Aug 29, 2024
Do pay equity lawsuits happen? Insights and lessons from recent cases
The EU Pay Transparency Directive is set to put pay disparities under a spotlight and empower employees to challenge unequal pay more easily. With the burden of proof shifting to employers in 2026, the stakes are high.
But what does this mean in practice? Could this legislation lead to a surge in legal actions? And if your company faces a pay transparency or equal pay claim, how severe could the consequences be?
We dive into recent pay transparency cases from the US, where similar laws have been in place for a number of years. Offering key insights to help your company reduce legal risk before the EU directive comes into effect.
Pay transparency lessons from the US
US state-level pay transparency laws were first introduced in October 2020 with Maryland leading the way and more states following suit over the past few years. As of June 2024, 30% of US states had some form of pay transparency legislation in place or about to be enacted.
Although these US laws have teeth - fines for violations in California go up to $100,000 - data shows there were 81,055 new cases of pay discrimination in the 2023 financial year. More than a 10% increase in comparison to the number of charges filed in fiscal year 2022. And, as we’ll see in a moment, some of these have resulted in court cases.
With the US a few years ahead in implementing pay transparency, there is a good opportunity to learn from what has happened with pay transparency lawsuits there, as well as from key pay equity cases in the UK and Europe.
The case of Washington State: 31 pay transparency lawsuits
Within 10 months of the state’s new pay transparency legislation going into effect, law firm Emery Reddy received “so many” pay inequality complaints they were able to file 31 lawsuits in five months. These were lodged against a range of employers, including Safeway-owner Albertsons, Adidas and IT company Insight Global, for failing to provide clear salary information on job postings. Under the law, employees are entitled to have their legal fees covered.
Key takeaways:
Disclosing relevant pay information in line with legislation is key.
Under the EU directive, job applicants will have the right to receive information - in a job vacancy notice or in advance of any job interview - about the initial pay or its range to ensure informed and transparent pay negotiations. It’s worth noting that EU member states are currently transposing the Directive into national law and requirements around how salary information is shared in each state may differ.
When legal fees are covered, more employees will be able to pursue claims, potentially raising the risk of litigation.
The EU directive says organisations may have to pay unsuccessful claimants’ legal fees if they have reasonable grounds for bringing the claim and if it’s appropriate for the claimant not to pay the costs of proceedings. This could mean that even if your organisation wins a pay transparency case, it could be liable for two sets of legal costs.
J.B Hunt fails to publish salary range and benefits
Back to Washington State. Trucking firm, J.B. Hunt, failed to disclose a salary range or benefits on one of the company’s job postings in violation of state law. The company agreed to pay $4.2m to more than 2,000 truck driver job applicants in Washington.
Key takeaways
Job applicants - as well as employees - are covered by pay transparency laws.
It’s the same for the EU Pay Transparency Directive. This significantly broadens the pool of claimants - and the associated costs - if a lawsuit is lost. It also means companies need to have a tight grip on pay transparency processes across the entire employee lifecycle from attract and hire to onboarding and beyond.
Pay constitutes more than base salary in pay transparency claims
As in Washington state, under the EU Directive pay includes salary, overtime pay, bonuses, any other benefits in cash or kind which the worker receives directly or indirectly in respect of their employment from their employer. Understanding this and being able to provide this kind of reward data for each role is vital.
While companies in the US are dealing with pay transparency cases, organisations in the UK and the EU are facing pay equity claims.
UK Council faces bankruptcy due to equal pay claims
Birmingham City Council is facing a £760 million equal pay bill. The claim is growing by around £5 million to £14 million per month with the final figure potentially amounting to £1.15 billion.
This follows equal pay compensation payouts totalling more than £1bn following a court ruling in 2012. The court found hundreds of mostly female employees, working in roles like teaching assistants and catering positions, were underpaid compared to men in different roles that were of equal value.
Key takeaways
Equal work for equal value is key.
This rule remains a founding principle of the EU Pay Transparency Directive. So employers must implement a pay structure underpinned by objective, gender-neutral job evaluation criteria that can discern equal work or work of equal value.
Compensation can be costly - and not only because of the number of claimants.
The EU directive does not place an upper limit on compensation which should “cover in full the loss and damage sustained as a result of gender-based pay discrimination”. This includes back pay, related bonuses or payments in kind, compensation for lost opportunities, like access to certain benefits, and for distress related to the undervaluation of the work performed by an individual. Damages can also take into account intersections between pay discrimination based on sex with other protected characteristics. So costs could spiral in certain cases.
Pay equity must be continuously monitored to prevent standards slipping.
This means having clear processes and structures in place that are well understood to ensure your HR team and managers continue to meet your pay transparency obligations. Or risk being burned twice like Birmingham City Council.
German company fails to address pay equity problem
New pay transparency laws gave Gabriele Gamroth-Günther - a department head at a public insurer in Hanover - the right to find out how much her male colleagues were making. When it was revealed she was paid over 1,000 Euros a month less, she expected her employer to take action. But they failed to adjust her pay, so Gabriele sued with the court finding in her favour. This was a landmark case which resulted in a change in the law to shift the burden of proof to the employer in pay discrimination cases.
Key takeaways
When you uncover pay inequality that cannot be explained by objective factors, take action.
The EU Pay Transparency Directive makes it clear that organisations must address any pay equity discrepancies. Beyond your legal obligations, this is also key to building trust and demonstrating your company’s commitment to equity.
Employer burden of proof makes it easier for employees to fight for appropriate compensation.
With exposure increasing, being prepared is the best risk mitigation. Remember the GDPR legislation? Preparation was key to ensuring your company didn’t fall foul of the new laws - it's the same for EU Pay Transparency legislation.
How your business can stay on the right side of new pay transparency legislation
If your company employs people in the EU, it’s vital that you proactively review your pay structures and make the necessary changes to ensure you’re pay transparency ready. You can find out more about what pay transparency is in this article. Or, take a look at our pay transparency checklist to put your company on the front foot and reduce its pay transparency risk.
