Most major jurisdictions have pay equity laws, but their approach is far from uniform. Global companies need to evaluate compliance with these laws on a country-by-country basis whilst simultaneously addressing their compensation policies globally.
A sample of the rules across several countries helps to identify trends that can drive effective global policies.
Australia
The Australian Workplace Gender Equality Act of 2012 mandates equal pay for equivalent or comparable work. There are annual reporting requirements for employers with 100 or more employees. Those reports must include the following indicators: gender composition of the workforce, gender composition of governing bodies, and equal compensation between men and women.
Employers are penalised by being publicly named if they fail to lodge a public report on time, or inform employees or other stakeholders that a public report was lodged, or give the requested compliance data under the Act.
Canada
The law varies across Canada; several Canadian provinces have pay equity laws in place, such as Ontario’s Pay Equity Act of 1987. There is also pending federal legislation that would require public and private employers with at least 10 employees to
- Identify job classes predominated by men or women
- Evaluate the value of work performed by job classes that are male or female predominant
- Compare compensation associated with job classes that are male or female predominant and are of similar value
- Identify female-predominant job classes requiring an increase in pay as compared with male predominant job classes performing work of similar value
- Identify when pay increases are due
These pay analyses will need to be included in a Pay Equity Plan. Employers need to post notices regarding Pay Equity Plan obligations and progress, provide employees with the opportunity to comment on the Plan, and file annual statements with the Pay Equity Commissioner.
China
There are no direct rules or measures in China to address pay equity. China does have in place general principles for eliminating pay gaps, but those do not specifically focus on gender pay disparities, and there is no duty for employers to assess and report on gender wage differentials.
France
President Macron’s administration has declared equality between men and women to be a “great national cause.” France enacted new legislation in September 2018 that requires employers with at least 50 employees to publish information each year on gender pay gaps and the actions they have taken to address them.
Employers also receive an “equal pay rating” based on the following factors:
- The pay gap between men and women, which is based on average full time compensation within equivalent job functions
- The difference between men and women who have received raises, other than as a result of promotion
- The difference in compensation between men and women who have received promotions
- Whether or not the employer has complied with the existing legal obligation to give a pay rise to employees when they return from maternity leave, if pay rises were granted during their maternity leave
- The proportion of men and women in the list of the 10 most highly paid employees within the company.
If the employer’s equal pay rating falls below a certain level, the employer must adopt corrective measures. If the problem persists for three consecutive years, a financial penalty may apply.
Germany
The German Wage Transparency Act, which came into effect in January 2018, gives employees at companies that have over 200 employees the right to find out what their co-workers of the same level and opposite gender are earning. Although employees cannot obtain earnings information for a specific employee, a company must provide average earnings for employees of the opposite gender, with the caveat that there must be at least six comparable employees at that level.
Additionally, companies with over 500 employees are required to publish reports regarding any pay disparities they may have, along with their efforts to lessen those disparities.
United Kingdom
UK employers with at least 250 employees must publish the following information:
- Mean and median gender pay gaps
- Mean and median bonus gender pay gaps
- Proportions of men and women receiving a bonus payment
- Proportion of men and women in each quartile pay band.
United States
The US Equal Pay Act of 1963 (EPA) prohibits employers from paying employees differently based on their sex for performing equal work in the same establishment under the same or similar working conditions. Title VII of the Civil Rights Act of 1964 also bans sex discrimination in compensation in any form.
The United States did not historically have pay data reporting requirements but, in April 2019, a federal judge ordered the Equal Employment Opportunity (EEO) Commission to implement without further delay its proposal to collect pay data in the EEO-1 report required by Title VII and filed annually by employers with 100 or more employees.
Where laws elsewhere rely on disclosure, US law has historically relied on litigation. Litigation is predominantly driven by individuals, rather than government agencies, but now often includes either collective actions under the EPA, or class actions under Title VII, both of which raise the stakes significantly in terms of dollar exposure for employers. One of the best-known is Kassman v KPMG LLP, an ongoing class action brought by approximately 10,000 female employees alleging they faced disparate pay and promotions.
Beyond US national laws, over 40 states and territories have enacted their own pay equity laws. Amongst the most stringent are California, Delaware, Massachusetts, Oregon, New York, and Puerto Rico. Additionally, at least 11 states have enacted salary history bans preventing employers from requesting salary history information from job applicants. As with national laws, enforcement is largely by private lawsuits.
Global Compliance
There are clearly trends that are apparent from this quick global tour, which may help improve overall compliance.
One trend is the increase in countries making public disclosure (not just to employees or the government but to everyone, including shareholders) of gender pay disparity the core principle of their attack on gender-based pay inequality. This “name and shame” policy forces businesses to actively manage pay equity to limit brand damage. This approach is paralleled in the United States by shareholder resolutions that demand such disclosures.
Although there is a focus on avoiding litigation risk (US law), “shame” (UK and Australian law), and administrative burdens (Canada’s proposed federal law), businesses need to think carefully before acting.
The most obvious solution to pay inequality is to do a pay study and fix any disparity. It is, however, counterproductive if the company conducting the pay study does not have a detailed and evidence-based process in place for addressing any problematic findings from the study, and if it has not carefully considered what, if anything, should be privileged. There is a legal and employee relations minefield for ill-conceived studies and corrective actions that could create claims of reverse discrimination, which is illegal in the United States. Rudebusch v Hughes, for example, permitted Title VII claims of white, male professors challenging pay equity adjustments for female and minority professors, resulting in a jury verdict for the plaintiffs. Quick studies and quick fixes only exacerbate the problem.
Instead of knee jerk reactions, businesses need to follow the lawmakers’ lead to identify and rectify the structural impediments to equality in order to have real, lasting effect.
The component of French law that addresses wage increases during maternity leave is illustrative, since absences from the workforce owing to family responsibilities is part of the persistent wage disparity between men and women. The German law requiring salary disclosures empowers underpaid women to take steps to ask for a raise. Similarly, those US states that prevent questions about previous salaries are designed to avoid the “market defense” or “market replication” of sex discrimination in pay.
The global trend towards closing the pay gap is an opportunity for businesses to develop and implement proactive policies that recognize the source of the problem and tackle it head on. Some examples include the following:
- Address the gap in experience that invariably arises due to women, far more often than men, taking time off to handle family responsibilities.
- Standardize starting compensation for the position, rather than the person; i.e., new hires or promotions each receive the same compensation package. From that point, each could earn more based on performance.
- Follow the US’ example and ban asking for prior salary when hiring or promoting. A further embellishment may be to ban salary negotiations, which studies show disadvantage women.
- Make pay transparent, which requires managers to rationalize and explain pay, while permitting employees to ask how to equalize the pay of similarly situated colleagues.
This article was originally published in the latest issue of McDermott’s International News.
