Massachusetts AG Issues Guidance on the Amended Massachusetts Equal Pay Act: Overview, Key Takeaways and Action Items

Background

The Massachusetts Office of the Attorney General recently released an Overview and Frequently Asked Questions (the “Guidance”) concerning the extensive changes to the Massachusetts Equal Pay Act (MEPA), M.G.L. c. 149 § 105A, that are due to become effective on July 1, 2018. MEPA has long required that employers pay persons of different genders equal pay for “comparable work.” However, judicial interpretation of MEPA had substantially limited its effect on pay practices. The upcoming amendments to MEPA, which we initially summarized here, broaden the scope of “comparable work,” significantly limit the available justifications for pay differentials, bar certain inquiries in hiring and prohibit employers from limiting most communications among employees about compensation. Once effective, the Massachusetts law will be among the most progressive pay equity laws in the country.       

The Guidance helps to answer some of the many questions raised by the amendments to MEPA. The Guidance is particularly significant, as the Supreme Judicial Court previously has held that other Attorney General interpretations of laws that the Attorney General is charged with enforcing are entitled to substantial deference. 

Even with the interpretations in the Guidance, the practical application of these sweeping reforms will continue to be challenging. The Guidance specifically recommends that employers consult with legal counsel about their options in connection with MEPA’s self-evaluation process and what type of analysis is most appropriate for their organizations.

Overview of MEPA

All references to MEPA below refer to the amended version of MEPA, which will take effect on July 1, 2018. 

MEPA prohibits employers from paying different “wages” (defined as “all forms of remuneration for employment”) to employees of different genders who perform comparable work, unless variations are based on one or more of six statutory factors.

An assessment of comparable work is based on four factors. Specifically, “comparable work” is defined as work that:

• requires substantially similar skill,
• requires substantially similar effort,
• requires substantially similar responsibility, and
• is performed under similar working conditions.

The only six factors that can provide the basis for pay differentials between employees who perform comparable work are:

• a system that rewards seniority with the employer (except that time spent on a pregnancy-related leave or a protected parental, family or medical leave of absence cannot reduce seniority);
• a merit system;
• a system which measures earnings by quantity or quality of production, sales, or revenue;
• the geographic location in which a job is performed;
• education, training or experience, but only to the extent those factors are reasonably related to the job; or
• travel, but only if travel is a regular and necessary condition of the job.

Unlike other federal and state equal pay laws, MEPA does not contain a catch-all “bona fide factor other than sex” exception. Therefore, a pay differential that cannot be explained by one or more of the six factors violates MEPA, and the employer will generally be liable to the affected employee(s) for twice the amount of the differential between the employee’s wages and the wages paid to an employee of a different gender performing comparable work (i.e., double damages), plus reasonable attorneys’ fees and costs. 

However, MEPA provides an affirmative defense to a MEPA claim for any employer that, within the three years prior to the commencement of a MEPA action, (1) has completed a good faith, reasonable self-evaluation of its pay practices, and (2) can show reasonable progress toward eliminating any unlawful gender-based wage differentials that the self-evaluation revealed.The Guidance states that whether or not an employer is eligible for an affirmative defense does not necessarily turn on whether a court ultimately agrees with the employer’s analysis of whether jobs are comparable or whether pay differentials are justified under the law, but rather turns on whether the self-evaluation was conducted in good faith and was reasonable in detail and scope. While employers are not required to conduct self-evaluations, in almost all cases doing so is recommended since employers can significantly reduce their MEPA risks by using the self-evaluation process. Given the three-year look back, employers that conduct adequate self-evaluations and take meaningful remedial actions, if needed, before July 1, 2018, and repeat this process every three years may be able to protect themselves from viable MEPA pay equity claims.  

MEPA also includes two other restrictions on employers – (1) employers generally may not prohibit employees from discussing their pay or that of co-workers, and (2) employers generally may not seek salary or wage history from prospective employees.

Answers to Key Questions About MEPA

1. Does MEPA apply to employees outside Massachusetts?
   
   Generally, no. The Guidance provides that MEPA applies only to employees with a “primary place of work” in Massachusetts, including telecommuters who report into a Massachusetts worksite. It applies, of course, to any employer of Massachusetts employees regardless of where the employer is based.
   
   
2. Can an employer violate MEPA if it has no intent to discriminate against employees of one gender?
   
   Yes. It does not matter whether an employer intends to discriminate against employees of one gender by paying them less for comparable work. Unless an employer can justify a pay differential between employees of different genders who perform comparable work based on one or more of the six factors set forth in MEPA, then the employer will be liable, subject only to the self-evaluation defense. A reliance on market considerations, for instance, rather than the six factors will not be a permissible basis for a pay differential.
   
   
3. What does “substantially similar” mean?
   
   As noted in the overview above, MEPA states that for work to be “comparable work,” and therefore trigger the potential applicability of MEPA, the work must require “substantially similar” skill, effort and responsibility and it must be performed under similar working conditions. The Guidance states that the “substantially similar” standard requires that work be “alike to a great or significant extent,” but not necessarily identical.
   
   This means that two jobs may be considered comparable (and thus require equal pay) despite minor differences in skill, effort, or responsibility. An employee cannot, however, establish substantial similarity by having, for example, a need for lesser skills balanced out by a need for greater effort. The Guidance states that the “substantially similar” standard needs to be satisfied for each of the skill, effort and responsibility factors.
   
   
4. What does the Guidance tell us about the components of the four factors of the “comparable work” assessment?
   
   “Skill” is described as including “such factors as experience, training, education, and ability required to perform the jobs.”
   
   “Effort” is described as “the amount of physical or mental exertion needed to perform a job,” including mental fatigue and stress as part of mental exertion.
   
   “Responsibility” is described as encompassing “the degree of discretion or accountability involved in performing the essential functions of a job, as well as the duties regularly required to be performed for the job.” This includes assessing supervision given and received and decision-making authority.
   
   “Working conditions” mean “environmental and other similar circumstances customarily taken into account in setting salary or wages.” These can include physical surroundings and hazards. Working conditions may include the day or time of work, such as the types of scheduling differences that are taken into account in establishing shift differentials.
   
   
5. How are the four factors of the “comparable work” assessment applied in comparing jobs with different job duties?
   
   Jobs with different job duties may satisfy the comparable work standard. As a practical matter, that is more likely to occur when jobs do not require previous experience or training than when particular skills are prerequisites for employment in the job. The Guidance illustrates the point that jobs with very different duties can be comparable by stating that janitorial and food service jobs in an elementary school setting would involve substantially similar skills, as neither job would require previous experience or training, and they involve substantially similar effort (described in the Guidance as the amount of physical or mental exertion needed to perform a job). This example is plainly based on the facts in the case of Jancey v. School Committee of Everett, 421 Mass. 482 (1995). In Jancey, the Supreme Judicial Court held that one required step in finding comparability is that jobs share “important common characteristics,” which eventually resulted in a finding that the janitorial and food service jobs there were not comparable. The amended MEPA eliminates the “important common characteristics” requirement.
   
   While required effort and responsibility and working conditions are also factors to be considered, a job’s required skills are a likely starting point for employers when assessing job comparability. The Guidance illustrates an instance of non-comparability by explaining that a bookkeeping job that requires accounting skills may not be comparable to the job of an account manager, which relies heavily on customer service skills. This reflects that, as a practical matter, when jobs require previous relevant experience and involve significantly different job duties, they will often require different skill sets, which will preclude the jobs from being comparable. Of course, while that will often be the case, the focus of a MEPA inquiry needs to be on the skills, effort, responsibility and working conditions associated with the jobs, rather than their particular duties.
   
   In performing an assessment of whether two jobs constitute “comparable work,” an employer should be careful to compare the job requirements concerning skill, effort and responsibility, as well as the relative working conditions, rather than comparing the individuals performing the jobs. Specific types of individual differences between employees can be relevant in applying the separate set of six factors permitting variations in pay, but only after the assessment of comparability of work has been completed.
   
   In comparing jobs, an employer may consider job descriptions, but the Guidance advises that “an employer may not rely on job descriptions alone.” The relevance of job descriptions will depend on how accurately they reflect the four factors of the comparable work assessment.
   
   
6. What forms of compensation qualify as “wages” for MEPA purposes?
   
   MEPA broadly defines “wages” to include “all forms of remuneration for employment.” The Guidance states that “wages” includes, by way of example, “commissions, bonuses, profit sharing, paid personal time off, vacation and holiday pay, expense accounts, car and gas allowances, retirement plans, insurance, and other benefits, whether paid directly to the employee or to a third-party on the employee’s behalf.” The Guidance clarifies that when an employee chooses not to take advantage of certain benefits (e.g., health or life insurance, retirement plans, tuition reimbursement, etc.), what matters is that employees performing comparable work have the same opportunity to participate in benefit programs on the same terms, regardless of whether they choose to do so. The Guidance does not directly address whether stock options or other equity grants to employees must be considered as part of an equal pay analysis, although “deferred compensation,” which is not defined and often includes equity grants, is included as part of an employee’s wages.
   
   
7. What is necessary to show that there is a “system” that permits variations in pay?
   
   The six permissible grounds for variations in pay when work is “comparable” are listed above. A common component of three of them is the presence of a “system”: (1) a system that rewards seniority with the employer, (2) a merit system, and (3) a system which measures earnings by quantity or quality of production, sales, or revenue. The Guidance defines a system as “a plan, policy, or practice that is predetermined or predefined; used by managers or others to make compensation decisions; and uniformly applied in good faith without regard to gender.”
   
   This standard does not mandate documentation to establish that a system exists, as it expressly permits a system to be based on a “practice.” However, an employer will be better able to establish that its basis for pay variations is “predetermined or predefined” if it has documented those standards. For example, discretionary bonus plans will be more likely to withstand scrutiny if they set forth in writing discretionary individual components of bonuses, which are based on the MEPA factor permitting differences based on quantity or quality of production, sales, or revenue. If an employer does not have documented policies that set forth factors consistent with those that can justify pay variations, employers may have difficulty relying on a “system”-based exception to explain a pay discrepancy between employees of different genders who perform comparable work.
   
   
8. In measuring seniority, may an employer exclude leaves of absence from the period of credited service?
   
   It depends on the nature of the leave of absence. MEPA provides that “time spent on leave due to a pregnancy-related condition and protected parental, family and medical leave, shall not reduce seniority.” The Guidance states that “protected parental, family and medical leave” means a leave protected by a statute, such as the Family and Medical Leave Act, rather than any and all leaves taken for parental, family or medical reasons. This suggests that leave for a “pregnancy-related condition” cannot reduce seniority regardless of whether it is pursuant to a statute, but leave for other parental, family or medical reasons needs to come within the scope of a statutory leave right. What remains unclear is whether a leave of absence that may qualify as a reasonable accommodation under the Americans with Disabilities Act or Massachusetts General Laws Chapter 151B qualifies as a “protected medical leave.”
   
   
9. May an employer rely on changes in the local labor market to justify differences in pay for comparable work performed by employees of different genders?
   
   The Guidance says no. The practical consequences of this principle could be problematic for employers.  If, for instance, pay for external hires increases due to market pressures, those hired previously at lower pay levels based on different market conditions but who perform work comparable to that of newer, higher-paid employees could claim that the pay differential is not supported by any of the six permissible reasons for variations if they can identify someone of the opposite gender who was hired at the higher market rate without greater experience or other expressly permitted considerations justifying the higher rate.
   
   
10. May employers prohibit the sharing of compensation information?
    
    Generally, no. Employers may not prohibit employees from disclosing their own or co-workers’ compensation information with others. This means that restrictions on disclosing compensation information, which may be set forth in employee handbooks, employment agreements and nondisclosure agreements, among other documents, are impermissible. Employers may, however, prohibit human resources personnel, supervisors and other persons whose jobs give them access to compensation information from disclosing the compensation information to which they have access.
    
    
11. What limits are there on employer inquiries concerning a prospective employee’s salary or wage history?
    
    Under MEPA, an employer generally may not seek the salary or wage history of a prospective employee from the prospective employee or a current or former employer. Similar restrictions apply in locations beyond Massachusetts, as addressed in a previous client alert. The only MEPA exceptions to the wage history ban are (1) to confirm compensation information that has been voluntarily disclosed by the prospective employee, or (2) after an offer of employment with compensation has been made. An employer may not avoid this general prohibition by seeking the information from a recruiter or other agent or by suggesting that a prospective employee share his or her salary or wage history.  
    
    An employer will not violate MEPA by asking prospective employees about their salary requirements or expectations, so long as such questions are not asked in a way that is intended to elicit salary or wage history. The Guidance states that a follow-up question of “what is that expectation or need based on” would be reasonably likely to prompt the prospective employee to disclose salary history information, and should therefore be avoided.
    
    If a prospective employee voluntarily discloses salary or wage history information, the employer may seek information to confirm it. The Guidance explains that information will qualify as “voluntarily disclosed” if “a reasonable person in the prospective employee’s position would not think, based on the employer’s words or actions, that the employer encouraged the disclosure.” An employer may also seek a prospective employee’s salary or wage history from public sources without violating MEPA.  
    
    Perhaps most importantly, the Guidance states that even if an employer permissibly learns of a prospective employee’s salary or wage history, such information cannot justify paying that employee less than an employee of the opposite gender who performs comparable work. A pay differential would need to be based on one of the six permissible factors.   
    
    These restrictions on inquiries apply only to the hiring of prospective employees. They do not apply to an employer’s consideration of one of its existing employees for transfer or promotion.
    
    
12. What information does the Guidance provide about the self-evaluation process?
    
    One reason why there has been great interest in obtaining the Guidance is that many employers  seek to conduct self-evaluations under MEPA, since a properly conducted and properly utilized self-evaluation will provide a complete defense to liability under MEPA. The requirements to establish the defense are that:
    
    • the self-evaluation is completed before the filing of the lawsuit and within the preceding three years;
    • it is “reasonable in detail and scope” in light of the size and complexity of the employer;
    • it is conducted in “good faith;” and
    • to the extent that unlawful wage differentials for comparable work are identified, the employer has made “reasonable progress” toward eliminating them.

While a properly conducted self-evaluation followed by timely and appropriate remedial steps will provide a complete defense to the extent of its scope, the Guidance notes that a self-evaluation needs to “have included the employee(s) or job(s) at issue” for the defense to apply.

The Guidance sets forth “general guidelines” for the self-evaluation process consisting of the following six steps:

Step 1: Gather Relevant Information. This includes individual employee information relevant to compensation, job duties, performance, geography and other factors consistent in the comparability assessment and the six factors for justifying variations.

Step 2: Identify Comparable Jobs. The employer is to develop “job groupings” based on the previously referenced four factors of the “comparable work” assessment, taking into account but not relying exclusively on the job titles and job descriptions. Determining what jobs are comparable under MEPA is at the heart of the pay analysis, and care should be taken to ensure that the job groupings are developed in good faith and independent of the other parts of the analysis.

Step 3: Calculate Whether Men and Woman Are Paid Equally. The Guidance emphasizes an employer’s flexibility to conduct an analysis as it determines, subject to the “good faith” and “reasonable scope” requirements. The Guidance is accompanied by a “Pay Calculation Tool,” which consists of instructions and a set of spreadsheets to serve as a suggested “starting point” for a self-evaluation, where “comparable job groupings . . . have 30 or fewer employees and a relatively simple pay structure.” The spreadsheets will automatically populate information and calculate differentials based on information entered by the employer. The Guidance states that when there are more than 30 employees in a job grouping or the structure is more complex, a statistical analysis may be warranted. The Guidance also acknowledges that alternative approaches based on “valid methodologies used or recommended by professional economists or statisticians” may be used, so long as they are consistent with MEPA. The Guidance recognizes that “in many cases, conducting a statistical analysis will be the best way for employers to determine whether there are differences in pay between men and women in comparable jobs after controlling for other factors. In most cases, conducting such a statistical analysis will constitute good faith with respect to this step of any employer’s selfevaluation of its pay practices.”

Regardless of what method of analysis is used, the Guidance is clear that “determining whether it is lawful to pay employees differently for comparable work requires an analysis that is separate from the analysis of whether jobs are comparable in the first place.” Also regardless of what methodology is used, the Guidance states that each male and each female within a job grouping is a potential comparator. Therefore, employers should consider conducting one-to-one comparisons between male and female employees within each grouping of comparable jobs. According to the Guidance, comparing any employee with the “average pay” of employees of the opposite gender, a methodology often used by statisticians when assessing pay equity, is not sufficient. Of course, significant differences may also warrant revisiting the original job groupings to ensure that they are correct.

Step 4: Assess Whether Differences in Pay Are Justified. If there are differentials, an employer may take into account the six factors on which pay variations may be based. In larger job groupings, statistical analyses may be warranted.

Step 5: Remediate. If differentials remain after taking into account the six factors, the employer should develop a remedial plan “as soon as practicable.” The remedial plan will ordinarily require pay increases for some employees. The employer may not reduce anyone’s pay to comply with MEPA. The Guidance also advises that the remediation itself (as distinguished from the development of the plan) should be completed within six months, and that if it is not, the self-evaluation may be used as evidence against the employer if an employee files a claim. 

Step 6: Adjust Pay Practices. If differentials arise, the employer should assess the reasons and consider steps to address them. The Guidance recommends considering annual self-evaluations. This is, of course, much greater frequency than required for the affirmative defense. However, an employer that has completed a good faith self-evaluation within the preceding three years and has taken timely remedial action may still be vulnerable to a MEPA claim. As noted above, the Guidance states that for the affirmative defense to apply, it “must have included the employee(s) or job(s) at issue.” It is not clear that this precludes the application of the affirmative defense to a claim by an employee who is hired after the completion of the self-evaluation into a position that was included within the self-evaluation process.

Action Items for Employers of Massachusetts Employees

• As recommended by the Guidance, consult with legal counsel about undertaking a pay equity self-evaluation of Massachusetts employees’ compensation. Consider whether it is prudent to engage a statistical expert to advise and assist in the process.
• Consider revising job descriptions to ensure that they can be effective tools for comparative assessments of skill, effort, responsibility and working conditions.
• Document considerations that affect compensation consistent with the six factors on which pay differentials may be based. You may already be basing compensation differences on these factors but using different terminology.
• Review employment applications to ensure that they do not request wage or salary history information.
• Train those who interview prospective employees to refrain from asking, directly or indirectly, about current or past compensation information, at least in Massachusetts and other locations where such inquiries are prohibited.
• Review employee handbooks, nondisclosure agreements, employment agreements and other documents to ensure that employees are not prohibited from sharing compensation information.
• Inform human resources and supervisory employees of the prohibition on disciplining employees for sharing compensation information, while confirming that this does not authorize their disclosure of compensation information to which they have access in their roles.
• Preparing for MEPA will be a data-intensive effort. Start early so you can make fully informed decisions on your terms and timeline.

Goodwin’s employment law team is prepared to assist our clients as they work through the new legal landscape with respect to pay equity. We have experience in working with clients to assist them in conducting pay equity analyses, including engaging compensation consultants and statistical experts as appropriate to help evaluate compensation structures on an attorney-client privileged basis. If at any time you have any questions or need assistance with conducting a self-evaluation or complying with MEPA, please contact a Goodwin employment law specialist. 

To assist clients in preparing for the effective date of the amendments to MEPA, we will be presenting a webinar on March 27, 2018, from noon to 1:00 p.m. An invitation will follow separately.