February 29, 2016

Concerns Loom Over EEOC's Efforts to Obtain Data Targeting Discriminatory Pay Practices

Earlier this month Faegre Baker Daniels reported on the Equal Employment Opportunity Commission’s controversial proposed revisions to the Employer Information Report (EEO-1) Form which, if adopted, would require certain employers beginning in September 2017 to report W-2 data and hours worked, categorized not only by race, ethnicity and gender, but also within 12 specific salary bands.

In the wake of the announcement, employers have expressed concerns over the Commission’s use of this data, which will inevitably increase the risk of pay discrimination claims. The EEOC has pledged to eradicate discriminatory pay disparities in 2016, and the latest proposal furthers that commitment. According to EEOC Chair Yang, collecting data on pay and hours worked will allow the Commission to “more effectively focus investigations, assess complaints of discrimination, and identify existing pay disparities that may warrant further examination.”

As described in the proposed rule, pay information will be shared with the Office of Federal Contract Compliance Programs (OFCCP), and the two agencies plan to develop a software tool that will allow their investigators to track and analyze W-2 pay data within a single employer, further comparing it to aggregate industry or metropolitan-area data, to highlight statistics of interest. Of course, W-2 information encompasses all earned income, including supplemental pay components such as overtime pay, shift differentials and certain bonuses. Moreover, examining pay data in a vacuum without considering seniority, merit or other bona fide job-related factors could lead to “false positives” because relying on statistics alone does not account for non-discriminatory variables. A small sample size can also skew statistics. The EEOC is requesting only part of the picture, but not the whole story. While an employer can raise these defenses in litigation, the opportunity to do so comes after expending considerable costs.

The Commission has stated it will not publish wage and hour information in a way that ties data to a specific employer (and in fact, EEO-1 data is confidential per Section 709(e) of Title VII). However, it intends to provide aggregate information to employers with hopes doing so will guide pay decisions. The EEOC will also publish reports analyzing the collective data at the national, regional and industry levels, as well as data on certain protected groups (i.e., women of color).

This latest effort would make it easier for the Commission to identify pay disparities, and specifically, systemic (multiple employee) violations. The EEOC’s ability to initiate “directed investigations” focusing on equal pay without a discrimination charge even being filed already raises the stakes for employers and makes pay disparity claims ripe for class treatment. In 2015, the EEOC investigated 268 systemic claims and 36 percent resulted in a probable cause determination (compared to less than 5 percent of all charges filed with the agency).

Comments to the proposed rule may be submitted to the EEOC (including online, at https://federalregister.gov/a/2016-01544) on or before April 1, 2016. In addition to general feedback, the EEOC specifically seeks input about reporting hours worked for salaried exempt employees (the EEOC is considering having employers use an estimate of 40 hours per week for full-time salaried workers, and does not currently propose requiring employers to track actual hours worked for exempt workers).

Employers should proactively identify not only differences in hourly pay, but also distinctions in overall incomes, and prepare to articulate any disparities and/or re-examine their pay practices. In addition, employers affected by the proposed rule should assess how they track pay data to determine whether any adjustments would be necessary to comply with the proposed reporting changes.

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