A New Generation of Pay Equity Laws: The Growing Legal Challenge for Restaurant Operators

A wave of new pay equity laws is becoming one of the greatest areas of legal exposure to restaurant operators.  The laws require employers to pay men and women the same rate of pay when performing “similar work,” even though the employees may hold different positions and work in different locations.  Operators must take steps to ensure they’re in compliance in order to avoid costly lawsuits and state or federal investigations.

More Onerous Fair Pay Laws Are Coming

This year, California, New York, and Massachusetts greatly expanded the reach of their pay equity laws. Effective January 1, 2017, the California Fair Pay Act, for example, will require equal pay for employees of different races and ethnicities, not only employees of different genders. Nebraska this year enacted a pay equity law for the first time.  Legislative action is expected in the District of Columbia and other jurisdictions next year.  The forces which have made greatly expanding pay equity laws a priority include the major unions, the National Organization for Women, the NAACP, and the Democratic National Committee.  The joint efforts of such powerhouses make more burdensome pay equity laws a virtual certainty in many states.

The Requirements

Importantly, fair pay laws don’t simply outlaw differences in pay where the difference is motivated by gender.  Rather, the laws require employers to pay men and women performing similar work equally — even where a difference in pay can’t be shown to be due to gender.  For example, a restaurant operator violates such laws where it pays a male floor manager more than a female floor manager because the operator feels the man makes guests feel more welcome than the woman.    

The new generation of pay equity laws contains the following characteristics:

  1. “Similar work” – not merely the same job positions: Under the new laws, employers must pay male and female employees equally who are performing “similar work,” including employees who may hold different job titles or positions. “Similar work” takes into account skill, effort, and responsibility, and whether the work is performed under similar working conditions.  This vague standard makes it often difficult for operators to simply identify the employees who must be compared and paid equally, leaving operators at risk.  
  2. Employees are Compared with Counterparts in Other Stores: The new laws also generally require that men and women working in different stores, in different cities, be paid equally. The California law contains no geographic limitation, that is, a restaurant group must pay a female server working in a small town in Central California equally to a male server working in San Francisco, where the cost of living and wage scales are much higher. The New York law limits comparing employees to those who work in the same “geographic region,” which can be no larger than the same county.
  3. Employers have Sparse Grounds for Paying Employees Differently: Under the new laws, employers may pay an employee of one gender less than someone of the other gender only if their pay is determined by “a seniority system, a merit system, a system that measures pay by quantity or quality of production, or a bona fide factor other than sex, such as education, training, or experience.” The employer also must prove that the factor relied on, alone, accounts for the entire difference in pay. In order to successfully defend differences in pay based on seniority, merit or a production-based system, operators are going to need to have in place and consistently follow written, objective procedures for determining compensation based on seniority, merit, etc.  Defending differences in pay based on unwritten practices will in almost all cases fail.
  4. Pay Transparency: The new laws also commonly give employees the right to share information with one another about their rates of pay, and bar employers from interfering.
Act Now to Avoid Liability

Presently, only Alabama and Mississippi have no version of a pay equity law in effect.  In all other states, restaurant operators should take action proactively to avoid liability:

  1. Audit Your Workforce: Taking into account the characteristics of the pay equity laws in the states in which they do business, restaurant operators should conduct internal examinations of how employees performing similar work are being paid. It is critical, however, that such audits be conducted in cooperation with the operator’s employment counsel so that the audits are protected by the attorney-client privilege and can’t become evidence in a pay equity lawsuit or agency investigation. In the course of an audit, where potential violations are identified, employers should proactively adjust pay in order to comply with the laws of the states in which they do business. Operators are cautioned, however, against cutting the pay of some employees as a means of paying employees of both sexes the same. California law, for example, makes criminal an employer cutting pay in order to comply with the state’s Fair Pay Act.  Not all states have such provisions.
  2. Reevaluate job descriptions and titles: Position descriptions and titles will be central evidence in determining whether employees perform “similar work.” Operators must review their current position descriptions and titles with their state pay equity law in mind.
  3. Write and Follow Lawful Compensation Procedures: Restaurant operators want and need the ability to pay employees performing similar work differently. In order to exercise that freedom, operators, however, must draft and consistently follow objective procedures for determining pay based on seniority, merit, production or some other lawful factor, such as education, training, or experience. Again, operators must involve employment counsel in the preparation of such procedures so that the internal discussions and development of such procedures are protected by the attorney-client privilege.

Pay equity promises only to gain momentum. Restaurant operators must make taking proactive steps a priority in order to avoid costly losses.