What’s the theory behind base pay discrimination?

Recently DCI has noted a new trend in OFCCP enforcement of alleged base pay discrimination. Specifically, upon identifying statistical disparities in base pay, OFCCP has proceeded to enforcement under a theory of disparate impact rather than the typical disparate treatment pattern or practice. In 2006, OFCCP released the Interpretive Standards (a.k.a. Compensation Standards) which laid out the rules of engagement for pursuing a discrimination claim on the grounds of base pay. The Standards explained that, for enforcement relating to analysis of base pay, OFCCP would proceed under a disparate treatment pattern or practice theory. (Note: The authors of the blog believe that the reason OFCCP identified this theory for use within this context is that it is the ONLY cognizable claim that could be used when analyzing BASE pay.) Two example scenarios in addition to the table below illustrate the concerns surrounding use of the disparate impact theory for enforcement involving base pay discrimination.

As an example, suppose that an OFCCP analysis of base pay uncovered a statistical disparity between men and women employed in engineering positions. In order to successfully demonstrate pay discrimination under the disparate treatment theory, several things would need to happen. First, in additional to a finding of a statistically significant disparity in pay between men and women doing similar work, OFCCP would need to gather anecdotal evidence of intentional discrimination.  This evidence would need to show that discrimination is the company’s standard operating procedure and that protected groups are treated differently. Anecdotal evidence may be, for example, information obtained through interviews during an onsite investigation. Regardless of the specifics, except in very rare instances, a statistical disparity alone would not be sufficient for demonstrating pay discrimination under a theory of disparate treatment. However, if anecdotal evidence is presented in conjunction with a statistical indicator(s), the burden then shifts to the contractor to provide a legitimate, non-discriminatory explanation for the difference. For instance, in the example described, the contractor may demonstrate that a combination of factors including prior experience, time employed at the company, and education account for the majority of the difference identified between men and women in engineering positions (enough to render the statistical disparity non-significant) and that the company’s practices were applied the same across protected categories.

Now consider the scenario above, but under the lens of the disparate impact theory. As referenced in the table below, anecdotal evidence is not required under this theory, and statistical evidence can therefore stand alone. However, in this case, OFCCP would need to further demonstrate that the statistical disparity was caused by (i.e., linked to) a specific employment device, policy, or practice relating to base pay. Moreover, the EEOC Compliance Manual provides insight on which areas of compensation may fall within a disparate impact framework: “educational requirements, performance appraisals, examinations, qualification standards, and other practices and policies” are listed.  The disparate impact theory is one we often see applied in hiring cases, for example, where the statistical disparity is stemming from a specific, facially neutral selection procedure (e.g., an assessment or interview) which is causing the impact. In the case of base pay, however, identifying a specific policy or procedure that is both a) facially neutral and b) causing the impact would be quite the challenge. If OFCCP were to identify such a policy or procedure, the burden would then shift to the contractor to demonstrate business necessity and consideration of alternatives.

As an example, suppose OFCCP had determined that a specific policy – paying more for a Master’s vs. a Bachelor’s degree – was causing the impact between men and women in engineering positions. Assuming the policy had been consistently applied and was relevant for the jobs in question (e.g., employees were not being compensated for holding degrees in unrelated fields), one would reasonably expect that the contractor could demonstrate business necessity. However, how might the contractor demonstrate consideration of alternatives? Typically, this would involve considering alternative selection procedures such as assessments that are equally valid for the job yet cause less impact. In the case of using education to establish starting/base pay, identifying plausible alternatives would be a much more complicated (and potentially even unrealistic) task.  (Note: Some of these issues are also major challenges imposed under the new California Fair Pay Act.) Although the disparate impact theory can be used to challenge a specific practice relating to pay (such as a merit increase, starting salary, or territory assignment), it is nearly impossible to apply to base pay. This is because base pay consists of many discreet compensation decisions taking place over the course of an employee’s tenure. Therefore, each pay step, stage, or decision would have to be carefully and individually evaluated under this theory.  DCI has been unable to locate a single court or agency opinion that has imposed disparate impact liability on an employer for base pay discrimination.

In addition to guidance offered by the Department of Labor, a recent Supreme Court upheld the notion that disparate impact claims must demonstrate a link between the statistical disparity identified and a specific policy. The recent ruling by the Supreme Court in Texas Department of Housing and Community Affairs v. Inclusive Communities Project, Inc. (2015), which addresses disparate impact claims under the Fair Housing Act, and relied extensively on Title VII precedents, stated that:

“…a disparate-impact claim that relies on a statistical disparity must fail if the plaintiff cannot point to a defendant’s policy or policies causing that disparity.  A robust causality requirement ensures that “[r]acial imbalance . . . does not, without more, establish a prima facie case of disparate impact” and thus protects defendants from being held liable for racial disparities they did not create. Wards Cove Packing Co. v. Atonio, 490 U. S. 642, 653 (1989), superseded by statute on other grounds, 42 U. S. C. §2000e–2(k). Without adequate safeguards at the prima facie stage, disparate-impact liability might cause race to be used and considered in a pervasive way and ‘would almost inexorably lead’ governmental or private entities to use ‘numerical quotas,’ and serious constitutional questions then could arise.”

In conclusion, it is seemingly not practical or cognizable for a plaintiff or government agency to utilize a disparate impact theory to allege discrimination of base pay.  The disparate impact theory, while useful within the context of a hiring discrimination case, proves to be less intuitive in a case involving base pay. Identifying a specific employment device or practice that causes a base pay disparity is more complex than identifying a practice, such as an employment test, that could be used in a hiring disparate impact case. A plaintiff or government agency alleging base pay discrimination under a disparate impact theory would certainly need to identify a specific policy or practice that is causing the disparity, as base pay itself is more so a composite reflection of the numerous policies, practices, and events having occurred over an employee’s tenure.  For this reason and the related complexities described, the disparate treatment theory seems to be the only cognizable claim when alleging discrimination in base pay.

By Joanna Colosimo, Senior Consultant, and Rachel Gabbard, Associate Consultant at DCI Consulting Group