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July 21, 2022
Your Sign-On Bonuses Could Be Creating Unintended Liability in Massachusetts

We’ve all seen the signs, whether on paper, online, or on flashing billboards: “HELP WANTED! $1,000 sign-on bonus for all new hires!” It isn’t any secret that businesses are having increasing difficulty hiring employees and are looking for creative ways to encourage people to apply for and accept jobs. But could a sign-on bonus create liability under the Massachusetts Equal Pay Act (MEPA)? Yes, if you aren’t careful.

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MEPA Provides Little Flexibility

MEPA was amended and went into effect on July 1, 2018. Under the Act, which was aimed at strengthening pay equity for women in the commonwealth, pay differences between persons of different genders performing comparable work are acceptable only if based on:

  • Seniority systems;
  • Merit systems;
  • Per-unit or sales compensation schemes;
  • Job’s geographic location;
  • Education, training, and experience; or
  • Amount of required travel.

MEPA defines “comparable work” as labor that requires “substantially similar skill, effort, and responsibility” and is performed under “similar working conditions.” The state law’s “substantially similar” language is broader than the wording used under federal law.

Most notably, when MEPA was amended, the state legislature didn’t include language that allowed for pay disparities among employees working in comparable positions because of market demands or other legitimate, nondiscriminatory reasons. Accordingly, if employees perform “comparable work” as defined by the statute, any pay disparity among those of different genders that isn’t based on one of the six factors listed above is unlawful and could subject the employer to liability.

So, what does that mean for companies offering sign-on bonuses? You might be violating MEPA.

Possible Scenario

Picture this: Carter has been working for you as a cashier for 10 years. The pandemic has made hiring cashiers difficult, and your business is short-staffed. As a result, you decide to offer a sign-on bonus in the amount of $500, payable on July 31, so long as the new hire remains employed as of that date, to any new cashier hired in June.

Additionally, the new hires will start at the same pay per hour as Carter, your most senior cashier. You don’t offer the bonus to existing cashiers who remain employed on July 31.

Because the job market is difficult, you hire Eloise, who has no experience, as a cashier in June. She works at the same location as Carter and performs the same job functions. When she is still employed on July 31, she receives the $500 bonus.

In the example, Eloise is enticed to apply for the cashier position and remain employed with a $500 sign-on bonus that the employer uses because of the job market and its current demands. Because the bonus paid to her creates a pay difference, however, and isn’t based on one of the six acceptable factors outlined in MEPA, it creates an unlawful pay disparity between those of different genders.

If Carter were to file a lawsuit and succeed, he could recover his unpaid wages, an amount equal to unpaid wages as liquidated damages (double damages), and attorneys’ fees and costs. The employer could have avoided the disparity by offering the same $500 bonus to current employees who remained employed as of July 31.

Don’t Forget About Self-Audits

MEPA does provide a silver lining for employers: Those who conduct a good-faith self-evaluation of their pay practices within the three-year period before an equal pay lawsuit is filed and demonstrate reasonable progress toward eliminating any wage differentials are entitled to an affirmative defense under the law.

In other words, employers adequately auditing their pay practices within the three years before a lawsuit is filed can avoid liability under MEPA, but only if (1) the self-evaluation is “reasonable in detail and scope in light of the size of the employer” and (2) the company makes “reasonable progress” toward eliminating any disparities that are discovered.

MEPA guidance issued by the attorney general’s office explains “reasonable progress” means the employer has taken steps to eliminate the disparities in a reasonable amount of time, taking into account its size and resources. That is, conducting an audit alone isn’t enough. You must make a start to rectify the disparity.

Many employers conducted the audits in 2018, just before or soon after MEPA went into effect. Although it probably seems like that was only yesterday, July 1, 2022, will mark the fourth anniversary of the law’s implementation.

Companies that conducted self-evaluations in or before 2019 to avail themselves of the affirmative defense need to perform another self-evaluation and take steps to correct any disparities, and soon, or they’ll lose (or have already lost) the ability to rely on the audit as a defense. If you need to conduct another audit, you should contact your employment counsel to discuss.

Amelia J. Holstrom is a partner with Skoler, Abbott & Presser P.C. in Springfield, Massachusetts. Amelia’s practice focuses on litigation avoidance, employment litigation, and labor law and relations. You can contact her at aholstrom@skoler-abbott.com.

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