The Pay Equity Plot Thickens: Unique Aspects of Newly Adopted Oregon Equal Pay Act Warrant Special Attention

On June 1, 2017, Oregon Governor Kate Brown signed into law the Oregon Equal Pay Act of 2017 (House Bill 2005). Although pay equity legislation has been proposed or passed in a number of jurisdictions throughout the country, Oregon’s new law merits special attention.  The obligations it imposes on employers seeking to justify pay differentials are arguably among the strictest in the nation, but it also affords employers some key protections and potential safe harbors.  Given the focus by government agencies and plaintiffs’ attorneys on pay equity in the technology sector out West, companies seeking to maintain or expand in the so-called “Silicon Forest” should pay special attention to the provisions of this new law.

We took a deep dive into the background and history of the legislation, and share some key observations about what it says—and doesn’t say—here.

  • “Protected class” extended beyond sex and gender.

    Existing Oregon law requires pay equity between employees “of the opposite sex.”  House Bill 2005 extends the coverage of the law to encompass pay differentials between employees distinguished by race, color, religion, sex, sexual orientation, national origin, marital status, veteran status, disability or age.  “Veteran status” and “disability” were added through the amendment process, following testimony from advocates for these groups about the pressures they may face to accept lower pay in order to secure employment.

  • Work of “comparable character” defined to parallel Title VII.

    Prior to House Bill 2005, Oregon law already prohibited paying women less than men “for work of comparable character.” (Ore. Rev. Stat. § 652.220(1)(b) (2016).)  As originally introduced, House Bill 2005 would explicitly defined that term as “work that is substantially similar based on the needs of the employer, the value of the work to the employer and the level of knowledge, composite skill, effort, responsibility and working conditions required in the performance of the work, regardless of job description or job title”—that is, something akin to a “comparable worth” standard.

    Given the well-documented problems with applying “comparable worth” standards, and in response to concerns from the Oregon business community, the bill was amended.  “Work of comparable character” is now defined as “work that requires substantially similar knowledge, skill, effort, responsibility and working conditions in the performance of work, regardless of job description or job title”—essentially the federal Title VII standard.  This is good news for employers, who should not need to navigate any separate, state-specific standard of comparator employees under the law.

  • Justifications for pay differentials delineated – though not necessarily clarified.

    Perhaps the most significant change wrought by House Bill 2005 is to the circumstances in which an employer can defend a pay differential.  Prior law stated that the pay equity mandate did not “apply” where pay was made pursuant to a non-discriminatory merit or seniority system or was otherwise “based in good faith on factors other than sex.”  (Ore. Rev. Stat. § 652.220(2) (2016).)

    From its introduction, House Bill 2005 sought to modify this broad defense of pay differentials.  As originally introduced, the bill would have replaced that language with an authorization for a pay differential between “employees in equivalent jobs” if the differential was based on any of the four express Title VII defenses: a seniority system, a merit system, a system measuring quantity of production, or another bona fide “factor other than sex.”  (42 U.S.C. § 2000-e(2)(h), incorporating 29 U.S.C. § 206(d).) This original version would—unlike Title VII—have defined permissible bona fide “factor[s] other than sex” and expressly placed the burden on the employer to demonstrate that the factor relied upon was not “based on or derived from” a prohibited characteristic or “perceptions of traditional or appropriate roles,” in addition to being job-related, based on a business necessity, and explanatory of the “entire compensation differential.”

    As adopted, however, House Bill 2005 instead authorizes paying employees differently for “work of comparable character” only if the differential is based on one of eight specifically enumerated “bona fide” factors—including education, training, or experience—or a combination thereof that accounts for the entire differential.  This provision of House Bill 2005 arguably raises as many questions as it answers.  For example, are employers limited to the eight “bona fide” factors expressly identified by the Legislature?  And must they prove that a “bona fide factor” accounts for the entire differential if they rely on just a single factor (rather than a combination thereof)?  Companies, courts, and the Bureau of Labor and Industries will likely need to grapple with these and related questions in coming months and years.

  • Prior salary “screens” of prospective employees prohibited.

    House Bill 2005 adds a new prohibition on “[s]creen[ing]” applicants based on prior compensation or “seek[ing]” salary history of an applicant or employee.  Neither term is defined, though the new law does expressly authorize an employer to request written authorization from an applicant to confirm prior compensation after an offer that includes a compensation amount has already been extended.

    The law also prohibits employers from “[d]etermin[ing] compensation for a position based on current or past compensation of a prospective employee”—thus putting Oregon law directly at odds with the Ninth Circuit’s recent interpretation of the federal Equal Pay Act, which held that prior salary could justify a pay differential 

  • Staggered phase-in adopted.

    The provisions of House Bill 2005 will take effect in stages.  The prohibition on seeking prior salary becomes effective September 1 of this year, but civil actions against employers who seek prior salary are not permitted until January 1, 2024.  The revisions to the pay equity standards and defenses discussed above, by contrast, take effect on January 1, 2019.

  • Partial safe harbor included.

    Of particular note, House Bill 2005 authorizes a motion to disallow compensatory or punitive damages in any case brought under the new law, including class actions—meaning exposure would be capped at two years’ back pay and reasonable attorneys’ fees.  The new law provides that such a motion to disallow “shall” be granted if the employer can demonstrate that it:

    (1) completed a good faith “equal-pay analysis” within three years prior to the filing of the complaint that was “[r]easonable in detail and in scope,”
    (2) eliminated the “wage differentials” for any named plaintiff, and
    (3) “made progress toward” eliminating wage differentials for the putative class.

    The “equal-pay analysis” required to trigger this safe harbor need not take any particular form.  It is defined simply as “an evaluation process to assess and correct wage disparities among employees who perform work of a comparable character.”

While the Oregon state executive branch completed a pay equity study back in 2015 and Governor Brown expressed her view that House Bill 2005 “encourages all employers to conduct a pay equity study, just as the state has recently done,” there is no requirement to conduct any such analysis or that any analysis that is conducted take any particular form.  Savvy Oregon employers should consult with experienced counsel now—before civil actions under the new law open up in 2019—to determine whether an “equal-pay analysis” may be prudent, and if so, whether such an analysis should take the form of a multiple regression model, cohort comparisons, or some other “evaluation process.”