Employment Law and 5 Steps To Prevent Wage Discrimination Claims

Avoid Expensive Pay Discrimination Lawsuits With These Proactive Policies

Wage discrimination is one area that is especially easy for employers to avoid being sued over by their employees. Wage inequality is a perpetually hot topic. While the gender pay gap hit a historic low in 2024, women are still paid 18% less than men on an hourly basis, and recent gains in wage equality have primarily been driven by wage improvements among lower-wage workers as opposed to high-wage workers.

According to the Equal Employment Opportunity Commission, FY24 brought over 88,500 new workplace discrimination charges. This was a 9.2% increase from the previous fiscal year.

A company’s funds and morale can be severely compromised without proper attention, policies, training, and knowledge of federal and state laws.

Defining Compensation and Wage Discrimination Under the Law

Employees have the right to be free from discrimination in compensation under several federal laws. These laws include:

• Equal Pay Act
• Title VII of the Civil Rights Act
• Age Discrimination in Employment Act
• Americans with Disabilities Act

As a threshold matter, employers must understand that compensation for wage discrimination claims encompasses more than a salary or wage. All money paid to the employee for work or services performed may be considered a form of unequal compensation.

For example, all of the following are considered compensation:

• Salary
• Overtime pay
• Bonuses
• Stock options
• Profit sharing or bonus plans
• Life insurance
• Vacation and holiday pay
• Gas allowances
• Travel expense reimbursements
• Benefits

The Equal Pay Act

The Equal Pay Act (EPA) is part of the Fair Labor Standards Act (FLSA). The FLSA establishes the federal law for proper pay of employees, such as the federal minimum wage, overtime pay, and/or exempt salaries. In contrast, the EPA expressly prohibits employers from paying unequal wages because of the employee’s sex for work requiring equal skill, effort, and responsibility performed under similar conditions.

Unintentional Wage Discrimination Is Still Discrimination

Under the EPA, a discriminatory difference in pay does not have to be intentional to violate the law. The Equal Pay Act is applied in an objective and technical manner based on pure data. [i] Employees only need to show that there is a disparity in pay to file wage discrimination claims and that the jobs performed are “substantially similar.” When an employee meets this burden, the employer needs to prove that the disparity is based on “a factor other than sex.” [ii]

Wage Discrimination Establishment Under the EPA

An employee claiming that they experienced wage discrimination under the Equal Pay Act must point to at least one comparator of the opposite sex in a substantially similar position to establish a prima facie claim. [iii] Under the EPA, a comparator must be an employee of the opposite sex performing the same job as the aggrieved employee but receiving more compensation than the aggrieved employee.

Essentially, the comparator must be employed at the same physical location (known as ‘establishment’) as the complaining employee. The comparator must also be engaged in ‘equal work.’ It is considered equal work if it requires equal skill, effort, and responsibility. [iv]

In general, to determine whether skill is equal, courts look at the employees’ experience, training, education, and ability. To determine equal effort and responsibility, courts look at the nature, volume, and difficulty of tasks assigned to the aggrieved employee and the comparator in addressing wage discrimination claims.

How Employers Can Justify Differences in Pay Under the Equal Pay Act

The law allows differences where payment is made pursuant to the following exceptions:

• A seniority system
• A merit system
• A system that measures earnings by the quantity or quality of production
• A differential based on any factor other than sex [v]

When analyzing wage discrimination claims, courts look for a legitimate purpose for the pay, like whether an employer made the determination based on any factor other than sex. [vi]

Three Crucial Laws Governing Wage Discrimination: Title IV, ADEA, and ADA

Wage discrimination claims under the Civil Rights Act (Title VII), the Age Discrimination in Employment Act (ADEA), and the Americans with Disabilities Act (ADA) all use the same legal framework to show discrimination. As such, these three laws will be discussed together.

Establishing A Wage Discrimination Claim Under These Laws

Under Title VII, the ADEA, and the ADA, employers cannot discriminate in pay based on race, color, religion, sex, national origin, age, or disability. Unlike the Equal Pay Act, however, there is no requirement under Title VII, the ADEA, or the ADA for the employee’s job to be substantially equal to that of a higher-paid person outside the claimant’s protected class. These statutes also do not require the claimant to work in the same establishment as a comparator.

To establish a basis for wage discrimination claims pertaining to compensation under Title VII, the ADA, or the ADEA, an employee must show that they are a member of a protected class and that they were qualified but treated less favorably than a similarly situated individual outside of their protected class. An employer may show a legitimate, non-discriminatory reason for the difference in pay, which the employee has to prove is pretextual.

Examples of Compensation Discrimination

Compensation discrimination under Title VII, the ADEA, or the ADA may also manifest in several ways.

A violation can be found where a company has a neutral pay policy that has an adverse impact on individuals in a protected category, but the difference in pay cannot be justified as job-related and consistent with business necessity.

A discriminatory pay violation can also arise where a company’s salary to an employee with a disability is lower than similarly situated employees who do not have disabilities, where the company’s explanation does not satisfactorily account for the difference. Such a violation may also occur if an employer sets the compensation for jobs predominantly held by members of a protected class.

An example would be paying Hispanic employees below the wage suggested by the employer’s job evaluation study, while the pay for jobs predominantly held by Caucasian employees is consistent with the level suggested by the job evaluation study.

Under these federal laws, a violation of the law may be found under both intentional discrimination theories or disparate impact discrimination, creating grounds for wage discrimination claims.

5 Steps Employers Should Take in Advance of Potential Issues

Step 1: Perform Regular Audits

Considering the high cost of government investigations and lawsuits, employers should take the time to have their pay practices audited in a privileged manner. Conducting an audit is a proactive way to confidentially monitor pay issues and practices and provides an opportunity to correct errors before they blow up into problems.

Employers should have the compensation and benefits of employees in similar positions reviewed and analyzed. This ensures that where employees in a protected category are paid differently for the same work, there is a non-discriminatory basis for the decision.

Step 2: Review and Remedy Discrepancies

If there are differences in compensation between employees of different races or nationalities (or other protected categories) without an explanation showing that the difference is based on a legitimate, non-discriminatory reason, these should be remedied before a potentially expensive situation emerges for the company.

Additionally, if a discrepancy is discovered that may violate the law, then the higher-paid employee’s pay should not be reduced in correction. Instead, the wage of the lower-paid individual should be increased. It is important to also understand the actual duties of the various positions, rather than simply the duties listed in the job description, to gauge proper wages.

Step 3: Ensure Proper Hiring Policies

Employers should also have proper procedures in place for job application and hiring inquiries. New employees should not be hired at a lower compensation than their counterparts due to a prior history of lower wages (which could have been based on discrimination).

The pay at which an employee is hired should equal that of other employees performing the same duties. If a difference in pay is appropriate, the legitimate, non-discriminatory reason (e.g., different skill level or experience level) should be documented.

Step 4: Know the State and Local Laws

Employers should be familiar with the various state laws that prohibit asking applicants about their prior salaries. For example, in New York City and under California state law, with some exceptions, it is generally unlawful for an employer to inquire about the salary history of an applicant or to rely on salary history in setting compensation.

These laws are being established because pay history may create a cycle of discrimination in the workplace by perpetuating lower salaries.

In addition, employers should be aware of state and local laws that protect categories other than those protected under federal law. Equal compensation would be mandated for those protected individuals, too.

Step 5: Establish Legal Policies and Manager Training

Lastly, employers should establish policies that prohibit wage discrimination and train their managers and supervisors to ensure that compensation-related decisions are based on business reasons unrelated to any protected category of the employee. Supervisor and manager training is essential to avoiding potential wage discrimination claims. At the end of the day, policies will hold less weight unless managers and supervisors apply them fairly, appropriately, and as legally required.

Prevention Is The Best Strategy For Wage Discrimination

An employer can be sued by an employee for all sorts of legal issues. Among them is wage discrimination, an area that companies can easily avoid through training employers on relevant statutes and ensuring their fair application in company policies. These steps not only benefit employees but can also help employers retain vital talent and avoid time and costs spent on discrimination claims.

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[Editors’ Note: To learn more about this and related topics, you may want to attend the following on-demand webinars (which you can view at your leisure, and each includes a comprehensive customer PowerPoint about the topic):

1. Protecting Your Employee Assets: Human Resources Management & The Life Cycle Of The Employment Relationship / Show Them the Money: Wage & Hour Compliance
2. Protecting Your Employee Assets: Human / Resources Management & The Life Cycle Of The Employment Relationship An Ounce of Prevention: Policies, Procedures and Proactivity
3. Protecting Your Employee Assets: Human / Resources Management & The Life Cycle Of The Employment Relationship An Ounce of Prevention: Welcome to the Team! Recruiting and Hiring, Including Restrictive Covenants

This is an updated version of an article published on March 22, 2018 and updated on October 18, 2023. This article was most recently updated by the Financial Poise Editors.]

©2025. DailyDAC^TM, LLC d/b/a/ Financial Poise^TM. This article is subject to the disclaimers found here.

References

• [i] See Meeks v. Computer Associates International, 15 F.3d 1013, 1019 (11th Cir. 1994).
• [ii] See Miranda v. B & B Cash Grocery Store, 975 F.2d 1518, 1533 (11th Cir. 1992).
• [iii] See Houck v. Virginia Polytechnic Institute, 10 F.3d 204, 206-07 (4th Cir. 1993).
• [iv] 29 C.F.R. § 1620.15; 29 C.F.R. §§ 1620.13, 1620.16.
• [v] 29 U.S.C. § 206(d).
• [vi] 20 C.F.R. § 1620.22.