How do you measure equal pay? Is it the employee’s base salary? Or is it the employee’s total compensation?
A recent Fourth Circuit case, Sempowich v. Tactile Systems Technology, Inc., answered this question. In Sempowich, a female employee and her male peer were both paid a base salary and also earned commission income based on sales. The male employee was paid a higher base salary in 2015, 2016, and 2017 (even though he had less seniority and lower performance review scores). However, Ms. Sempowich’s total earnings in 2016 and 2017 were more than the male employee’s because she received more in sales commissions.
When she sued, the district court used her “total wages” as the metric for determining wage discrimination under the Equal Pay Act. Because Ms. Sempowich had earned more in total wages in those two years, the court dismissed her Equal Pay Act claim.
Ms. Sempowich appealed and argued that the proper measurement was the “rate” at which her employer paid her—the base salary.
The Fourth Circuit agreed—based on the text of the Equal Pay Act. The statute says an employer may not “discriminate … between employees on the basis of sex by paying wages to employees … at a rate less than the rate at which he pays wages to employees of the opposite sex.”
This statutory language says nothing about “total wages.” Instead, it focuses on the wage rate. Here, Ms. Sempowich’s base salary was lower than her male peer’s base salary. So, she was paid at a rate lower than her male peer. Because of that, the Fourth Circuit found that the district court erred in dismissing her claim.
To drive home this conclusion, the Fourth Circuit used a hypothetical to demonstrate why total pay cannot be the proper point of comparison. Assume a company pays a woman $10 per hour and a man $20 per hour. If total wages is the measure of pay, the company would not violate the Equal Pay Act if the woman earned more than the male employee—even though she would have to work twice as many hours to do so. A woman should not have to work twice as many hours to make the same money.
That makes sense. A company cannot say it pays its employees equally if one employee has to work twice as many hours to make the same money. Likewise, that a female employee earned more in commissions than her male peer should not mean that her employer did not discriminate against her by paying her a base salary lower than her male peer.
This seems to be a common-sense conclusion. Unfortunately, it was not to a district judge in North Carolina. Fortunately, the Fourth Circuit caught and fixed this error.
Pay issues can be tricky, but the rate of pay is the starting point for any pay discrimination analysis—not total pay. It is good to have clarity on that point.