The New Jersey Legislature passed a bill that makes it an unlawful employment practice to pay employees of a protected class a different rate of compensation from nonclass members for “substantially similar” work unless that pay discrepancy is based on a recognized justification. The state’s proposed pay equity law would also expand retaliation protections, mandate pay reporting obligations for employers that contract with public entities, and amend the statute of limitations for pay discrimination claims. The law would also require or permit enhanced damages awards to prevailing employees.

The New Jersey Legislature passed the Diane B. Allen Equal Pay Act, which amends the New Jersey Law Against Discrimination (LAD), on March 26, 2018. Governor Phil Murphy is expected to sign the legislation, which would be effective July 1, 2018.

While the proposed law has been touted primarily as a gender pay equity legislation, its reach is much broader. The proposed law’s pay equity provisions would apply to all protected classes, and it would also mandate an award of treble damages for certain prevailing plaintiffs, amend the LAD’s statute of limitations as to pay discrimination claims, expand retaliation protections, and impose pay reporting obligations on employers that contract with public entities.

Overview of the Proposed Law

Pay Equity Components

The amendment would make it an unlawful employment practice under the LAD to pay employees of a protected class different rates of compensation for “substantially similar” work when compared to nonclass members. (Prior versions of the legislation were limited to only prohibiting differential compensation between sexes.) Whether work is “substantially similar” is determined by a composite of the “skill, effort, and responsibility” required for that work.

If a different rate of compensation exists, it would be the employer’s burden to justify this difference based on (1) a “seniority system,” (2) a “merit system,” or (3) all of the following criteria:

• The differential is based on one or more legitimate, bona fide factors other than the characteristics of members of the protected class, such as training, education, or experience, or the quantity or quality of production.
• The factor or factors are not based on, and do not perpetuate, a differential in compensation based on sex or any other characteristic of members of a protected class.
• Each of the factors is applied reasonably.
• One or more of the factors account for the entire wage differential.
• The factors are job related with respect to the position in question and based on a legitimate business necessity.

A factor based on business necessity would not apply “if it is demonstrated that there are alternative business practices that would serve the same business purpose without producing the wage differential.”

Employers would be prohibited from reducing rates of compensation to comply with the law.

The proposed law would also require that “[c]omparisons of wage rates . . . be based on wage rates in all of an employer’s operations or facilities.”

If a jury were to determine that an employer had violated this pay equity section of the proposed law, the judge would be required to award “three times any monetary damages” (also known as treble damages). Where an employee brings a charge before the New Jersey Division of Civil Rights, the director would be permitted to award treble damages.

Amendments to the LAD’s Statute of Limitations

The proposed law would expand the LAD’s two-year statute of limitations for a claim relating to pay equity by providing that the limitations period restarts each time “an individual is affected by application of a discriminatory compensation decision or other practice,” including each time the individual receives compensation that results, in whole or in part, from a discriminatory decision. An employee could obtain up to six years of back pay on a pay equity claim. Specifically, the proposed law provides that “liability shall accrue and an aggrieved person may obtain relief for back pay for the entire period of time, except not more than six years, in which the violation with regard to discrimination in compensation or in the financial terms or conditions of employment has been continuous, if the violation continues to occur within the statute of limitations.”

In addition, the proposed law would make it an unlawful employment practice to require employees or prospective employees to “consent to a shortened statute of limitations or to waive any of the protections” provided by the LAD.

Expanded Prohibitions on Retaliation

The proposed law would expand existing prohibitions on retaliating against employees who seek to discuss, disclose, or request certain job-related information.

In this regard, an employer would be prohibited from retaliating against an employee for requesting from (regardless of whether the request was responded to), discussing with, or disclosing to (1) any other employee or former employee of the employer, (2) the employee’s lawyer, or (3) any government agency any of the following:

• Information regarding the job title, occupational category, and rate of compensation, including benefits, of the employee or any other employee or former employee of the employer.
• The gender, race, ethnicity, military status, or national origin of the employee or any other employee or former employee of the employer.

Currently, this section of the LAD only prohibits an employer from retaliating where the request from a current or former employee was for the purpose of investigating or taking legal action regarding discriminatory compensation.

The proposed law would also prohibit requiring that an employee or prospective employee, as a condition of employment, sign a waiver or otherwise agree to not make these requests or disclosures.

If a jury were to determine that an employer had violated the above retaliation provision of the proposed law, the judge would be required to award treble damages. Where an employee brings a charge before the New Jersey Division of Civil Rights, the director would be permitted to award treble damages.

In addition, the proposed law would expand retaliation protections for employees who seek legal advice regarding their rights under the LAD, share relevant information with their attorneys, or share information with a governmental entity.

State Contractor Reporting Requirements

The proposed law would require employers that contract with the state or other public bodies to provide “qualifying services” to report information regarding their employees’ compensation and hours worked broken down by “gender, race, ethnicity, and job category.” “Qualifying services” is defined as “the provision of any service to the State or to any other public body,” except for “public work,” which is defined in a separate statute and generally encompasses construction-related work paid for by public funds. Employers providing qualifying services would be required to provide a report for “each establishment” of the employer. The proposed law directs the commissioner of Labor and Workforce Development to issue a form by regulation for this reporting. It further provides that “[d]ata regarding compensation and hours worked by employees shall be reported in the form by pay bands to be established by regulation promulgated by the commissioner.” The commissioner would also be permitted to establish a standard presumption for the number of hours worked by a full-time employee or by a part-time employee for whom an employer does not track actual hours worked.

Further, employers with contracts with a public body for “public work” (which, as noted above, encompasses construction-related work paid for by public funds) would be required to provide information, through certified payroll records, regarding the “gender, race, job title, occupational category, and rate of compensation” of every employee employed in connection with the subject contract, and update this information during the contract period.

Employees who are or were employed by a state contractor “during the period of any of the contracts between the employer and any public body” would be entitled to request and receive the above information submitted by the employer, which the commissioner would be required to make available to the Division of Civil Rights and retain for at least five years following the contract. In other words, current and former employees of state contractors (or their “authorized representatives”) would have access to the reported compensation and other data from these employers.

Recommended Next Steps for Employers

Employers should consider taking the following steps before the proposed law, upon signing, becomes effective on July 1:

• Review statewide compensation records and systems to identify positions where there is potential unequal pay for substantially similar work—even if at different physical locations—and determine whether that pay discrepancy is justified based on one of the recognized justifications.
• Review compensation policies and job descriptions to ensure that differentiation in pay is based on a defensible factor and maintain data on how these factors informed compensation decisions.
• Revise existing handbooks, policies, and harassment trainings to prohibit pay discrimination for substantially similar work, and prohibit retaliation against employees who request, discuss, or disclose compensation or other job-related information covered by the law.
• Train human resources and benefits employees on the new requirements and add information about these requirements to manager training programs.