By: Kamy Vacca, Senior Vice President, Alliant
At the end of 2016 new guidelines were passed requiring U.S. based employers to review the pay of all employees and to report on wage disparities in their EEO-1 reports beginning in March 2018. Many employers viewed these new requirements as overly burdensome. Apparently the White House agreed, suspending implementation of the rules, much to the relief of most U.S. companies who felt this requirement would not adequately reflect the reasons for any pay gaps. Companies would have been required to report W-2 wage information for every employee along with specific salaries divided up into 12 pay bands. What this report did not require were specific qualifications such as education, experience, productivity, performance and other measures that are utilized to determine individual compensation. The new guidelines would have required employers to modify the wages of those within each pay-band that were underpaid, as salaries could not be reduced for those who received higher salaries.
The suspension does not mean that companies cannot still be found to be in violation of the Equal Pay Act or for multinational companies, violations of the laws of other countries, such as the UK and others.
Multinational companies based in the U.S. with subsidiaries in foreign jurisdictions must comply with the local laws. The Equality Act of 2010 in the UK requires reporting by the end of March or April of this year, depending on whether the company is public or private. Those reports are starting to be published and we have seen at least one lawsuit against Tesco, in excess of $5 Billion. Link below: https://www.leighday.co.uk/News/News-2018/February-2018/Leigh-Day-launch-%C2%A34bn-equal-pay-claim-against-TESC
Should the U.S. proceed with the new EEO-1 reporting requirements, companies could see lawsuits arising out of various violations of the Equal Pay Act, discrimination, and other alleged employer wrongdoing. Publicity over non-compliance, or over apparent inequality in pay, may also lead to reputational damage. The EEOC and state agencies may choose to use such disclosures as the basis for class action activity as well.
Many companies had already begun the evaluation process. At this point, companies may consider attempts at closing or reducing the gap before being required to disclose any equality, which would obviously help with results.
It may be time to take a look at your EPL Policy and review some of the policy provisions to ensure you are adequately covered. Below are some questions to consider:
Does your EPL Policy have express coverage for back pay? This could be an element to consider if disparate wages must be adjusted upward, particularly if a court may require the employer to make up for prior underpayment of wages.
Does your EPL Policy have true worldwide coverage or is the worldwide coverage limited by having a requirement that claims have to be brought in the U.S.? This is significant right now as the U.K.’s pay disclosure requirement is coming into effect.
There are numerous other insurance issues that may be implicated in regard to pay inequality. A review of all potentially applicable insurance policies is certainly warranted at this time, even if the current legislation has been put on hold.