How pay-equity audits can help prevent lawsuits
A recent case confirms for employers, and HR departments, why pay equity audits are so crucial.
A California non-profit medical center has agreed to pay three female physicians $195,000 to settle Equal Pay Act (EPA) charges. The women filed complaints with the Equal Employment Opportunity Commission (EEOC) after they found their employer, Tiburcio Vasquez Health Center, paid male physicians with less experience more.
Under the settlement, the employer entered into a two-year agreement with the EEOC under which it will correct the discriminatory pay rates, revise its nondiscrimination policy, train managers who set pay rates and conduct a pay-equity audit.
Prevention. While it will be helpful for Tiburcio Vasquez moving forward, the time to conduct a pay-equity audit is before employees file a suit. Conducted proactively, the audits can prevent thousands or even millions of dollars in damages and legal fees. For example, in January of this year, Mastercard Inc. settled a lawsuit alleging its pay practices discriminated against Black and Hispanic employees for $26 million. Last November, the Walt Disney Company paid $43.5 million to female employees working for the company in California.
In addition to federal lawsuits, employers may be liable under state laws. In January of this year, new pay-equity laws came on the books in Illinois and Minnesota. In July, a new pay-equity statute takes effect in Vermont.
Keys to successful pay-equity audits. Pay-equity audits frequently involve both an attorney and consultant. Fred Plevin of San Diego’s Quarles & Brady, LLP advises employers to use an attorney so any information revealed in the audit is privileged communication. This allows employers to correct pay-equity issues without incurring liability.
The attorney will assist the employer and consultant in identifying job groupings of workers whose work is substantially similar. The mantra of “equal pay for equal work” does not reflect workplace reality. Courts have consistently compared employees who perform substantially similar work to look for bias.
A successful pay-equity audit will be tailored to each job’s specific requirements. Variation in pay between employees is legal if it is based on the employee’s skills, education, experience, credentials or performance. The attorney will identify the legally permissible variables affecting pay so the analysis can control for them.
The consultant handling the audit’s technical aspects should have a track record of performing pay-equity audits. Specifically, the consultant should have a grasp of the legal landscape as well as the technical skill needed to run the regression analyses needed to withstand legal scrutiny. A regression analysis is a statistical test that effectively determines whether pay differences are based on allowable factors or shows the likelihood that differences are based on discrimination. Ideally, the attorney and consultant will marry both the legal and economic aspects of the pay-equity audit.
An employer undertaking a pay-equity audit should be committed to correcting any issues the audit uncovers. Otherwise, the audit is a waste of time and money, leaving the employer in a precarious legal position.
The audit process. Dr. Paul White of Washington, D.C.-based Resolution Economics, LLC describes the audit as having three distinct phases. Phase I he calls “Identifying Hot Spots.” In this phase, the consultant, attorney and employer decide what data is necessary to run the analysis. The consultant reviews employer data and begins constructing a model that reflects all the pertinent variables to be considered. Once the model is designed, the consultant performs an initial analysis.
The consultant then reviews these initial results that often highlight employees whose pay is lower than would be expected given the variables considered in the analysis. These are the hot spots.
In phase II, the consultant and employer will discuss the identified hot spot employees to ensure all pertinent legal factors are included. For example, suppose company practice is to pay certain workers for professional certifications. If that factor was not in the original analysis, this is where the consultant will amend the model and rerun the analysis. The team will then compare the new results with the original and decide if any further model refinements are necessary.
The final model will produce an expected compensation figure for each employee free from illegal discriminatory factors. In phase III, these are compared, and the team considers potential remedies.
Remedies. The attorney will advise the employer on how to remedy outlier pay issues. Many times, the audit will be timed to conclude just before annual performance reviews. This allows the employer to raise the low-paid employee’s salary as part of the performance review. Often, the employer sets a limit on how much the correction will cost.
Revisiting. Dr. White advises employers to revisit the audit annually to adapt for turnover. He notes that recruiters, intent on luring strong candidates, will offer higher salaries than many incumbents are receiving. Also, employees leaving the workforce will affect the salary mix.
Pay equity in the current enforcement environment. The EEOC under President Trump has signaled that it intends to enforce civil rights laws to protect majority rights equally with minority rights. If a pay-equity audit reveals that a white man is being paid less than other race/gender groups, the employer should remedy that situation as well.
Plevin and White presented this information during a session at the annual Labor and Employment Law Advanced Practices Conference held in March 2025 in Las Vegas. Make plans to attend LEAP 2026 to be held April 8-10 at Paris, Las Vegas.
