Mar 12

Mar 12 What Does Equal Pay For Equal Work Equal (As Of April 1, 2018)?

Note: After this blog was posted, the provincial government introduced Bill 47, which affected the “equal pay for equal work” amendments. Making Ontario Open for Business Act, 2018 states that these new provisions are struck and the language of Part XII of the Employment Standards Act, 2000 will revert to the prior language.

We will update you if and when the below changes are re-introduced.

The Employment Standards Act, 2000 (“ESA”) currently prohibits an employer from paying a lower rate to an employee on the basis of the employee’s sex. As of April 1, 2018, employers may no longer pay less to employees because of sex or “differences in employment status.”

These prohibitions fall under the “equal pay for equal work” section of the ESA, but the section heading is a misnomer. For years, employment lawyers have had to explain that this is really the “equal pay for substantially the same work” section. The obligations in this section have caused confusion in the past, and given that these protections soon will expand to many more employees, employers must pause and review their overall compensation regime.

A summary of the new requirements and their practical impact is set out below.

Is “substantially the same work” the same as “equal work”?

In short, no. Despite the title of this section, the ESA protects employees who perform “substantially the same”[i] work as one or more of their colleagues.[ii] As of April 1, 2018, the ESA will include a definition of “substantially the same”, which is “substantially the same but not necessarily identical.” Leaving aside the problem with defining a term by using the same term, it is clear that “substantially the same” does not mean “equal.”

Placed in context, employers cannot distinguish between employees on the basis of a small difference in their duties in order to avoid the equal pay obligation. If the work of two employees is essentially the same but for some small or meaningless differences, they should be receiving equal pay when:

(a) they perform substantially the same kind of work in the same establishment;

(b) their performance requires substantially the same skill, effort and responsibility; and

What does “difference in employment status” mean?

The ESA will soon include a definition of a “difference in employment status”, which is as follows:

“difference in employment status”, in respect of one or more employees, means,

(a) a difference in the number of hours regularly worked by the employees; or

(b) a difference in the term of their employment, including a difference in permanent, temporary, seasonal or casual status;

What do these provisions mean for employers?

In short, part-time, contract and temporary help agency employees will be entitled to “equal pay” if they are performing substantially the same work as permanent or full-time employees.

If you employ workers in any of these capacities (or engage them through a third party), you will need to assess, justify and address any pay disparity between them and their full-time or permanent counterparts. The ESA will also state that an employer cannot address any discrepancy by reducing another employee’s pay.

Are there any exceptions to the “equal pay” obligation?

There are several exceptions to the “equal pay for substantially similar work” obligation. Specifically, employers are not required to provide equal pay where there is/are:

a collective agreement that “permits differences in pay between employees of a client and an assignment employee” (but only until the earlier of the date the collective agreement expires and January 1, 2020)
a seniority or merit system
systems that measure earnings by quantity or quality of production
other factors (other than sex and employment status)

While the Ministry of Labour has not yet provided any guidance regarding these exceptions, we know that the exceptions must be real and not illusory. Although these requirements prospective, but MOL inspectors have the power to review past records and, in the case of equal pay, question historical decisions to offer or deny higher starting salaries, merit increases and salary band bumps.

What should employers do to prepare for these changes?

Tied to these new obligations are new employee rights to request information and reasons about their pay rates. In particular, employees may request that the employer or temporary help agency review their pay if they believe that they are not being fairly compensated. In response, employers are required to make pay adjustments or provide “written explanation[s]… setting out the reasons for the disagreement.”

It is unclear how much detail, if any, will suffice in the written explanation, but this change will undoubtedly result in tricky requests to HR and a flood of complaints to the Ministry.

Employers should prepare for these changes by:

Identifying any part-time, casual or seasonal employees who are receiving different (read: lower) pay than other full-time and permanent employees
Collaborating with any temporary help providers to identify any assigned workers who receive less than full-time and permanent employees
Assessing the differences in pay and the reasons for same
Considering whether any exceptions apply that justify the differences in pay
Preparing an internal protocol for receiving and responding to requests for pay rate information – i.e. who will receive the requests? how much detail will be provided to employees? will you advise all affected employees of the request for pay details?
Ensuring the written response balances the need for disclosure with confidentiality regarding compensation
Contemplating responses to requests about alternative compensation regimes, such as bonus amounts, commission rates, car allowances, etc.
Establishing a budget for any pay adjustments required to address these inequalities

The above steps are familiar to those employers who must comply with the Employment Equity Act or Pay Equity Act, and any affected employer will tell you that these steps are onerous. For employers who have never undertaken an “equal pay” assessment”, the associated financial impact may be even more costly than the other Bill 148 changes that came into effect in January.

Before these new requirements come into effect, we recommend that you seek legal and business advice to identify and prepare for any pay equalization obligations.

[i] Emphasis added

[ii] Contrast this with the “equal pay for equal value” concept under the Pay Equity Act.