On March 26, 2018, the New Jersey legislature enacted amendments to existing statutes substantially expanding pay equity protections for New Jersey employees and giving rise to significant compliance and defense burdens for New Jersey employers. Newly elected Governor Phil Murphy is expected to sign the legislation, which will take effect on July 1, 2018.

Equal Pay for “Substantially Similar” Work

Under the new law, employees will be entitled to an equal rate of pay (including benefits) for “substantially similar” work. The determination that work is “substantially similar” will be based upon a composite of factors, which the amendments identify as “skill, effort, and responsibility.”

A differential in rate of pay will be lawful if the employer can demonstrate that it results from (1) a seniority system, (2) a merit system, or (3) one or more bona fide, legitimate factors—including, but not limited to, training, education, experience, or quality or quantity of production—provided that each of the following requirements is met: (a) the factor(s) explaining the compensation differential are not characteristics of protected class members and do not perpetuate a differential that is based upon characteristics of protected class members, (b) each of the factors is applied reasonably, (c) one or more of the factors account for the entire differential, and (d) the factors are job-related to the position in question, based upon legitimate business necessity, and there are no alternative business practices that would serve the same business purpose without producing the differential.

Comparisons of pay rate differentials can be based upon pay rates in any of an employer’s operations or facilities.

An employer cannot reduce compensation in order to comply with the statute.

Pay inequity is not limited to gender disparity. The amendments cover all protected characteristics. Accordingly, pay equity claims may be brought on the basis of race, ethnicity, disability, age and gender. Additionally, it may be possible to bring a claim based on a combination of protected classes, such as race and gender, such as African-American women relative to Caucasian males.

Existing Law

Under the law prior to these amendments taking effect, an employee in New Jersey is able to allege discrimination by reason of her pay being less for either “similar” work or “substantially equal” work. The amendments substitute “substantially similar” in place of the two existing categories. This represents a more employee-friendly proof test that currently exists only for “substantially equal” work claims and will impose an additional burden of proof on employers.

Currently, when an employee argues that her rate of pay is lower than that of a male employee performing “similar” work, the burden of proof rests with the complaining employee for the entire lawsuit. If she is able to establish a pay differential for “similar” work, the employer must articulate a legitimate, nondiscriminatory reason for the differential. Once the employer sets forth such an explanation, the complaining employee must then show that the employer’s explanation is pretextual and that the differential is explained by her gender.

When an employee argues that her rate of pay is lower than that of a male employee performing “substantially equal” work, she has the burden of proving that their jobs are “identical” in the sense that they require “substantially similar skill, effort, and responsibility.” If she does so, the burden of proof then shifts to the employer, which must prove that one of four possible affirmative defenses explains the differential: (i) a seniority system, (ii) a merit system, (iii) a system that measures earnings by quantity or quality of production, or (iv) a factor other than gender.

Changes Made by New Law

The amendments impose significant burdens upon employers while easing requirements for complaining employees. Under current law, an employer only had to suffer the more onerous proof-shifting requirements in defending against claims in which the employee could establish that work was “substantially equal.” The amendments make it necessary for employers to grapple with the shifted burden of proof, along with several new proof burdens (e.g., business necessity), in defending against a single kind of pay equity claim. Beyond that, it seems unlikely that it will be particularly more arduous for an employee to show that two jobs are “substantially similar” as distinct from just “similar.” This will eliminate the more exacting standard that an employee previously had to meet (that is a showing that work was “substantially equal”) in order to shift the burden of proof to the employer, easing the employee’s burden significantly.

In clarifying that an employee may point to any job in an employer’s system rather than just one in the same facility, the amendments do not appear to modify existing law. Nonetheless, by clarifying that a challenge can compare positions throughout an employer’s operation, they nullify a defense that an employer might have tried to assert to the effect that a comparison should be more localized. Presumably, geographic differences in cost of living or other factors continue as possible defenses.

Enlarged Statute of Limitations and Remedies

Following Congress’ response at the federal level several years ago after the United States Supreme Court’s Lilly Ledbetter decision, the amendments provide that a violation of the law occurs each time an employee is affected by a discriminatory compensation decision or practice. Essentially, a new claim arises with each paycheck an employee receives.

An employee can recover back pay going back as far as six years. Moreover, when a violation is proved, the Division of Civil Rights or a court is required to award treble damages, meaning the employee recovers three times the amount of the underpayment.

An employer cannot shorten the statute of limitations by agreement with an employee. The amendments also prohibit an employee waiving the protections of the New Jersey Law Against Discrimination.

It seems extremely unlikely that the prohibition of an employee waiver of the protections of the New Jersey Law Against Discrimination was intended to curtail the arbitrability of discrimination claims. Presumably, such a dramatic measure would have only taken place after meaningful public examination and debate. However, employers that rely upon arbitration agreements should not be surprised if plaintiffs’ counsel raises such an argument once the amendments take effect.

Retaliation

The amendments tighten up the statutory provision that prohibits retaliation for discussing or disclosing to others information that relates in any way to compensation and compensation differentials, including discussion with other employees or former employees, an employee’s counsel, or government officials.

Government Contractors

Under the amendments, employers that enter into contracts with public bodies under which they provide services are obligated to file reports with the Commissioner of Labor that set forth information regarding compensation and hours worked, with reference to gender, race, ethnicity, and job category. Employers will have to report the required information for each “establishment.”

Employers that enter into contracts with public bodies under which they provide public works are similarly obligated, though the information that must be reported may differ somewhat from the information reported for services.

The Commissioner of Labor will issue regulations establishing the form for such reporting, including the pay bands for which the information will be reported. The Commissioner of Labor will disclose the reports filed by employers to employees, former employees, and authorized representatives of employees upon request.

Government contractors covered by the amendments should address potential compensation differentials as promptly as they can before the amendments take effect.

Conclusion

If the amendments that have been passed by the legislature are approved by the Governor without further modification, as is expected, employers will face significantly enhanced burdens in defending their compensation practices from challenge on pay equity grounds beginning in July 2018. Employers should examine their pay practices in the months preceding the effective date of the amendments to rectify any differentials that might appear to be attributable to membership in a protected classification in view of the hurdles to which the amendments give rise in defending against such claims.