• New Jersey employers have less than two months to ensure they are providing equitable pay to their employees under the Diane B. Allen Equal Pay Act (Act), which takes effect July 1, 2018.
  • The Act significantly expands pay equity protections by applying to all protected employee-classifications, broadening the pool of potential comparators to all who do "substantially similar" work, and covering disparities in both compensation and benefits.
  • The availability of liquidated treble damages and the expansive six-year statute of limitations threatens noncompliant employers with significant exposure if their compensation systems create inequity under the Act.

The Diane B. Allen Equal Pay Act (Act), signed into law by New Jersey Gov. Phil Murphy on April 24, 2018, takes effect on July 1, 2018, and is significantly broader than existing equal-pay protections under federal law. The Act's expansive protections also go beyond recent pay-equity legislation in other states, and marks New Jersey as at the forefront of pay equity issues in the nation. New Jersey employers must carefully evaluate their existing compensation practices to ensure they are prepared for additional regulatory scrutiny and potential litigation from current and former employees.

Broad Scope of Pay Equity

The Act significantly expands protections available under the federal Equal Pay Act (EPA) by applying to all classifications protected under New Jersey's law against discrimination, increasing the pool of potential comparators for employees claiming discrimination to all who do "substantially similar" work, and precluding discrimination in compensation, benefits and all financial terms and conditions of employment.

As initially drafted, the Act paralleled the federal EPA and most state laws by applying to gender-based pay discrimination. However, as adopted, the Act applies to all classes of employees protected under New Jersey anti-discrimination law, which is defined to include any employee having one or more of the following characteristics: race, creed, color, national origin, nationality, ancestry, age, marital status, civil union status, domestic partnership status, affectional or sexual orientation, genetic information, pregnancy, sex, gender identity or expression, disability or atypical hereditary cellular or blood trait of any individual, or service in the armed forces.

In addition, unlike the federal EPA, which requires women and men to be paid the same for "equal work," the New Jersey statute requires equal pay for doing "substantially similar work." The Act describes "substantially similar work" as being a "composite of skill, effort and responsibility." It is thus not merely an "equal-pay" statute, but a "pay-equity" one. Notably, this description of comparable work omits the standard of "similar working conditions" that exists under federal law and most other state pay-equity statutes. This omission has potentially broad ramifications, as employees whose working conditions are quite different – such as white-collar office workers and blue-collar employees working outside – may now have to be paid the same if their jobs are similar in levels of skill, effort and responsibility. The Act further expands potential comparators for employees claiming discrimination by requiring comparison across all of an employer's operations or facilities.

Critically, the Act also precludes discrimination in both compensation or in the financial terms and conditions of employment, including allowing claims for both compensation and benefits. The inclusion of benefits is a significant expansion, and employers must be aware that any financial term of employment, not just compensation itself, can be subject to a claim under the Act.

Narrow Ability to Pay Different Rates of Compensation

The Act allows an employer to pay a different rate of compensation only upon demonstrating the difference results from a seniority or merit system or from one or more legitimate, bona fide factors other than characteristics of membership in the protected class, such as training, education, experience, or the quantity or quality of production.

These factors may not be based on or perpetuate any differential of compensation based on any protected class characteristic, must account for the entire wage differential, must be applied reasonably, and must be job-related with respect to the position in question and be based on a legitimate business necessity. However, the employer cannot rely on a legitimate business necessity defense if an alternative practice would serve the same business purpose without producing the wage differential.

Retaliation Protections and State-Contract Reporting Requirements

The Act expands existing retaliation protections to prohibit punishing an employee for discussing or requesting information about compensation and benefits with current and former co-workers, legal counsel or any government agency, and prohibits employers from requiring employees to waive or agree to forego making any such requests. The Act also modifies the reporting requirements for employers entering into public contracts to require reporting of compensation and hour data for employees.

Treble Damages and Extensive Statute of Limitations

Noncompliant employers will face significant exposure because the Act authorizes jury awards of triple damages. Further, the Act's six-year statute of limitations provides a "continuing violation" framework where any instance of inequity in pay or benefits will allow an employee to seek back pay for up to six years from the date of the violation. This six-year limitations period, with its potential extension for continuing violations, will be the longest limitations period of any state pay-equity law to date. (By comparison, California provides a two-year limitation period that extends to three years for willful conduct.) The Act also prohibits an employer from requiring an employee to agree to a reduction in the limitation period.

Conclusion and Takeaways

It is imperative for New Jersey employers to review their compensation systems to assure there is no inequity in any of the financial terms or conditions of employment. To lessen the risk that this review will be used as evidence against the company in a subsequent lawsuit, it is best done by or under the direction of outside counsel. Even then, however, employers must be ready to make compensation adjustments if any noncompliant pay disparities are found.