Volume 36, Issue 12, December 2001


Compensation Discrimination
        Learn the High Price of Unequal Pay
by David Barron

In the past two years, the Equal Employment Opportunity Commission (EEOC) has made the elimination of compensation discrimination a high priority. As a result of this crackdown, many employers have suffered stiff penalties. 

The R.E. Michel Co. settled a case with the EEOC for more than $200,000 after firing a female employee who had complained that her salary was less than half that of her male colleagues. Saint Paul Metalcraft paid its female machine operators less than males in substantially similar positions and was subsequently punished to the tune of more than $73,000. The largest hit was suffered by Woodbine Health Care Center, which was forced to shell out more than $2 million for putting Filipino nurses into positions that paid $6 an hour less than those of their non-Filipino counterparts. A simple analysis by these companies of their compensation systems and how they affected minorities could have avoided the negative outcomes in each of these cases. 

Equal Pay Laws
Compensation discrimination in employment is prohibited by the Equal Pay Act of 1963, Title VII of the Civil Rights Act of 1964, the Age Discrimination in Employment Act of 1967 and Title I of the Americans with Disabilities Act of 1990, all of which are enforced by the EEOC. Collectively, these statutes require employers to compensate their employees without regard to the protected categories of race, color, religion, sex, national origin, age or disability. 

The most basic approach to avoiding compensation discrimination claims is an identification of similarly situated employees and comparison of their compensation. Any differences must be supported by nondiscriminatory reasons. Complying with equal-pay laws, though, is not as easy as simply paying similar salaries to all workers in similar positions. Employers must have a basic understanding of all the factors the EEOC considers in such cases to protect themselves from liability under this new focus on compensation 

Be Consistent
The various laws against compensation discrimination apply to all payments made to or on behalf of employees for employment. All forms of compensation are covered, including salary, overtime pay, bonuses, stock options, profit sharing and bonus plans, life insurance, vacation and holiday pay, cleaning or gasoline allowances, hotel accommodations, reimbursement for travel expenses and benefits. Therefore, you cannot maintain that your compensation program is non-discriminatory simply because you pay all of your similarly situated workers the same wage. If white employees are receiving bonuses or fringe benefits superior to those of similarly situated black employees and there is no nondiscriminatory explanation for the difference, potential liability for compensation discrimination exists. 

This liability exists even if the policies underlying the award of such compensation are not directly discriminatory. For example, commission or bonus plans may end up indirectly rewarding non-minorities at a greater rate than minorities based on supervisor biases or other indirect factors. Although such plans do not violate compensation discrimination laws on their faces, they potentially could be found to violate such laws based on the discriminatory impact they have on minority employees. To avoid any potential problems, employers who reward employees with performance-based bonuses or commissions should run internal audits to ensure that men, women and minorities at similar performance levels are receiving bonuses and benefits on a consistent level.

Even a neutral compensation policy or practice with no biased application can have an adverse impact on employees in a protected class and therefore be considered discriminatory. For example, an employer could provide extra compensation or benefits to employees who are the “head of the household” (i.e., married with dependents and the primary financial contributor to the household). The EEOC considers such practices to have an unlawful disparate impact on women, but to a much lesser extent than it would have 20 years ago. 

Employers must also ensure that employee training, development and promotion opportunities are applied consistently. It is not good enough to say that all similarly situated employees are being paid similarly if minority workers do not have the opportunity to advance. This is another situation where non-biased policies can still lead to violations based on a discriminatory application. It is impossible for any employer to completely insulate itself from such claims. However, by evaluating the procedures your company uses to compensate employees, you can increase the likelihood that any such claims will come to a quick and easy resolution, one that does not require you to shell out thousands of dollars unnecessarily. 


David Barron is an attorney at Alaniz and Schraeder in Houston. He represents employers in employment-related matters.


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