Pay Equity in New Jersey, One Year Later

When the Diane B. Allen Equal Pay Act became law on July 1, 2018, New Jersey became the state with the most progressive pay equity statute in the nation. In the year since, there have been a smattering of lawsuits filed under the Allen Act. However, many believe those cases are just the tip of the iceberg. High-profile multi-million-dollar pay equity settlements in New Jersey – not to mention New York and across the country – are grabbing headlines and getting the attention of employees who are more attuned to their rights than ever before. Here’s a brief look at the key aspects of New Jersey’s Equal Pay Act and how proactive employers have responded in order to avoid costly litigation.

The Allen Act amended the New Jersey Law Against Discrimination (LAD) by making it unlawful for an employer “to pay any of its employees who are members of a protected class” at a lower rate of compensation for “substantially similar work” performed by employees who are not members of the protected class. Going far beyond the Federal Equal Pay Act (EPA) – which simply provides equal pay protections based on sex – New Jersey’s law covers all 17 protected classes recognized under the New Jersey LAD. Thus, in addition to guaranteeing equal pay to women, the New Jersey law extends pay equality protections based on race, age, religion, national origin, marital status, and pregnancy, among many others.

Absent an established seniority or merit system, New Jersey employers may only justify pay disparities if the differential is based on one or more legitimate, bona fide factors, such as training, education, experience, or the quantity or quality of production. Those factors are job-related with respect to the position in question and based upon a legitimate business necessity where there is no alternative business practice available. The practical implication of New Jersey’s pay equity statute is that employers should pay all employees performing substantially similar work equally or be prepared to explain the pay differential based upon legitimate business factors and needs.

The breadth of New Jersey’s equal pay act is far reaching. In other words, the law has teeth. First, the statute of limitations under the Allen Act is six years. Next, the Act provides that an unlawful employment practice occurs each time the employee is affected, which means each paycheck where an employee is paid less than someone who performs substantially similar work constitutes a separate cause of action. Finally, the law provides for treble damages – which means that an employee can recover three times the shortfall in compensation – plus attorneys’ fees and costs. By way of example, a modest $5,000 pay disparity could quickly expose an employer to potential lability in the hundreds of thousands of dollars. When one considers the possibility for class action litigation, the financial ramifications to employers for non-compliance are staggering.

There was a glimmer of good news for employers earlier this year when a New Jersey federal court determined that the Allen Act is not retroactive, so liability does not begin to accrue prior to July 1, 2018. However, this silver lining should not serve as an excuse for you to ignore possible violations of this most dangerous new law.

Given the high stakes, proactive employers have taken steps to protect themselves by conducting attorney-client privilege compensation audits to identify and remedy pay disparities. Best practices dictate that a pay equity audit be conducted at the direction of knowledgeable counsel to ensure that the results are privileged, and the company benefits from legal advice in this nuanced area of the law. Pay equity studies involve assembling the right team (usually, HR, finance, IT and business leaders), gathering and analyzing the relevant data for employees doing comparable work, identifying pay gaps, assessing whether there are lawful justifications for such gaps, and taking corrective action. Many companies have begun the audit process since the Allen Act became effective last year and agree that an audit is a valuable step to understanding pay practices within an organization and identifying potential hot spots. Of course, the goal is to comply with the mandates of New Jersey’s progressive pay equity statute and to avoid costly litigation. Rather than waiting until a lawsuit hits to look under the hood and make a determination about whether pay practices are compliant, businesses should address the matter by scrutinizing their own compensation levels with the help of their pay equity legal counsel.

About the Author

Kathleen McLeod Caminiti is a partner at the national labor and employment law firm Fisher Phillips. As co-chair of the firm’s Pay Equity Practice Group, she regularly guides clients through the confusing web of pay equity laws and dedicates her time to analyzing the legal issues surrounding pay equality, state pay equity legislation and litigation and pay equity compliance audits. Additionally, Caminiti handles employment litigation matters ranging from individual plaintiff discrimination cases to wage and hour class and collective actions. She may be contacted at [email protected].

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