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III. Living Wage
Rather than push for changes in the FLSA, an alternative approach in recent
years has been to push for a “living wage” at local levels that provides a minimum
wage tailored to living costs in an area.
oSometimes the laws cover only city employees; other times they cover employers
that do business with the city.
oSometimes they cover only base wages, but more frequently they require health
insurance, vacations, sick pay, job security, and provide incentives to unionize.
Maryland became the first to adopt a statewide living wage ordinance, effective
in 2009.
Los Angeles’s law covers “contractors/subcontractors” who have agreements
with the city. The law mandates $11.03 an hour if health care benefits are offered by
the employer, $12.28 an hour if not offered. The required wage rate is higher for
airport workers.
oA study of the Los Angeles law’s effects found that 7,735 of the covered
employees got an average wage increase of 20 percent.
oAnother 149 noncovered employees got increases in order to maintain pay
differentials.
oEmployers adjusted to the law by making only very minor adjustments in
employment—an estimated 112 jobs, or 1 percent of covered jobs were lost.
oFringes were cut for less than 5 percent of affected jobs, including cuts in health
benefits, merit pay, bonuses, and employer-provided meals.
oTraining for new hires stayed the same, but nonaffected firms were increasing
their training.
oFirms benefited via reduced turnover and absenteeism.
oNew hires tended to be better qualified, with higher levels of education and
training than those hired before the law was passed.
Living wage laws are increasingly popular. Coalitions of union members and
church groups often support them.
Because they are so narrowly tailored, there is some speculation that their real
intention is to reduce any cost savings a municipality might receive from outsourcing.
oReduced outsourcing means more government jobs, which generally translates
into more union members.
IV. Employee or Independent Contractor?
U.S. employers are legally obligated to pay Social Security, unemployment
compensation, and workers compensation taxes on wages and salaries on behalf of
their employees.
oHowever, in the case of a worker who is an independent contractor rather than an
employee, the employer is not obligated to pay the legally required benefits.
oIn addition, independent contractors would also typically not receive other
benefits.
The decision of whether to classify a worker as an employee or independent
contractor requires careful attention to compliance issues.
Both tax law—enforced by the Internal Revenue Service (IRS)—and the
Employee Retirement Income Security Act (ERISA)—enforced by the Department of
Labor—are relevant.
The most widely used classification criteria are provided by the IRS and shown
in Exhibit 17.7.
Two general criteria have to do with behavioral and financial control.
oThe more control a firm is able to exercise, the more likely it is that the IRS will
see the worker as an employee rather than an independent contractor.
oThe IRS also considers the type of relationship, including its permanence.
V. Prevailing Wage Laws
Prevailing wage laws set pay for work done to produce goods and services
contracted by the federal government.
A government-defined prevailing wage is the minimum wage that must be paid
for work done on covered government projects or purchases.
Prevailing-wage laws prevent contractors from using their size to drive down
wages.
The law was passed in response to conditions on projects such as the
construction of the Hoover Dam during the Depression. Workers who collapsed from
the July heat in Nevada or were killed in accidents were quickly replaced from a pool
of unemployed men who were already camping near the job site.
To comply with the law, contractors must determine the “going rate” for
construction labor in an area.
oAs a practical matter, the “union rate” for labor becomes the going rate. That rate
then becomes the mandated minimum wage on the government-financed project.
One effect is to distort market wages and drive up the cost of
government-financed projects.
The main prevailing-wage laws include the:
oDavis-Bacon Act
oWalsh-Healey Public Contracts Act
oService Contract Act
oNational Foundation for the Arts and Humanities Act
A spate of new laws extends prevailing-wage coverage to new immigrants to the
U.S. and to non-citizens who are working in the United States under special
provisions. For example, the Nursing Relief for Disadvantaged Areas Act of 1999
allows qualified hospitals to employ temporary foreign workers as registered nurses
for up to three years under a special visa program.
Much of the legislation discussed so far was originally passed in the 1930s and
1940s in response to social issues of that time. While this legislation has continued to
be extended up to the present, the Equal Rights movement in the 1960s pushed
different social problems to the forefront.
oThe Equal Pay Act and the Civil Rights Act were passed.
VI. Antitrust Issues
Chapter 8 included information on the need to avoid antitrust concerns.
oA lawsuit representing 64,000 former software engineers and programmers at
Apple Inc., Google, Inc., Intel Corp., and Adobe Systems alleged these companies
entered into an agreement between 2005 and 2009 that they would not poach, or
try to recruit away, each other’s employees. Employees argue this resulted in lost
pay.
oThe two sides agreed to settle, with the companies paying $324.5 million in back
pay and legal fees. A federal judge stepped in saying the settlement was too low.
Using a similar settlement by Intuit and Pixair, the judge decreed $380 million
would be necessary.
oThe parties reentered negotiations with the aim of agreeing on a new settlement
acceptable to the federal judge.
VII. Pay Discrimination: What Is It?
The federal pay discrimination laws are summarized in Exhibit 17.8.
The law recognizes two types of discrimination:
oAccess discrimination—the charges of discrimination and reverse discrimination
that most often make the news involve access discrimination: the denial of
particular jobs, promotions, or training opportunities to qualified women or
minorities.
oValuation discrimination—looks at the pay women and minorities receive for
the jobs they perform.
The Equal Pay Act makes it clear that it is discriminatory to pay women
less than males when they are performing equal work (i.e., working side by
side, in the same plant, doing the same work, producing the same results).
This definition of pay discrimination hinges on the standard of equal
pay for equal work.
oMany believe that this definition of valuation discrimination does not go far
enough. They believe that valuation discrimination can also occur when men and
women hold entirely different jobs.
Is it illegal to pay employees in one job group less than employees in the
other if the two job groups contain work that is not equal in content or results
but is, in some sense, of comparable worth to the employer?
In this case, the proposed definition of pay discrimination hinges on the
standard of equal pay for work of comparable worth (also called pay equity
or gender pay equity).
Existing federal laws in the United States do not support this standard.
However, several states have enacted laws that require a comparable-worth
standard for state and local government employees.
VIII.The Equal Pay Act
The Equal Pay Act (EPA) of 1963 (which is part of the FLSA) forbids wage
discrimination on the basis of gender if employees perform equal work in the same
establishment.
Jobs are considered equal if they require equal skill, effort, and responsibility
and are performed under similar working conditions.
Differences in pay between men and women doing equal work are legal if these
differences are based on any one of four criteria, called an affirmative defenses:
oSeniority
oMerit or quality of performance
oQuality or quantity of production
oSome factor other than sex
A. Definition of Equal
The Supreme Court first established guidelines to define equal work in
the Schultz v. Wheaton Glass case back in 1970.
oWheaton Glass Company maintained two job classifications for
selector-packers in its production department: male and female.
oThe female job class carried a pay rate 10 percent below that of the male
job class.
oThe company claimed that the male job class included additional tasks
such as shoveling broken glass, opening warehouse doors, and doing
heavy lifting that justified the pay differential.
oThe plaintiff claimed that the extra tasks were infrequently performed and
not all men did them.
The Court decided they did not. It ruled that the equal work standard
required only that jobs be substantially equal, not identical.
Additionally, in several cases where the duties employees actually
performed were different from those in the job descriptions, the courts held
that the actual work performed must be used to decide whether jobs are
substantially equal.
B. Definitions of Skill, Effort, Responsibility, Working Conditions
The Department of Labor provides these definitions of the four factors
oSkill: Experience, training, education, and ability as measured by the
performance requirements of a particular job.
oEffort: Mental or physical—the degree of effort (not type of effort)
actually expended in the performance of a job.
oResponsibility: The degree of accountability required in the performance
of a job.
oWorking conditions: The physical surroundings and hazards of a job,
including dimensions such as inside versus outside work, heat, cold, and
poor ventilation.
Guidelines to clarify these definitions have evolved through court
decisions. For an employer to support a claim of unequal work, the following
conditions must be met:
oThe effort/skill/responsibility must be substantially greater in one of the
jobs compared.
oThe tasks involving the extra effort/skill/responsibility must consume a
significant amount of time for all employees whose additional wages are
in question.
oThe extra effort/skill/responsibility must have a value commensurate with
the questioned pay differential (as determined by the employer’s own
evaluation).
Time of day (e.g., working a night shift) does not constitute dissimilar
working conditions. However, if a differential for working at night is paid, it
must be separated from the base wage for the job.
C. Factors Other Than Sex
Of the four affirmative defenses for unequal pay for equal work, “a
factor other than sex” has prompted the most court cases.
Factors other than sex include:
oShift differentials
oTemporary assignments
oBona fide training programs
oDifferences based on ability, training, or experience
oOther reasons of “business necessity”
Factors other than sex have been interpreted as a broad exception that
may include business reasons advanced by an employer.
oNo legal clarification of a “factor other than sex” has ever been provided.
oIt does seem that pay differences for equal work can be justified for
demonstrably business-related reasons. But what is and is not
demonstrably business-related has yet to be cataloged.
D. “Reverse” Discrimination
Several court cases deal with discrimination against men when pay for
women is adjusted.
oThe University of Nebraska created a model to calculate salaries based on
estimated values for a faculty member’s education, field of specialization,
years of direct experience, years of related experience, and merit. Based
on these qualifications, the university granted raises to 33 women whose
salaries were less than the amount computed by the model.
oHowever, the university gave no such increases to 92 males whose salaries
were also below the amount the model set for them based on their
qualifications.
oThe court found this system a violation of the Equal Pay Act. It held that,
in effect, the university was using a new system to determine a salary
schedule based on specific criteria.
oTo refuse to pay employees of one sex the minimum required by these
criteria was illegal.
Viewed collectively, the courts have provided reasonably clear directions
to interpret the Equal Pay Act.
oThe design of pay systems must incorporate a policy of equal pay for
substantially equal work.
oThe determination of substantially equal work must be based on the actual
work performed (the job content) and must reflect the skill, effort,
responsibility, and working conditions involved.
oIt is legal to pay men and women who perform substantially equal work
differently if the pay system is designed to recognize differences in
performance, seniority, quality and quantity of results, or certain factors
other than sex in a nondiscriminatory manner.
oFurther, if a new pay system is designed, it must be equally applied to all
employees.
What does this tell about discrimination on jobs that are not
substantially equal—dissimilar jobs? Fifty-eight percent of all working
women are not in jobs substantially equal to jobs of men, so they are not
covered by the Equal Pay Act.
IX. Title VII of the Civil Rights Act of 1964 and Related Laws
The Civil Rights Act is a far-reaching law that grew out of the civil rights
movement of the 1950s and 1960s.
Title VII of the act prohibits discrimination on the basis of sex, race, color,
religion, or national origin in any employment condition, including hiring, firing,
promotion, transfer, compensation, and admission to training programs.
In addition to Title VII, the 1967 Age Discrimination in Employment Act
(ADEA) and the 1990 Americans with Disabilities Act (ADA) also prohibit
discrimination based on age and disability, respectively.
The ADEA pertains not only to age-related differences in pay and employment
outcomes, but in addition, it was amended in 1990 to include the Older Workers
Benefit Protection Act (OWBPA), which has detailed rules regarding how separation
agreements (e.g., an early retirement incentive) involving older workers are used.
Title VII cases of pay discrimination typically focus on differences in pay,
promotions, pay raises, and performance reviews.
The passage in 2009 of the Lilly Ledbetter Fair Pay Act is expected to further
increase the compliance challenge for employers.
oThe statute of limitations for filing a claim of discrimination is within 180 days
(300 days in states with their own equal employment opportunity agencies) of the
date of the alleged discriminatory employment practice.
oLilly Ledbetter’s claim was made after she left her job as a supervisor in a tire
plant and were based on the lasting effects of compensation decisions she alleged
to be discriminatory that were made as much as 19 years earlier, far outside the
180 day period.
oIn 2007, the Supreme Court ruled (Ledbetter v. Goodyear Tire 8 Rubber
Company) that such decisions could not be litigated because they were outside the
statute of limitations.
oHowever, the 2009 Act overturns this rule, instead stating that discrimination
occurs—and starts the 180/300-day time period for filing a claim—“each time a
discriminatory paycheck is issued, not just when the employer makes an adverse
pay-setting decision.”
Court cases have established two theories of discrimination behavior under Title
VII:
oDisparate treatment.
oDisparate impact.
A. Disparate Treatment
Disparate or unequal treatment applies different standards to different
employees. For example, asking women but not men if they plan to have
children.
The mere fact of unequal treatment may be taken as evidence of the
employer’s intention to discriminate under U.S. law.
B. Disparate Impact
Practices that have a differential effect on members of protected groups
are illegal, unless the differences are work-related.
The major case that established this interpretation of Title VII is Griggs
v. Duke Power Co., which struck down employment tests and educational
requirements that screened out a higher proportion of blacks than whites.
oEven though the practices were applied equally—both blacks and whites
had to pass the tests—they were prohibited because:
They had the consequence of excluding a protected group
disproportionately
The tests were not related to the jobs in question
Under disparate impact, whether or not the employer intended to
discriminate is irrelevant. A personnel decision can, on its face, seem neutral,
but if its results are unequal, the employer must demonstrate that the decision
is work- related.
The two standards of discrimination—disparate treatment versus
disparate impact—remain difficult to apply to pay issues, since pay
differences are legal for dissimilar work. It is still not clear what constitutes
pay discrimination in dissimilar jobs in the U. S.
X. Executive Order 11246
Enforced by the Office of Federal Contracts Compliance Programs (OFCCP),
Department of Labor, Executive Order 11246 (E.O. 11246) prohibits discrimination
on the basis of race, color, religion, sex, or national origin.
It requires covered government contractors to file affirmative action plans,
which have three parts:
oUtilization analysis compares the contractor’s workforce to the available external
workforce.
oGoals and timetables are developed for achieving affirmative action.
oAction steps are developed for achieving these goals and timetables.
The text focuses specifically on the steps in the OFCCP’s compliance review
process as it applies to compensation:
oIt begins with a selection of contractors based, in part, on a mathematical model,
called the Federal Contractor Selection System (FCSS), which is intended to
predict the likelihood that a contractor is engaging in systemic (i.e., affecting a
broad class of employees) discrimination.
The OFCCP also selects contractors based on other factors (e.g., time
since their previous review) and selects some contractors at random.
oIf selected, the first step is a desk audit.
The OFCCP will notify the employer that it is conducting an audit and
will instruct the employer to provide complete information on its Affirmative
Action Program and all supporting personnel activity (such as hiring,
promotion decisions) and compensation data within 30 days.
This is “analyzed for possible systemic discrimination indicators (i.e., a
potential affected class of 10 or more applicants/workers).”
If such indicators are found, additional information for the desk audit
will be requested.
After the desk audit is completed, if the OFCCP decides the employer is
in compliance, it ends the process by issuing a closure letter.
oIf the OFCCP believes systemic discrimination may be present, it conducts an
onsite review, where it will delve deeper into statistical analyses of data
(including using multiple regression analysis) and also conduct interviews with
management and non-management employees for “anecdotal evidence” to
consider along with statistical evidence.
oBased on its statistical analyses and anecdotal evidence, the OFCCP will decide
whether there is evidence of systemic discrimination.
oIf so, it will issue a Notice of Violation (NOV).
oIf an NOV is issued, the OFCCP will seek to have the employer sign a
conciliation agreement under which it agrees to stop and remedy practices
identified as discriminatory.
The employer may also be required to change its compensation levels
for some employee groups to remedy disparities between similarly situated
employees that the OFCCP judges to be the result of systemic discrimination.
oIf the OFCCP cannot reach a settlement with the employer, it can refer the case to
the Office of the Solicitor and disputes are addressed in a hearing in front of an
administrative law judge.
The OFCCP can also seek to disbar contractors from receiving future
contracts from the government or to stop payments on current contracts.
In order to avoid running afoul of Economic Order 11246 and the OFCCP,
companies should not discriminate and collect and analyze data to document that they
do not discriminate.
oSelf-evaluation by employers is required. If the self-evaluation approach
“reasonably meets the general standards outline in the Voluntary Guidelines,
OFCCP will consider the contractor’s compensation practices to be in compliance
with Executive Order 11246.”
