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Massachusetts: Are Your Sign-On Bonuses Creating Unintended Liability?

By Amelia J. Holstrom - Skoler, Abbott & Presser, P.C.

May 17, 2022

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? Yes, if you aren’t careful.

Massachusetts Equal Pay Act Provides Little Flexibility

The Massachusetts Equal Pay Act (MEPA) was amended and went into effect on July 1, 2018. Under MEPA, which was aimed at strengthening pay equity for women in the Commonwealth, pay differences between persons of different genders performing comparable work are only acceptable if based upon: (1) a seniority system; (2) a merit system; (3) a per unit or sales compensation scheme; (4) geographic location of the job; (5) education, training and experience, or; (6) the amount of travel required. The law defines “comparable work” as work that requires “substantially similar skill, effort and responsibility” and is performed under “similar working conditions.” This “substantially similar” language is broader than the “equal pay” language used under federal law. We wrote about how two seemingly different types of jobs could be considered comparable work under MEPA in a blog post here.

Most notably, when MEPA was amended, the state legislature did not include language that allowed for pay disparities among employees working in comparable positions due to market demands or other legitimate, non-discriminatory reasons. Accordingly, if employees perform “comparable work” as defined by the statute, any pay disparity among employees of different genders that is not based on one of the six factors listed above is unlawful and could subject the employer to liability. So, what does this mean for those offering sign-on bonuses? You might be violating MEPA.

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 Eloise is still employed on July 31, she is paid the $500 bonus.

In this example, Eloise is enticed to apply for the cashier position and remain employed with a $500 sign-on bonus that is utilized by the employer due to the job market and its current demands. However, because the bonus paid to Eloise creates a pay difference and it is not 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, and attorney’s fees and costs. The employer could have avoided this 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. Employers 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 towards eliminating any wage differentials are entitled to an affirmative defense under the law.

This means that employers who adequately audit their pay practices within the three years before a lawsuit is filed can avoid liability under the new law, but only if the employer’s self-evaluation is “reasonable in detail and scope in light of the size of the employer” and the employer makes “reasonable progress” towards eliminating any disparities that are discovered.

The guidance issued by the Attorney General’s Office regarding MEPA explains that “reasonable progress” means that the employer takes steps to eliminate the disparities in a reasonable amount of time, taking into account the size and resources of the employer. In other words, conducting an audit alone is not enough. An employer must take steps to rectify the disparity.

Many employers conducted these audits in 2018, just before or soon after the law went into effect. Although it probably seems like that was only yesterday, July 1, 2022, will mark the fourth anniversary of MEPA’s implementation. Employers who conducted self-evaluations in or before 2019 to avail themselves of the affirmative defense need to conduct another self-evaluation and take steps to correct any disparities, and soon, or they will lose (or have already lost) the ability to rely on that audit as an affirmative defense soon.
Benefits of Legal Counsel

The Attorney General’s guidance on MEPA includes a step-by-step guide for the self-evaluation process, but it also recommends that employers consult with legal counsel in connection with the pay equity audit to ensure that they are using the most appropriate analysis for their organization. We agree.

In addition to assisting with the form of the analysis, your employment attorney can provide a legal opinion as to whether particular jobs are comparable under MEPA and whether justifications for pay disparities meet the requirements of the new law.

Moreover, having an attorney involved in the self-evaluation means the evaluation will be protected by the attorney-client privilege, in which case an employer would only have to reveal the results of the self-evaluation if it wanted to. Without this protection, an employer risks having its self-evaluation used as evidence against it if an employee files a claim. 

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