As a small business owner, it's critical that you're aware of various state and federal anti-discrimination laws that are designed to protect your workers. For example, there are laws that deal with sexual discrimination and your employees' pay, such as the Equal Pay Act (EPA), which requires "equal pay for equal work."

In addition, many states have similar laws that make wage discrimination illegal. So, if you have employees, you need to make sure that your wage and salary policy follows the EPA and any similar laws in your area.

The Equal Pay Act

The Equal Pay Act (EPA) bars you from paying male workers more than female workers who are doing the same job.

To make out a claim of pay discrimination, an employee has to prove that he or she:

  • Was paid a lower wage than what was paid to a co-employee of the opposite sex.
  • Worked in the same "establishment" as the higher paid co-worker. Determining what's an "establishment" can be complicated, but generally it means that the two employees worked in the same place, such as in the same office or factory floor.
  • Performed equal work in terms of skill, effort, responsibility and working conditions. "Equal" does not mean "identical," rather it means "substantially equal." So, even if you pay all workers an equal weekly wage, you can still violate the EPA if you make one employee do substantially more work than the other.

How do you defend an employee's EPA claim? You need to show that the pay difference was due to:

  • A seniority salary system that's designed to pay your workers based upon the length of time they've worked for you
  • A merit salary system that's designed to reward "good" workers
  • A system that bases salary on quantity or quality of production, so that workers who meet their production quotas might be paid more than those who don't, or
  • Any factor other than sex, such as education, skill or experience

Wages and Wage Rates

"Wages" includes all payments to employees and all other forms of compensation, including fringe benefits. If female and male employees receive the same pay for substantially equal work but receive unequal fringe benefits, you've violated the EPA.

Examples of payments and fringe benefits included in the definition of wages include:

  • Overtime and vacation
  • Bonuses
  • Expense allowances
  • Health and life insurance
  • Retirement benefits

"Wage rates" is a term referring to how compensation is calculated, which typically consists of an hourly rate, a daily rate, a commission rate, or a rate per piece or unit. If employees are paid on a commission basis and the rate for calculating commissions is the same for all employees, then any difference in the total commissions earned by any two workers isn't an EPA violation.

Equal wages must be paid in the same form. Any difference in the payment of wages between a male employee and a female employee is enough to show unequal pay on the basis of sex. So, for instance:

  • Your male and female employees who are paid on an hourly basis for substantially equal work must receive the same hourly rate of pay
  • You can't pay male employees on an hourly basis and pay female employees on a daily basis, commission basis, or any basis other than the hourly basis
  • You can't try to "equalize" a difference in pay by giving female employees periodic bonuses so that their "total" compensation or pay equals that of your male employees

Discrimination Claims

An employee who claims that you've violated the EPA can:

Generally, a worker must file a lawsuit or charge within two years of the discriminatory act (or within three years if the employee claims that you've discriminated against her willfully or intentionally).

If the EEOC finds that your employee's claim is valid, it may file a lawsuit against you on behalf of the worker, or the worker can file his or her own lawsuit. If the worker is successful, you could have to pay:

  • Back pay, for up to three years from the date the employee filed his or her claim
  • Liquidated damages, which can be several times the amount of the worker's actual wage loss
  • The worker's attorney's fees and court costs

Title VII

Title VII of the Civil Rights Act of 1964 (Title VII), makes it unlawful for you to fire or otherwise discriminate against an employee based on race, color, religion, sex or national origin. This means that a pay discrimination claim can be filed under the EPA or Title VII.

What's the difference?:

  • Under the EPA, an employee can file a lawsuit in court immediately, but under Title VII, he she must first file a charge with the EEOC and can only file a lawsuit if he or she gets a "right to sue" letter from the EEOC
  • Under the EPA, it's enough for the worker to show that she was paid less than another worker of the opposite sex for doing substantially the same job, while under Title VII, she usually has to prove much more to establish discrimination, which can sometimes including proving that you acted intentionally
  • Title VII doesn't require that the employee's job be substantially equal to that of a higher paid worker of the opposite sex or that the higher-paid employee works in the same establishment
  • Under the EPA, an employee can't recover compensatory damages, such as money damages for pain and suffering and emotional distress, but such damages are recoverable under Title VII (and under many state equal pay laws)

Discrimination claims in general, and EPA claims in particular, can get complicated. If a current or former employee files a discrimination claim against you, immediately seeking help from an experienced business law or labor law attorney is a good idea.

Questions for Your Attorney

  • If an employee files a claim against me with the EEOC, how long will it take to resolve? How long if she files a lawsuit against me?
  • Does our state have a law similar to the EPA? What kind of damages could I have to pay if an employee sues me and wins?
  • It costs me more to insure female employees than it does male employees. Can I pay them less and give them the necessary health insurance in exchange?
  • Can employees agree to a wage difference? If my female employees agree to take a pay cut in exchange for increased health benefits or maternity leave, will that violate the EPA? Could my male employees file a claim under the EPA if I did that?