Fourth Circuit demands parity in every element of pay, not just total pay, under Federal Equal Pay Act | Small
On December 3, 2021, the United States Court of Appeals for the Fourth Circuit rejected the idea that under the federal Equal Pay Act (EPA) equality should be assessed on the basis of of total compensation, believing rather that equality must be satisfied with regard to each element of compensation. . Sempowich v. Touch Sys. Tech., Inc., n ° 20-2245, 2021 WL 5750450 (4th Cir. 3 Dec. 2021). The Fourth Circuit hears appeals from the nine federal district courts in Maryland, Virginia, West Virginia, North Carolina and South Carolina. This case has important implications for how Fourth Circuit employers structure compensation.
Federal law on equal pay
The EPA prohibits employers from discriminating “between employees on the basis of sex by paying them a salary … at a rate lower than the rate at which [it] pays wages to employees of the opposite sex ”for jobs requiring equal skill, effort and responsibility, performed under similar working conditions. In other words, prove a At first glance cases under the EPA, a person must prove: (1) the employer paid higher wages to an employee of the opposite sex of the applicant; (2) the applicant and the comparison employee performed work which required the same skills, effort and responsibilities; and (3) the applicant and the comparison employee performed this work under similar working conditions at the same establishment. The initial demonstration makes it possible to deduce that there is a wage disparity according to gender.
The EPA provides the following exceptions to the general prohibition, which are affirmative defenses to liability: the pay difference is based on (i) a seniority system; (ii) a merit system; (iii) a system which measures income by the quantity or quality of production; or (iv) any other factor other than gender.
Factual and procedural background to Sempowich’s claim for equal pay
In Sempowich, the issue on appeal regarding the EPA’s claim was based on the appropriate measure to assess wage discrimination under the EPA. The applicant argued that the appropriate metric is the rate to which an employer pays an individual, while the employer has argued that the appropriate measure is the employee’s worth total salary.
The employer, a medical device company, hired the applicant to work as a product specialist. Several years later, she promoted her to Regional Sales Manager for the Mid-Atlantic. That same year, the employer hired a male regional sales manager for the southern region. In granting summary judgment, the lower court assumed without ruling that the male sales manager was an appropriate comparator for the purposes of the EPA’s claim and, therefore, that the plaintiff had satisfied the second and third prongs of its prima facie case.1
There was little or no material facts in dispute. The complainant earned more than her male comparator in total compensation, measured as base salary plus incentive compensation. However, she argued that incentive pay should be ignored when comparing her salary to that of her comparator. The lower court applied the full Equal Employment Opportunity Commission (EEOC) definition of “salary”2 at the request of the EPA and rendered summary judgment in favor of the employer. The plaintiff appealed.
The decision and analysis of the fourth circuit
The Fourth Circuit overturned and remanded the decision on the plaintiff’s EPA claim, finding that the lower court had applied an incorrect legal standard in determining “wages” under the first tier of a prima facia Case. First of all, the Fourth Circuit held that the EEOC’s interpretation of “wages” under the law is not necessary because the plain language of the EPA makes no reference to “total wages”, but does refer to to the “rates” of wages: “The text of Equal Pay The law clearly states that an employer cannot“ discriminate… between employees on the basis of sex by paying wages to employees… at a rate less than the rate to which he pays wages to employees of the opposite sex.3
Second, the Fourth Circuit ruled that the district court had misinterpreted the EEOC’s definition of “salary” under 29 CFR §1620.10 to include commissions. The Fourth Circuit held that although “salary” includes commission, “just like salary, an employer cannot pay commissions to an employee at a lower rate than a male employee in the same situation. [but] [t]This does not mean that all types of remuneration should be combined into one lump sum when comparing the incomes of a man and a woman.
Third, the Fourth Circuit noted that the EEOC regulations imply the same conclusion because, under 29 CFR §1620.19, “an employer would be prohibited from paying higher hourly rates to all employees of one sex and attempting to then equalize the differential by periodically paying employees of the opposite sex a bonus. The Fourth Circuit extrapolated that, according to this logic, an employer would be prohibited from paying an employee less than a male employee in a similar situation, and then avoiding liability if the employee works hard enough to even out the difference through commissions or bonuses.
Implications of the Fourth Circuit decision
Fourth Circuit employers must ensure parity in every element of pay between male and female employees in a similar situation doing similar work, unless the gap (if any) can be explained by one of the four defenses affirmative by the EPA. Merely equalizing total pay between genders may no longer be sufficient to prevent an EPA claim if there are inequalities regarding particular elements of pay. Employers who distribute bonuses or equity as a means of bridging or “fixing” base wage inequalities may be exposed to legal action for both the initial base wage inequality, as well as for the subsequent inequality of the compensatory component.
It remains to be seen if Sempowich will be followed outside of the Fourth Circuit. Indeed, the majority of lower courts in other jurisdictions that have considered the issue have applied the full compensation measure when comparing compensation under the EPA.4 However, Sempowich it is now the law of the Fourth Circuit, and until there are definitive guidelines for other circuits, employers elsewhere are advised to consider Sempowichin assessing their own compensation setting practices. An employer may wish to consider whether it pays men and women equally both in terms of each element of compensation and in terms of total compensation.