“Robust, contemporaneous documentation is often the most critical factor in determining the applicability of any affirmative defense. The catchall “factor other than sex” defense makes it legal to pay employees different amounts for any number of legitimate business reasons,” said Matthew J. Gagnon, Partner, Labor & Employment, Seyfarth Shaw.

Matthew‘s practice focuses on helping employers navigate the evolving landscape of federal and state wage and hour and anti-discrimination laws and defending employers against all manner of employment litigation and government-initiated investigations and litigation.

In an exclusive interview with HR.com, Matthew touches upon the new trends and developments in equal pay litigation, and how they will impact organizations in 2023 and beyond, among others.

Excerpts from the interview:

Q: What are the new trends and developments in equal pay litigation?

Matthew: Probably the most important new trends are: (1) how courts interpret the changes recently made to the state-level equal pay statutes; and (2) the reevaluation of critical issues in equal pay litigation generally.

First, since 2015, a number of states have amended their equal pay statutes in ways that deviate from federal law. Those changes could impact an employee’s prima facie case, and the employer’s affirmative defenses, in new and unique ways. We will not know exactly what those differences will be until we see how the courts interpret those new statutes.

The relatively surprising news is that, so far, courts do not seem to be interpreting those laws very differently from the federal law at all. Here is an important example: California and some other states (NY, IL, and others) have changed what employees must show to establish a prima facie case of pay discrimination.

The federal Equal Pay Act prohibits paying members of the opposite sex different wages for “equal work on jobs the performance of which requires equal skill, effort, and responsibility.” Some new state laws changed this to “substantially similar work when viewed as a composite of skill, effort, and responsibility.” The question is whether less is required to meet the “substantially similar” requirement than is required to meet the “equal work” requirement.

Although there are other decisions to consider, the only case that has addressed the substance of this question directly has said “no.” That court reasoned that the “substantially similar” work requirement was meant to realign state law with the federal standard, not change it. This was surprising to many people, and many are watching closely to see if this trend holds true in the future.

Second, society’s increased attention to equal pay issues has resulted in more lawsuits that allege equal pay violations and are concerned chiefly with equal pay issues (as opposed to including that as just one issue among many). As a result, courts around the country are getting a chance to revisit these issues in a substantive way, including issues that have become well-entrenched in the case law.

Courts around the country are beginning to reexamine bedrock principles, such as the exact nature of the burden-shifting mechanism applied to equal pay cases, or whether comparisons should be made on the basis of total compensation or wage rates. Another example that may be of particular importance to employers is what I call the “one comparator” rule.

Has an equal pay plaintiff met his/her/their burden to establish a prima facie case of pay discrimination if they point to just one comparator of the opposite sex who makes more than them? Or should the courts consider the salaries of other comparators, which might undercut an inference of discrimination, such as comparators of the opposite sex who make less than the plaintiff, or comparators of the same sex who make more?

This issue and others are being actively litigated in the courts. When considered against the backdrop of the changes that are being made to state-level statutes, it can seem like the entire field of equal pay litigation is undergoing massive change.

Q: How will these impact organizations in 2023 and beyond?

Matthew: Many of these changes will have a direct impact on employers, even if they are not actively litigating these issues in court. For example, many employers run statistical analyses of their workforce to spot any signs of possible discrimination. But in a jurisdiction that applies the one-comparator rule, those analyses may not be enough to identify potential sources of risk.

Unless an employer wants to pay all employees, who hold the same position exactly the same, the one comparator rule almost guarantees that a plaintiff would be able to establish a prima facie case of discrimination even if the statistics do not support an inference of discrimination.

Similarly, if the courts were to find that “similarly situated work” is a lower standard than “equal work” (which has not happened yet), that could directly impact how employers compare their workers for purposes of finding and remedying possible discrimination.

In other words, these issues will have a direct bearing on how employers seek out and try to mediate risk. Should they seek out instances of possible discrimination? Or should they be looking for and trying to minimize inequality? The law is aimed at combatting discrimination. Under that framework, employers are free to pay employees different amounts, as long as those differences are not due to discrimination.

But some plaintiffs’ counsel seems to want it interpreted in a way that would outlaw inequality itself. As the courts resolve these issues, that could help employers decide how to set up and manage their compensation systems.

Q: Please share best practices for proactively managing equal pay risks.

Matthew: Robust, contemporaneous documentation is often the most critical factor in determining the applicability of any affirmative defense. The catchall “factor other than sex” defense makes it legal to pay employees different amounts for any number of legitimate business reasons.

Economic concerns, such as competitive pressures to attract top talent, as well as financial difficulties and corporate cutbacks, are often relied upon as reasons. But those reasons will not be compelling to a court unless they can be proven. Too often, the key decision-makers have moved on from the company or have imperfect memories of events. Contemporaneous documentation of the reasons behind a particular pay decision can help ameliorate those problems.

Similarly, rigorous application and communication of work rules can make it easier to establish the reasons for pay disparities. If, for example, employers choose to justify a pay disparity based on a seniority or merit system, or on a system that bases pay on the quantity or quality of output, they must be careful that those systems are well documented and communicated to employees. A system that appears ad hoc or inconsistently applied risks being met with skepticism by a court.

Beyond that, performing regular pay equity audits, which take into account recent developments in the case law as outlined above, are a proactive measure employers can take to avoid large-scale equal pay litigation.