EEOC Issues Guidelines on Pay & Benefit Discrimination

Labor & Employment Law Articles

EEOC Issues Guidelines on Pay & Benefit Discrimination

I. Employee Benefits

The U.S. Equal Employment Opportunity Commission (EEOC) has a section in its Compliance Manual which provides guidance to the Commission’s approach to employee benefit issues under federal anti-discrimination laws. The guidelines begin with the premise that employers are never allowed to consider the race, color, sex, national origin or religion of their employees in connection with their benefit plans. However, the EEOC recognizes that in some circumstances, the law permits employers to provide different benefits to older than to younger workers. Under the Age Discrimination in Employment Act (ADEA), employers are permitted to provide lower life, health and disability benefits to older workers if the employers pay an equal amount for those benefits for the older and younger employees. Under the “equal cost or equal benefit” rule, employers can avoid violating the law if they either provide equal benefits to their older and younger workers or spend an equal cost to purchase those benefits, even if the benefits are not equal. To meet the equal cost defense, the benefit must be one that becomes more expensive as people get older and must be part of a benefit plan that requires the reduction of benefits as employees age. In addition to showing that it has spent an equal amount on the benefits, the employer must show that it has reduced the benefit for older workers only as much as was necessary to equalize the cost of the benefit for each worker. However, under Medicare law, employers must offer to current employees who are aged 65 or over the same health benefits offered to those under the age of 65 regardless of cost.

The EEOC rules also provide that an employer may not deny severance benefits to its employees because they are eligible to receive a pension from the employer. However, employers are allowed to offer early retirement incentive programs to their employees as long as participation is voluntary and as long as the plan is otherwise non-discriminatory.

An employer must provide identical health coverage to men and women if both men and women can contract a condition or benefit from a treatment or test. Under the Pregnancy Discrimination Act, where an employer offers health benefits of any sort, it must cover pregnancy and related medical conditions in the same way that it covers other medical conditions. In this regard, it should be noted that the EEOC recently issued a decision finding merit to charges of discrimination on the grounds that a company’s health insurance plan excluded the cost of prescription contraceptive drugs.

The Guidance contains numerous examples of lawful and unlawful benefit practices. If you are interested in reviewing in detail these examples with us, please do not hesitate to contact us.

II. Discrimination in Compensation

The EEOC has also issued a new section to its Compliance Manual that provides a comprehensive analysis of compensation issues under each of the anti-discrimination laws enforced by the EEOC. In issuing this new section, EEOC Chairwoman Ida L. Castro stated that compensation discrimination remained a serious problem in today’s workforce. She noted women still earn only about 75 cents for every dollar earned by men, and that the earnings of African-Americans and Hispanics lagged behind those of white employees. The Guidance states unequivocally that employers are never allowed to take into account an employee’s race, sex, age, color, national origin, disability or religion in determining their compensation. Compensation includes salary, overtime pay, bonuses, stock options, profit sharing plans, life insurance, vacation and holiday pay, reimbursement for travel expenses and other fringe benefits.

To determine whether discrimination in compensation exists, the basic approach taken by the EEOC is to identify similarly situated employees and compare their compensation. If there are differences, there must be nondiscriminatory reasons for the differences. To determine whether jobs are similarly situated, the key is what people actually do on the job, not job titles or departmental designations. Skill, effort, responsibility, and the general complexity of the work are factors in determining job similarity.

Nondiscriminatory reasons for disparities in compensation for similarly situated employees include a bona fide seniority system; a merit system; an incentive system; the education, experience, training and ability of the employees; shift differentials; job classification systems and market factors. It is the burden of the employer to establish the legitimacy of these defenses to disparate compensation. In this regard it should be noted that shortly before the issue of these new guidelines, the EEOC announced a $450,000 settlement of a wage discrimination lawsuit against a trucking company charged with paying six female driver managers in one of its terminals less than men in the same job. Under the settlement, the company was also required to prepare and publicize a policy setting forth the factors to be relied upon in setting initial salaries and determining the amounts of raises to be given to driver managers.

These developments at the EEOC indicate that the agency may intend to focus on wage discrimination in the immediate future. Companies would be well advised to conduct a survey of their wage practices to determine if disparities exist for similarly situated jobs and whether they can establish legitimate defenses to these disparities. If we can be of assistance in this regard, please let us know