Wage window: why pay equity exposures are growing

Employers need to be proactive when it comes to identifying risks associated with pay equity legislation, and the rise in pay transparency rules in particular, warns Vikki Edmonds (pictured) of Markel Bermuda. 

When Claudia Goldin, a professor at Harvard University, was awarded the Nobel Prize in Economic Sciences in October, it represented the latest high-level acknowledgment of ongoing pay inequity in the workplace.

Goldin was recognised for her work on the dynamics of pay equity, advancing the understanding of women’s labour market outcomes and uncovering key drivers of gender differences in pay.

Issues related to a lack of pay equity and transparency have been gaining traction in boardrooms and legislative debates for quite a while, but it is only in recent years that pay transparency requirements have started to appear. 

This means more insureds are exposed to pay-related litigation than ever before, says Vikki Edmonds, senior director, head of Employment and Wage and Hour Practices Liability, Markel Bermuda.

Million-dollar litigation payouts

Large employer payouts related to pay transparency and equity claims are already on record. In 2022 in the US, Hospitality Logistics International was investigated by the Office of Federal Contracts Compliance Programs (OFCCP) after complaints stated the company had terminated employees for asking about their compensation. Under a conciliation agreement with the OFCCP, the company agreed to pay $100,000 to the group of affected employees to settle the issue. 

“This is a case that directly relates to the ability for employees to talk about pay, salaries, benefits and compensation within their workplace,” Edmonds said.

Two other significant pay equity cases have settled in the US in the past year, she added. In 2022, Google agreed to pay $118 million to settle a pay discrimination case that had been brought on behalf of approximately 15,000 women. It was alleged that these women were paid around $17,000 less than their male counterparts for doing the same work. 

The same year, Sterling Jewellers agreed to pay a total of $175 million to 68,000 women to settle their claims of gender discrimination in pay and promotions.

And let’s not forget the landmark case of Betty Dukes v Walmart. Dukes, a greeter at Walmart, brought an equal pay claim against her employer in 2001 on behalf of around 1.6 million women. She alleged that Walmart’s policies resulted in lower pay for women across the nation. 

After many appeals by Walmart, Dukes ultimately lost her case because the Supreme Court stated that there was not enough similarity between the members of the class action for it to be brought on a class basis. But the case left its mark, said Edmonds. Dukes had sued the largest employer in the US and put the working conditions of many lower-paid workers across the US under the spotlight.

Ending the taboo of salary disclosure 

Regulations governing pay transparency are already in place in many countries. Globally, 21 out of 38 Organisation for Economic Co-operation and Development (OECD) countries require private sector gender pay reporting. Finland and Sweden were two of the first countries to report on a gender basis.

Edmonds said: “In April 2023, the EU Pay Transparency Directive was passed. The basic requirements of the directive state that all EU member states must pass national pay transparency legislation by 2026.” 

In the US, the Equal Pay Act has legislated for pay equity between women and men since 1963. However, Edmonds said, not too long ago, discussing salary openly in the workforce was “absolutely taboo.” 

“Today, there’s greater social awareness and transparency around wages,” she added. “Not just from an individual basis, but from a state and jurisdictional-mandated basis.”

The legislative requirement for pay transparency in the US is relatively new, with the first formal legislation passed in 2020. “We’re only in year three, so we haven’t seen a very significant amount of material pay transparency litigation yet,” Edmonds said.

Certain US states and cities expect employers to share compensation information. 

“This could mean that they are required to publish salary bands when advertising for a new or existing role, or openly share salary benchmarking data with their team members,” she explained. 

To date, eight states and several cities across the US have passed pay transparency laws, including Colorado, California, Maryland, and New York, with cities such as Cincinnati and Toledo, in Ohio, as well as New York City. More are set to adopt such rules, including Hawaii in 2024 and Illinois in 2025. 

Edmonds stressed that each jurisdiction has slightly different requirements around what pay transparency looks like, but said that generally they encompass three main areas: salary disclosures must occur with the applicant at a certain point during the hiring and interview process; salary ranges must be provided to employees on request; and salary ranges must be disclosed within job postings.

As the US’s legislative mood music steps up a beat, the role of the Equal Employment Opportunity Commission (EEOC) is also expected to expand.

The EEOC’s mandate as a regulatory agency within the US government is to enforce federal laws that make it illegal to discriminate against job applicants or employees based on their protected class status, for example, race, national origin, religion, sex, age, disability or genetic information. Its mandate covers all businesses with 15 or more employees. 

“In July this year, a new commissioner was appointed to the EEOC, which gave Democrats a 3:2 majority for the first time in quite a while,” Edmonds explained. “This is expected to lead to more liberal assumptions and rulings, and more aggressive activity in the employment space than previously seen.” 

She said that the EEOC has always considered pay disparity, but Kalpana Kotagal, the new Commissioner, was especially focused on the fight for equal pay in her previous role in private practice. “It will be interesting to see how that plays out in her new role as a commissioner with the EEOC.”

Legislation could add more protected classes

Employer risks are increasing but, Edmonds said, insurers can help them to better manage this developing exposure. 

The Pay Equity Act in the US specifically considers gender equality, meaning it is a narrow consideration of pay equity. 

“But I expect the EEOC today to be more liberal leaning, and that applies to other agencies within the US. We may see the passage of legislation in the US that considers other protected class statuses within the Pay Equity Act, or something that considers race or national origin,” she said.

“Companies need to be willing not just to complete the review and audit but also to correct if necessary.” Vikki Edmonds, Markel Bermuda

With the potential for additional exposures to come through the legislative pipeline, companies would be wise to look beyond their pay equity review for compliance.

“Companies must be willing to accept the financial impact of any corrections that may need to be made to disparate pay awards. It would be argued by the plaintiffs’ bar that if an assessment was completed and found 30 percent disparity within a workforce, but it was never corrected, it would be indefensible if that company is brought into litigation.”

Companies need to be willing not just to complete the review and audit but also to correct if necessary, she added.

Unequal promotions within the workforce are another area of growing risk, said Edmonds. She explained that litigation may be brought when women or people of colour have not been promoted in line with their colleagues even while doing exactly the same work and having the same ability and reasons for being promoted.

“Even if a company completes an assessment and finds 100 percent pay equality within its workforce, if a group of women should have been promoted but were not 10 years ago, then it’s likely that at some point a discrimination claim will be brought and inequitable pay allegations are likely to be brought with it,” she said.

Edmonds concluded: “In the employment practices liability space, we’re always hopeful that our large employers are being proactive in the way they assess their workforce and their risk. This creates not just a cleaner environment for them, but also better defences when a lawsuit walks through the door.”

Did you get value from this story?  Sign up to our free daily newsletters and get stories like this sent straight to your inbox.