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New pay-equity requirements for Minnesota state contractors

The Women’s Economic Security Act, intended to break down barriers for women in the workplace, was passed by the Minnesota Legislature and signed into law in May. The act includes a provision of particular importance to certain state contractors who will now be required to obtain certificates from the Minnesota Department of Human Rights regarding compliance with equal-pay laws.

This requirement will apply to businesses with state contracts or agreements for goods or services in excess of $500,000 and 40 or more full-time employees either in Minnesota or in another state where the business has its primary place of business. (As initially enacted, an equal-pay certificate was to be required in connection with any “contract or agreement” with the state in excess of $500,000. The law was subsequently amended by the omnibus supplemental appropriations bill so as to apply only to contracts or agreements “for goods or services.”  (H.F. 3172. )

Businesses receiving grants from state agencies or entering into agreements with the state that are not for goods or services will not be required to obtain the certificate.  Pursuant to specific exemptions in the statue, the requirement also does not apply to most contracts with the state regarding insurance, health care, or the reimbursement of health care services.

Highlights of the law

Under existing law an employer doing business with the state must implement and maintain an affirmative-action program and obtain from the Human Rights Department a certificate of compliance confirming that the employer’s affirmative-action plan has been submitted to the department and approved.

WESA amends the Minnesota Human Rights Act by adding a new section 363A.44 requiring covered contractors also to obtain a separate equal-pay certificate.

In order to obtain an equal-pay certificate, a contractor must provide an equal-pay compliance statement to the Human Rights Department. (See sidebar for statement requirements.)

This equal-pay compliance statement must identify whether the business, in setting compensation and benefits, utilizes “(1) a market pricing approach; (2) state prevailing wage or union contract requirements; (3) a performance pay system; (4) an internal analysis; or (5) an alternative approach to determine what level of wages and benefits to pay its employees.”  If the business uses an alternative approach, a description of that approach must be provided.

Once the business has submitted the required statement and paid a $150 fee, the Human Rights Department must issue the equal-pay certificate within 15 days of receiving the application. If the statement, on its face, complies with the statue, the department has no discretion to deny a certificate.

The department does, however, have authority to audit compliance. In auditing compliance, the department may require from the business information regarding employees expected to perform work under the contract, aggregated by EEO-1 category. (See sidebar for text.)

For the most part, WESA does not expand the Human Rights Department’s existing authority to audit state contractors or to enforce the laws prohibiting discrimination. However, in purporting to give the department authority to audit compensation with respect to individuals that perform work under state contracts but do not live or work in Minnesota, the Legislature is expanding the  department’s jurisdiction.

A closer look at comparing jobs

There is a great deal of evidence that men and women performing the same jobs are generally paid the same. In other words, women do, in fact, receive equal pay for equal work, when “equal work” means performing the same job under the same circumstances for the same employer. At the same time, there is also data showing that full-time working women do, in fact, earn less on average than full-time working men.

This set of facts leads some advocates to argue that the disparity in average compensation between women and men in general reflects a discriminatory tendency to undervalue jobs that have been traditionally held by women (e.g., secretarial or nursing positions) in comparison to those jobs that have traditionally been held by men (e.g., construction work or truck driving).

Some of those who believe that gender-based disparities are the result of this type of discrimination have argued for the use of “comparable worth” as the solution. Comparable worth involves the idea that different jobs may be evaluated and assigned points based on the knowledge, skills, or other characteristics required by the job. Employers are then required to adjust employees’ compensation whenever women are consistently paid less than men for jobs with comparable point values.

Minnesota is one of the only jurisdictions to ever implement any form of comparable-worth policy, having adopted a law in 1984 requiring local governments to “establish equitable compensation relationships.”

The Minnesota Department of Management and Budget website offers an example of how comparable worth is supposed to work under this law. In the example, a delivery van driver position (mostly held by men) receives a job evaluation rating of 117 points and a clerk typist position (mostly held by women) is also rated at 117 points.  In the state’s example the drivers are paid $1,900 per month and the typists are paid $1,400 per month. Under Minnesota’s law, the local government employing these individuals would be required to increase the monthly pay of the typist’s to match that of the driver’s.

Influenced by the advocates for comparable worth, the initial House version of WESA included a requirement that covered state contractors comply with the same comparable-worth requirements that apply to local governments.

Thoroughly analyzing the merits of comparable worth is beyond the scope of this article. One can fairly say, however, that its supporters believe that consultants and bureaucrats can do a better job than free markets in terms of determining the appropriate compensation for work. Mainstream economists have generally been highly critical of the concept. Reflecting these realities, H.F. 2536 was amended early in the session to delete the comparable-worth requirements. Nevertheless, after deleting the comparable-worth provisions, the House continued to look for some way to focus employers on disparities in pay that may be related to the tendency for men and women to end up working in different types of jobs.

The final version of WESA sought to accomplish this by requiring contractors to compare average compensation of women versus men by EEO-1 job group.

The EEO-1 is a form that employers with 100 or more employees are required to annually file with the EEOC. The form requires employers to report the number of employees in each of 10 different job categories (e.g., officials and managers, professionals, and craft workers) by race and sex.

Using EEO-1 categories was proposed under WESA because most covered contractors are likely to have already mapped their jobs to EEO-1 categories, thus reducing the burden of complying with this new requirement.

Comparing average compensation within EEO-1 categories will provide insight into the extent to which men and women may tend to be concentrated in different jobs and suggest opportunities to increase pay equity by seeking to recruit and retain women in higher-paying jobs.  Accordingly, the new law should help to address the pay gap without miring employers and the state in the morass of comparable worth.

WESA disclosure requirements

The Women’s Economic Security Act requires covered employers to provide information including a compliance statement and, in some cases, as requested by an auditor.

Compliance statement required by Minnesota Laws Ch. 239, Art. 2, Sec. 6, subd. 2

The commissioner shall issue an equal-pay certificate of compliance to a business that submits to the commissioner a statement signed by the chairperson of the board or chief executive officer of the business:

(1) that the business is in compliance with Title VII of the Civil Rights Act of 1964, Equal Pay Act of 1963, Minnesota Human Rights Act, and Minnesota Equal Pay for Equal Work Law;

(2) that the average compensation for its female employees is not consistently below the average compensation for its male employees within each of the major job categories in the EEO-1 employee information report for which an employee is expected to perform work under the contract, taking into account factors such as length of service, requirements of specific jobs, experience, skill, effort, responsibility, working conditions of the job, or other mitigating factors;

(3) that the business does not restrict employees of one sex to certain job classifications and makes retention and promotion decisions without regard to sex;

(4) that wage and benefit disparities are corrected when identified to ensure compliance with the laws cited in clause (1) and with clause (2); and

(5) how often wages and benefits are evaluated to ensure compliance with the laws cited in clause (1) and with clause (2).

Information required in case of an audit per Minnesota Laws Ch. 239, Art. 2, Sec. 6, Subd.8

Information to be provided in each of the major job categories in the EEO-1 employee information report:

(1) number of male employees;

(2) number of female employees;

(3) average annualized salaries paid to male employees and to female employees, in the manner most consistent with the employer’s compensation system, within each EEO-1 category;

(4) information on performance payments, benefits, or other elements of compensation, in the manner most consistent with the employer’s compensation system, if requested by the commissioner as part of a determination as to whether these elements of compensation are different for male and female employees;

(5) average length of service for male and female employees in each EEO-1 category; and

(6) other information identified by the business or by the commissioner, as needed, to determine compliance with the statement supporting the ap

David J. Goldstein, a shareholder in Littler Mendelson’s Minneapolis office, advises employers on legal and regulatory compliance including the preparation and approval of affirmative action plans.  

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