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New Jersey’s Diane B. Allen Pay Equity Act Will Be the Strongest Pay Equity Law In U.S.

Published by and on May 14, 2018

Effective July 1, 2018, New Jersey employers are prohibited from offering or compensating women and minorities at lower pay and benefits rates unless employers can demonstrate a bona fide reason under the law why the rate differential exists.

On April 24, 2018, New Jersey Governor Phil Murphy signed the Diane B. Allen Pay Equity Act (“Act”) into law, which is set to take effect July 1, 2018. The Act makes it an unlawful employment practice for New Jersey employers to compensate any member of a protected class under the New Jersey Law Against Discrimination (“LAD”) at a rate lesser than other non-protected class employees who perform “substantially similar work” unless the employer can show that the differential is based on a legitimate business reason. Compensation for the purposes of the Act includes salary and benefits. This means that under the Act, employers cannot compensate employees at a lesser rate of salary or benefits on the basis of sex, race, creed or religion, national origin, color, age, ancestry, nationality, marital or domestic partnership or civil union status, gender identity or expression, disability, military service, affectional or sexual orientation, atypical cellular or blood trait, or genetic information. Beyond just closing the gender pay gap, the reach of the Act is incredibly broad.

Under the Act, “substantially similar work” is viewed as “a composite of skill, effort, and responsibility.” An employer may, however, pay a different rate of compensation only if the employer demonstrates that the differential is made pursuant to (1) a seniority system; (2) a merit system or (3) the employer demonstrates:

  • That the differential is based on one or more legitimate, bona fide factors other than the characteristics of members of the protected class, such as training, education or experience, or the quantity or quality of production;
  • That the factor(s) are not based on and do not perpetuate a differential in compensation based on sex or any other characteristic of members of the protected class;
  • That each factor(s) is applied reasonably;
  • That one or more factors account for the entire wage differential; AND
  • That the factor(s) are job-related with respect to the position in question and based on a legitimate business necessity. A factor based on business necessity shall not apply if it is demonstrated that there are alternative business practices that would serve the same business purpose without producing the wage differential.

Comparisons of wage rates will be based on the wage rates in all of an employer’s operations or facilities. Employers are expressly prohibited from reducing the rate of compensation of any employee in order to comply with the Act. Employers found in violation of the pay equity provisions of the Act could be liable for back pay and treble damages.

In addition to the pay equity provisions, the Act also extends the LAD statute of limitations for pay equity related claims from two years to six years. The limitations period would restart each time a paycheck is issued and was based on a discriminatory compensation decision. Additionally, the Act makes it an unlawful employment practice to require employees (or prospective employees) to agree or consent to a shortened statute of limitations or to waive any LAD provided protections. Further, the Act also expands what constitutes protected activity for the purposes of retaliation under the LAD. The expanded provision prohibits any retaliatory or adverse employment action against:

[A]ny employee for requesting from, discussing with, or disclosing to, any other employee or former employee of the employer, a lawyer from whom the employee is seeking legal advice, or any other government agency information regarding job title, occupational category and rate of compensation, including benefits, of the employee or any other employee or former employee of the employer, OR the gender, race, ethnicity, military status, or national origin of the employee or any other employee or former employee of the employer.

Welter Insight

Because the Act affects nearly all private employers, regardless of how small or large, employers must prepare for the upcoming change. Employers should consider auditing compensation practices and policies to ensure compliance under the Act. While employers are not required to compensate all employees the same under the Act, as they may permissibly consider factors such as training, experience, and education, employers must review compensation disparities and ensure that the reason for these disparities is not prohibited under the new law. Employers who do not take corrective action now stand to face litigation and enhanced damages available to prevailing employees.

Employers who are concerned that their current practices and policies are not permissible under the new law should take steps to rectify compensation disparities or non-compliant policies before July 1, 2018. In doing so, employers must remember that they cannot reduce the compensation of other employees to comply with the Act. Concerned employers should seek counsel and consider compensation audits as a means to prepare.

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