Why Independent Schools Should Focus on Pay Equity Now

Despite progress, the pay gap between men and women still exists. Learn what independent schools can do to ensure equitable pay practices.

Written by Linda Johnson, J.D., McLane Middleton, and Jeffrey J. Olsen, Fred. C. Church Insurance

In 1963, President John F. Kennedy signed into law the Equal Pay Act (EPA). The EPA forbids employers from paying men and women different wages or benefits for doing jobs that require the same work and responsibilities. When the EPA passed that year, the average annual earnings for women were $16,908 compared to wages of $28,684 for men—a 59% difference.

Fairly steady gains have been made since 1963, but women’s wages still lag. According to the U.S. Census Bureau and the Bureau of Labor Statistics, women’s average earnings were $47,299 compared to men’s earnings of $57,456 in 2019, meaning that women are paid 82 cents for every dollar paid to men.

It remains to be seen what the impact of the COVID-19 pandemic will have on average earnings, but there is no doubt that working women have been hit harder by the pandemic than men. Prior to the pandemic, it was estimated that if the gender wage gap continues to close at its current rate, it will persist until 2059. Who knows how long the pay gap will remain now?

Frustrated that federal law was not closing the gender wage gap, state legislators stepped up, and equal pay laws have been passed in almost every state. These state laws contain provisions that seek to address and ameliorate gender pay disparities. Examples of these provisions include:

• Prohibiting employers from relying on or even asking about compensation history.
• Prohibiting employers from requiring employees to refrain from discussing wages with one another.
• Promoting greater pay transparency.
• Providing remedies for successful claims including double or treble damages and mandatory attorney’s fees.

Since 2012, the Equal Employment Opportunity Commission (EEOC) has made gender-based pay discrimination claims one of its priorities in its Strategic Enforcement Plan. In recent years, the EEOC and the United States Department of Labor (DOL) have filed many lawsuits charging employers with paying female employees a lower wage than male employees performing the same work. The resolutions can range from tens of thousands to millions of dollars. For example, Google will pay almost $2.6 million to settle a charge brought by the DOL that alleged the company paid thousands of female software engineers less than their male counterparts. And no industry, including independent schools, is immune.

In addition to government enforcement of equal pay laws, private citizens have brought lawsuits against large and small companies, including colleges and universities.

An article in the Chronicle of Higher Education, “A Raft of Pay-Gap Lawsuits Suggests Little Progress for Academic Women. Why Is That?,” references a number of gender-pay settlements. They include a $1.2 million settlement by Princeton University based on pay disparity between full-time female professors and their male counterparts; a $1.46 million settlement with four female professors at Northern Michigan; and the resolution of claims by the University of Arizona for a total of $290,000.

The lesson from these lawsuits, government enforcement, and new laws is that all employers, including independent schools, must proactively analyze their pay practices and pay levels, and make adjustments where needed. Failure to do so can be costly.

As with other risk management issues, what starts with higher education usually moves to the independent school world at some point.

To help with that analysis, the following is an overview of applicable federal and state laws, insurance that might be available to defend against gender gap claims, and risk management measures a school can take to proactively address whether its pay practices are equal for men and for women.

Federal pay equity laws independent schools should be aware of.

The EPA amends the Fair Labor Standards Act and protects both men and woman against wage discrimination based on sex. It requires that men and women in the same workplace be given equal pay for equal work. Almost all employers are covered by the EPA. All forms of compensation are covered, including:

• Salary
• Overtime pay
• Bonuses
• Life insurance
• Vacation and holiday pay
• Cleaning or gasoline allowances
• Hotel accommodations
• Reimbursement for travel expenses
• Benefits

If there is inequality in wages between men and women who perform substantially equal jobs, employers must raise wages to equalize pay but may not reduce the wages of other individuals.

There are several elements that must be met in compensation discrimination complaints under the EPA. The jobs being compared must require substantially equal skill, effort, and responsibility and be performed under similar working conditions within the same establishment. These terms are defined to mean:

• Skill: Measured by factors such as the experience, ability, education, and training required to perform the job. The issue is what skills are required for the job, not what skills the individual employees may have.
• Effort: The amount of physical or mental exertion needed to perform a job.
• Responsibility: The degree of accountability required to perform the job.
• Working Conditions: This encompasses two factors: physical surroundings like temperature, fumes, and ventilation; and hazards.

It is important to note that “equal” work does not mean identical jobs—they must be “substantially equal” in overall job content, even if the position titles are different. In order to be considered substantially equal, the job duties must be “closely related” or “very much alike.”

Minor differences in duties, skill, effort, or responsibility required for the jobs will not render the work unequal. An employer may have a defense if compensation is based on a seniority system, merit system, systems that measure earnings by quantity or quality of production, or any factor other than sex.

A claim for unequal pay may also be brought under Title VII of the Civil Rights Act of 1964, which makes it illegal to discriminate, including in wages and pay, on the basis of sex, race, color, religion, and national origin. Title VII applies to companies with 15 or more employees. Title VII is broader than the EPA and prohibits wage discrimination even when the jobs are not identical.

The time limit or statute of limitations for filing a Title VII pay discrimination charge with the EEOC is within 180 or 300 days of the discriminatory pay practice, depending on the state where the complainant resides. Under the EPA, the time limit for filing a complaint is within two years of the discriminatory pay practice or three years if the violation is willful.

In addition to the EPA and Title VII, claims for unequal pay may also be brought under the Americans with Disabilities Act (ADA) and under the Age Discrimination in Employment Act (ADEA). The ADA applies to employers with 15 or more employees, including state and local governments. The ADEA applies to private employers with 20 or more employees, state and local governments, employment agencies, labor organizations, and the federal government. Like Title VII, under the ADA and ADEA there is no requirement that the jobs must be substantially similar.

In 2009, the Lilly Ledbetter Fair Pay Act passed. This law extends the statute of limitations for discriminatory compensation claims by clarifying “that a discriminatory compensation decision … occurs each time compensation is paid pursuant to the [discriminatory decision].” The intent of the Lilly Ledbetter Fair Pay Act is to prevent the statute of limitations from running out before women discover they are being paid less than their male counterparts.

State pay equity laws independent schools should be aware of.

Schools should also become familiar with the specific equal pay law for the state in which they are located, or for any state in which they employ people. The equal pay laws differ from state to state and have been strengthened in several states in recent years.

Besides making it unlawful for employers to discriminate against any individual with respect to their compensation based on the individual’s sex, many state laws provide that an employer may not ask about an applicant’s prior wage history and prohibit an employee from disclosing the employee’s own wages, discussing the wages of others, or inquiring about another employee’s wages.

Similarly, employers may not require an employee to sign a waiver of these rights or retaliate against an employee who inquiries about, discloses, compares, or otherwise discusses the employee’s wages or the wages of another employee.

Some state laws articulate the reasons why a variation in wages might be acceptable. For instance, the Massachusetts Equal Pay Act permits differences in pay for comparable work when based on:

• A system that rewards seniority with the employer (time spent on leave due to a pregnancy-related condition and protected parental, family, and medical leave cannot affect seniority).
• A merit system.
• A system that measures earnings by quantity or quality of production, sales, or revenue.
• Where a job is performed.
• Education, training, or experience that are reasonably related to the job.
• Travel, if a regular and necessary condition of the job.

Some state laws go so far as to provide that employers that voluntarily undertake a self-audit of their pay practices would have an affirmative defense if the employer can, for instance, show they undertook the audit in good faith within the past three years. The employer must also demonstrate progress toward eliminating wage differentials based on gender for comparable work.

Taking your state law into consideration can not only help your school to be in compliance with the law in your jurisdiction but also help you to consider the right areas to promote gender equity in your pay practices.

Is there insurance that will protect us if our independent school is sued for pay inequity?

Generally, the Educators Legal Liability insurance policy is the one the school would use to pay for the defense, and possible settlement, of a pay inequity issue. As you probably already know, the Educators Legal Liability insurance policy covers Employment Practices Liability in addition to Directors & Officers (Trustees and Administrators) and Teachers Professional. The Employment Practices section of the Educators Legal Liability policy contains insurance coverage for pay inequity issues.

However, it is important to note that not all Educators Legal Liability policies are written the same, so you will need to review this potential risk to loss with your insurance broker. Also important, you should know the scope of your education insurance coverage, as your school could see a claim that includes various allegations, including pay inequity.

When reviewing the Educators Legal Liability policy, the questions to ask are as follows.

• Who is insured? Does the school’s insurance policy cover trustees, officers, committee members, administrators, faculty, and employees?
• What is covered? In addition to termination of employment, breach of employment contract, failure to hire/promote, constructive discharge, discrimination, sexual harassment, and tenure-related claims, does the school’s policy cover violations from the Americans with Disability Act (ADA), Age Discrimination in Employment Act (ADEA), Family Educational Rights and Privacy Act (FERPA), Title VII of the Civil Rights Act, Family and Medical Leave Act (FMLA), whistleblower protection acts, Title IX of the Civil Rights Act, and, of course, Equal Pay Act. Always look for clear policy wording for failure to provide due process, invasion of privacy, and defamation (libel or slander), as lawsuits from employees may have other issues besides equal pay allegations. In addition, some Educators Legal Liability policies provide defense costs for antitrust violations and unjust enrichment.
• Payment of Loss definition? Does the definition of loss include emotional distress damages? Are back pay and front pay covered, where covered by statute? Does the definition include defense costs for equitable relief claims or injunctive actions? Does it cover punitive damages (if permitted by law)?
• Other concerns? The definition of a “claim” in the policy should be defined broadly to include any written notice of intent to hold an insured liable for the results of the wrongful act, including arbitration and EEOC complaints, or attorney demand letters. Also make sure upfront (and not at the time of a lawsuit) the insurance company’s choice of legal counsel aligns with your choice, and they have independent school expertise.

In talking with several insurers who provide Educators Legal Liability insurance to independent schools, they all mentioned they have seen very few claims specifically alleging pay inequity. However, as noted before, there has been a proliferation of gender pay discrimination claims at the college and university level, and this could be a future risk for independent schools.

Risk management tactics independent schools can take to avoid a pay equity claim.

Independent schools need to understand what pay equity means and what is required under gender pay gap laws—both their state law and federal. Faced with the risk of a gender pay discrimination claim, independent schools should be proactive in evaluating their school’s compensation pay practices to ensure that any differences between employee pay are based on legally acceptable reasons such as seniority, job duties, performance, expertise, merit, or other demonstrable factors other than sex, such as education, training, and experience.

The acceptable factors other than sex that may be considered may differ from state to state, as some states have narrowed the acceptable reasons that an employer can use to justify pay differences.

Once impermissible pay discrepancies are discovered, schools should make any adjustments necessary to avoid paying unequal wages for equal work. Conducting a pay equity audit can have the added benefit, in some jurisdictions, of providing an affirmative defense to a gender pay claim, provided the school takes reasonable steps toward correcting impermissible discrepancies discovered during the audit.

It may also be advisable for a school to consider having the audit done by, or through, legal counsel. This will provide attorney-client privilege and confidentiality and control over disclosure to the greatest extent possible in the event of a claim or government agency audit.

Independent schools should also ensure sufficient training of interviewers, those involved in the hiring process, and managers such as department heads. These individuals should be instructed in how certain negotiation tactics or interview questions that raise certain topics, such as an applicant’s prior salary history, could inadvertently result in impermissible gender pay differences.

Like the #MeToo movement, gender pay equity has increasingly become a national movement. This is evident by the enactment of stricter state laws around the country, government enforcement and strategic focus, and a growing number of private claims and lawsuits including a proliferation of unequal pay claims against colleges and universities.

Independent schools could be next. Faced with this possibility, independent schools should:

• Understand what pay equity is.
• Understand what the laws require.
• Consider pay transparency practices.
• Take steps to evaluate pay practices, such as conducting a gender pay self-audit.
• Take steps to correct impermissible gender pay discrepancies.
• Provide education and awareness to leadership about pay inequity and the importance to their organization of identifying, correcting, and addressing the issue.

The federal Equal Pay Act has been around for 57 years. It is about time we begin to get it right.

For a convenient listing of all state laws about equal pay and transparency, visit www.dol.gov/agencies/wb/equal-pay-protections.