Rhode Island has joined the growing ranks of states that have enacted a sweeping pay equity statute. The Rhode Island law, which takes effect on January 1, 2023, amends the Rhode Island Equal Pay Law and places significant new burdens on both large and small businesses. The law seeks to "combat wage discrimination" by "strengthening and closing gaps in existing wage discrimination laws," and does so by imposing new requirements on employers and essentially deems employers "guilty until proven innocent" when it comes to wage disparities.

Pay equity is a method of eliminating discrimination when establishing and maintaining wages. Although federal law has sought to eliminate the pay gap between genders, states have enacted their own laws, often adding disclosure requirements and, in some cases, encouraging employers to conduct pay audits. However, unlike many states with pay equity laws - which typically prohibit wage differentials based on sex only - Rhode Island's new law significantly expands the classes of individuals it protects by the law and adds significant new responsibilities for employers.

Wage Differentials Prohibited

The Rhode Island Equal Pay Law currently in effect prohibits an employer from discriminating in the payment of wages on the basis of sex and from paying a female employee a salary or wage rate less than that paid to male employees for equal work. The new law amends this provision to prohibit employers from paying any employee a wage less than wages paid to employees of another race, color, religion, sex, sexual orientation, gender identity or expression, disability, age, or country of origin, for "comparable work." The law defines "comparable work" as "work that requires substantially similar skill, effort, and responsibility, and is performed under similar working conditions." The law provides no guidance on how or when an employer can ask employees to identify whether they are included in one of the enumerated protected categories.

An employer may pay employees at different wage rates only if the employer shows the differential is based on at least one factor, such as:

• A seniority system;
• A merit system;
• A system measuring earnings by quantity or quality of production;
• Geographic locations with different costs of living;
• Reasonable shift differentials not based on sex;
• Education, training or experience;
• Regular or work-related travel; or
• A bona fide and job-related factor consistent with business necessity.¹

The employer must also prove the above factor(s) reasonably explain the differential and that the employer did, in fact, reasonably rely on the factor(s). The use of one or more of the above factors to justify a wage disparity may not be a pretext for discrimination.

An employer may not reduce wages to comply with the new law. Thus, if an impermissible discrepancy is detected, an employer must increase pay. An employer cannot claim the employee agreed to work for less than the wage of other comparable employees. Further, an employer cannot discharge, discriminate or retaliate against any job applicant or employee because the applicant or employee opposed an unlawful practice or became involved in an investigation relating to that unlawful practice.

An employer must post a notice of rights available under the new law in a clear location. The director of labor and training will publish a notice suitable for posting. Failure to post the required notice carries a civil penalty of up to $500.

Wage Transparency

The new law also aims to establish pay equity by fostering greater transparency regarding an employer's pay practices. An employer may not prohibit an employee from inquiring about, discussing, or disclosing the employee's own wages or the wages of another employee, or retaliate against an employee who engages in such activities, though nothing in the amended law requires employees to disclose their wages. Additionally, employers may not require an employee to enter into a waiver or other agreement that purports to deny the employee the right to disclose or discuss their wages. Further, an employer may not prohibit an employee from aiding or encouraging any other employee to exercise their rights under the law.

Wage Range

Notably, and related to the goal of greater wage transparency, Rhode Island's law follows a trend established in a handful of other states by requiring an employer to provide a wage range for job positions. Upon an applicant's request, an employer must provide the wage range for the open position. "Wage range," as applied to a job applicant, means the wage range upon which the employer anticipates relying in setting wages for the position, and may include reference to any applicable pay scale, previously determined range of wages for the position, the actual range of wages for those currently holding equivalent positions, or the budgeted amount for the position, as applicable.

The requirement to provide a wage range also applies to current employees. If an employee transfers to a new position within the company, the employer must provide the wage range for the new position during the transfer, even if the employee does not request it. The employer must also provide a wage range at the time of hire, as well as during employment upon an employee's request. "Wage range," as applied to a current employee, may include reference to any applicable pay scale, previously determined range of wages for the position, or the range of wages for incumbents in equivalent positions, as applicable. An employer cannot refuse to interview, hire, employ, or promote an individual, or retaliate against an individual because they requested a wage range.

Wage History

Rhode Island also joins the list of states that limit an employer's ability to inquire into and consider a job applicant's wage or salary history. The new law prohibits employers from relying on an applicant's wage history in deciding whether to consider them for the position or determine their wage if hired. In addition, employers cannot require that an applicant's wages meet a minimum criterion for employment, nor may they refuse to hire or otherwise retaliate against an applicant for declining to provide a wage history.

If an employer offers a job to an applicant, however, the employer may:

• Rely on the applicant's wage history to support a wage higher than the wage being offered, if the applicant voluntarily provided their wage history;
• Seek to confirm the wage history of the applicant to support a wage higher than the wage offered; and
• Rely on wage history to the extent the higher wage does not create an unlawful pay differential.

An employer is not precluded from verifying information that an applicant voluntarily provides regarding their unvested equity or deferred compensation that they would have to forfeit by resigning from their current employer. Employers can also continue to run background checks on applicants, if the background checks do not seek wage history. If a background check does disclose an applicant's wage history, the employer cannot rely on that information for purposes of determining wages, benefits, or other compensation for the applicant during the hiring process, including contract negotiation.

With respect to current employees, employers will not be penalized for having knowledge of an employee's wage history.

Employer's Self-Evaluation

In addition to the significant compliance obligations related to pay equity and wage transparency, the new law creates a so-called safe harbor for employers that voluntarily conduct an evaluation of their pay practices during the period from January 1, 2023 through June 30, 2026, although the protections afforded by such an audit are exceptionally limited. In an action alleging an unlawful wage differential, the new law provides an affirmative defense to an employer if it can show it conducted a good-faith audit of its pay practices within the past two years and can show that the unlawful wage differentials revealed by the audit were eliminated prior to the date the law suit commenced. A qualifying audit must reflect due diligence to identify, prevent, and mitigate violations. Although the law does not provide instructions to employers on what the audit should look like, it instructs that courts should consider the following in evaluating the audit's sufficiency:

• Whether the audit includes all relevant jobs and employees within those relevant jobs;
• Whether the audit makes a reasonable effort to identify similar jobs and employees using a consistent, fact-based approach;
• Whether the employer has tested explanatory factors for an unbiased and relevant relationship to pay;
• Whether the audit considers all reasonably relevant and available information; and
• Whether the audit is "reasonably sophisticated" in its analysis of potentially comparable work, employee compensation, and permissible reasons for wage differentials.

Once an employer concludes its audit, it must adjust wages within 90 days if it finds there are unlawful discrepancies between individuals for comparable work. If an employer fails to retain records related to the audit, it may give rise to an inference that the employer lacked due diligence in conducting the audit.

An employer that has performed an audit and eliminated pay differentials, as described above, is not liable for liquidated damages or civil penalties. Applicants or employees may, however, still sue employers.

Enforcement & Penalties

The Department of Labor & Training may investigate employers in order to enforce these provisions. If the Department finds a pay equity violation, an employer can face three types of fines:

• A fine of no more than $1,000 for the first violation;
• A fine of no more than $2,500 if there has been one violation within a five-year period;
• A fine of no more than $5,000 if there have been two violations within a seven-year period.

The Department may also order relief as necessary or even refer the matter to the Rhode Island attorney general. The new law provides a brief respite to allow employers to come into compliance, providing that no penalties will be levied from January 1, 2023 to December 31, 2024.

In addition to potential for civil penalties, the law affords a private right of action for an individual alleging a violation of its terms. An employee or job applicant may sue an employer within three years after the occurrence, or discovery of an occurrence, of a discriminatory practice.² Any employers found liable must pay compensatory damages, special damages up to $10,000, reasonable attorneys' fees, and costs. The aggrieved employee can also receive liquidated damages up to two times the amount of unpaid wages, equity relief (reinstatement, fringe benefits, and seniority rights), and punitive damages if the employer acted with malice or reckless indifference.

Takeaways for Employers

Rhode Island's new pay equity law raises concern, not only because of its broad and sweeping protections, but also because it provides little clear guidance on how to comply with its provisions and/or how employers should arrange for or conduct the anticipated self-audits. The broad range of characteristics protected under the new law mean that, unlike pay equity laws in other jurisdictions that prohibit wage discrimination based only on sex, an employer's self-audit may require consideration of protected characteristics that are often not evident and about which employers may never inquire, such as sexual orientation or disability. Employers required to submit EEO-1 reports should consider using that demographic data. Alternatively, employers may seek demographic data on a voluntary basis and let employees know that responding is optional and that the responses will be used to support diversity, equity, and inclusion initiatives.

Additionally, the law's definition of "comparable work" is vague and fails to provide employers with clear guidance as to its meaning. There are no accompanying definitions of "substantially similar skills" or "similar working conditions." These unclear definitions will make employer self-audits challenging.

Further, an audit is an affirmative defense, not an exemption to the law's requirements. Employers remain fully vulnerable to lawsuits even if an adequate audit is performed. A successful audit results only in avoidance of liquidated damages and/or civil penalties. And, if an audit is performed, a court may still examine and determine whether the employer performed the audit with "due diligence." Although the law attempts to provide guidelines to courts on how they should examine an employer's audit, the guidelines are exactly that: guidelines. They are not instructions or rules. Thus, even if employers conduct such audits - which may be costly and time-consuming - there is no certainty the audit will satisfy a court.

The new law also provides that, for the self-audit to serve as a defense, an employer must not only audit, but also remedy any pay disparity uncovered. Unlike pay equity statutes in other states, which provide a safe harbor if an employer substantially eliminates pay inequities, Rhode Island employer audits must eliminate unlawful pay inequities. Consequently, simply conducting an audit is not enough.

Because the terms of the new law are so vague and because the audit process is fraught with missteps, employers are highly encouraged to consult with experienced employment counsel to navigate these new compliance obligations. Employers are also encouraged to engage counsel or companies that specialize in internal pay audits to conduct these pay audits and implement the results.

Posted: August 3, 2021

¹ This factor cannot be used if the employee shows an alternative business practice - that is not cost-prohibitive - exists that serves the same business purpose without the wage differential and the employer has refused to adopt the practice.

² An employee or applicant may not sue an employer if the applicant also filed a complaint with the Department and the Department has issued notice of a hearing. However, if the Department finds no violation, an employee or applicant may still sue the employer within 30 days of the Department's final decision.