Washington’s New Pay Equity Law Creates More Stringent Requirements for Employers

On March 21, 2018, Governor Inslee signed into law House Bill 1506, an amendment to Washington’s Equal Pay Act that significantly expands protections for employees. Under the amended statute, which takes effect on June 7, 2018, employers may not pay employees less than "similarly employed" employees of a different gender, unless the pay differential is based in good faith on bona fide factors other than gender that are job-related, consistent with business necessity, and account for the entire pay differential. The law specifically prohibits employers from limiting career advancement opportunities on the basis of gender. Under the amended statute, employers may not prohibit employees from disclosing or discussing their wages, and may not discharge or retaliate against any employee for doing so. Because of these new and more stringent requirements, employers would be well advised to undertake a privileged review of their compensation policies and practices to ensure compliance.

Key Aspects of the New Pay Equity Law

Washington first enacted its equal pay law, prohibiting discrimination in compensation due to gender in 1943, twenty years before Congress enacted the federal Equal Pay Act. Until the recent amendment, the Washington law had remained unchanged for the last 75 years. Although the prior law prohibited employers from paying a female employee less than a "similarly employed" male, a differential based on a factor "other than sex" was not considered discrimination. The law did not define "similarly employed," or explain what constituted a "bona fide factor other than sex."

House Bill 1506 makes the following key changes to the prior law:

• New definition of "similarly employed": The new law provides a broad new definition of "similarly employed." Employees will be considered "similarly employed" if they "work for the same employer, the performance of the job requires similar skill, effort, and responsibility, and the jobs are performed under similar working conditions." Job titles alone are not dispositive of whether employees are "similarly employed." The law does not limit comparisons to employees within the same workgroup, location, or facility, so employers must consider their entire workforce when comparing employees to determine those who are "similarly employed."
• Expanded requirements for "bona fide factor" defense: The new law provides stringent requirements for the "bona fide factor" defense. A differential in compensation between similarly employed individuals will only be allowed if it is based in good faith on a bona fide factor that is: (a) job related; (b) consistent with business necessity; (c) not based on or derived from a gender-based differential; and (d) accounts for the entire differential. Some examples of possible bona fide factors mentioned in the new law include education, training, experience, seniority or merit systems, and regional differences in compensation. Each of the new requirements will likely impose significant hurdles for employers who seek to avail themselves of this defense, because employers cannot simply point to education or experience, for example, to justify differences in pay; rather, they must establish that the factor(s) account for the entire pay differential and are both job-related and consistent with business necessity.
• Prior salary not a defense: While the new law does not prohibit employers from inquiring into a candidate’s prior salary history or considering prior salary in setting an employee’s compensation, the amended statute makes it clear that prior salary is not a bona fide factor that will justify the differential. In other words, if a female employee is paid less than a similarly employed male because her prior salary was lower, that female employee could have a viable claim under the statute. The 9th Circuit also recently held that prior salary is not a defense to a federal Equal Pay Act claim (an advisory on that decision is forthcoming). For information regarding those states that prohibit inquiries regarding prior salary, see our prior advisory.
• Equal opportunity for advancement: Although not technically an "equal pay" provision, the new law makes it clear that employers may not limit or deprive an employee of career advancement opportunities on the basis of gender, unless the differential in advancement is due to a bona fide job-related factor, with the same conditions noted above (consistent with business necessity, not derived from a gender-based differential, and accounts for the entire differential). Denying advancement opportunities because of gender is already prohibited by the Washington Law Against Discrimination, but the amended statute includes this provision to eliminate pay disparities that result from unequal advancement opportunities.
• Right to disclose and discuss wages: The new law places restrictions on employers' ability to limit their employees' discussions regarding compensation. Employers may not require employees to agree to nondisclosure of wages as a condition of employment, and employers may not discharge or retaliate against any employees for discussing or comparing wages. (Note: most employers are already prohibited from restricting discussion of wages among employees under the National Labor Relations Act, but the amendments now make such restrictions a violation of Washington state law.) Employers may prohibit employees with access to compensation data as part of their job duties from disclosing such information to others. This means, for example, that an employee in Human Resources who has access to wage information of others because of his or her job duties may disclose and discuss his or her own wages, but may not share wage information relating to other employees.
• Enhanced penalties and damages: An employee may file a complaint with the Washington Department of Labor or may bring a civil action for violations of the law. An employee who prevails is entitled to (a) actual damages; (b) statutory damages equal to actual damages or $5,000 (whichever is greater); (c) interest; and (d) costs and attorneys’ fees. A court may also award reinstatement or injunctive relief. If the Department determines the law has been violated, it may also impose a civil penalty, in addition to the amounts noted above. Back wages are calculated by going back four years from the last violation.
• A violation occurs with each paycheck: A violation of the law occurs at the time a discriminatory compensation decision is made, and for each payroll period thereafter in which the compensation based on the discriminatory decision is paid. This means that a discriminatory compensation decision made five years ago is actionable each time the employee receives a paycheck based on that compensation decision.

It is important to note that the new law applies only to gender-based disparities, and does not extend to other protected categories, such as race or national origin, as some other state laws have done. And, although the purpose of the law is to reduce income disparities for women, a complaint under the amended law can be raised by either a female or male employee.

Practical Tips – What Employers Should Do Now

• Employers who use prior salary as a benchmark in setting starting wages should carefully review this practice to ensure that it does not create pay differentials that cannot be fully justified by an applicable bona fide factor as described above.
• When making or reviewing compensation decisions, employers should review compensation across similar job titles and all locations to ensure that "similarly employed" individuals are being paid in accordance with the law’s requirements.
• Employers should train managers and HR professionals to understand that they cannot discourage or discipline employees from disclosing or discussing their own wages.
• Employers who wish to conduct an assessment of their compensation practices and potential pay equity issues are strongly encouraged to contact experienced employment counsel before initiating such an inquiry. Any assessment should be conducted so as to preserve the attorney-client and work product privileges in order to protect such analysis from disclosure in possible litigation. In addition, an employer should be clear in its objectives before undertaking an analysis and have an understanding of how the results of the analysis will be used. Davis Wright Tremaine has a team of experienced lawyers and other professionals who can provide advice with regard to the rapidly-evolving pay equity landscape.