more than one (1) percent of its total annual payroll from the previous year. Employers that are eligible and that choose to phase in increases in compensation must complete this process over a three- or five-year period of time, depending on the size of the organization. An employer may also ask the Commissioner for an extension to the deadline to phase in any increases in compensation required by its pay equity plan, but only where the Commissioner determines the employer has demonstrated extreme financial hardship – a threshold we anticipate will be challenging to meet for most organizations.
Once these initial pay equity milestones are complete, employers will be required to submit an annual statement to the Commissioner, either on or before June 30 following the third anniversary of the date they became subject to the Act. This means that employers who became subject to the Act on August 31, 2021 must submit their first annual statement on or before June 30, 2025. As part of this process, employers will be required to report on their compliance with the Act, including by providing detailed information about any wage gaps identified by their pay equity plan. The Act also prescribes a pay equity maintenance exercise, which must be completed every five years.
What Happens if You Miss the Legislated Deadlines?
Employers that believe they will require more time to finalize their pay equity plan can make a request to the Commissioner for an extension of the deadline under section 112 of the Act. The Commissioner may approve the request if she determines that the extension is “appropriate in the circumstances.” The guidance from the Canadian Human Rights Commission suggests that factors relevant to this assessment may include, among others:
- why the employer is unable to complete the final pay equity plan under the legislated timeline; and
- whether the employer has taken genuine meaningful steps to establish the plan under the legislated timeline.
Where an extension is granted, the Commissioner will determine the new deadline for posting the pay equity plan.
However, even where an extension is granted, employers are still responsible for making lump sum payments – with interest – in respect of any increases in compensation found to be owing by their pay equity plans. The lump sum payment must cover the total compensation adjustments owed to the applicable employees as between the legislated deadline for posting the final pay equity plan and when the employer in fact posts its final plan. Interest must be calculated at the aggregate of two percent annually and the bank rate in effect on the day for which the interest is calculated, compounded daily.
Employers who have not received an extension from the Commissioner and fail to meet the legislated deadlines may also be called out on the Commission’s website and subject to administrative monetary penalties (“AMPs”), amongst other things. The Act contemplates that these AMPs could range from between $30,000 to $50,000.
Employers who anticipate they may require an extension to the legislated deadlines are encouraged to keep detailed records of their attempts to comply, including committee meeting notes and correspondence with their unions and employees regarding their pay equity projects.
Takeaways for Employers
If your organization has not yet started the process of developing a pay equity plan, it is not too late. However, with only one year left, time is of the essence to get the process under way in a strategic and efficient fashion. If you have questions or need assistance at any stage in the pay equity process, please contact the authors or your regular Fasken lawyer.