Top five legal issues related to federal pay equity

We are now less than one year from the deadline for federally regulated employers to post a pay equity plan under the Federal Pay Equity Act, SC 2018, c 27, s 416 (the “Act”).¹ While we expect most employers to be well down the path towards compliance, many are still struggling to navigate through the nuances of the Act for the first time.²

To comply with the requirements of the Act, which came into force on August 31, 2021, employers are tasked with the often-overwhelming task of organizing their job documentation, developing job classes, defining gender predominance, evaluating job classes, and comparing all aspects of compensation to determine whether there is any inequity in their pay practices. This also involves developing a pay equity committee, coordinating with bargaining agents, and in most cases, combining components of the business that typically would not be compared to create a single pay equity plan.

Given the large task ahead, and the continued uncertainty regarding the application of the Act, this article intends to shed light on five common legal issues identified by KPMG Law’s Pay Equity Team.

While the standard under the Act is for an employer to develop a single pay equity plan in respect of its employees, the Act creates a process whereby an employer can apply to the Pay Equity Commissioner (the “Commissioner”) for approval to establish multiple pay equity plans. An application for multiple pay equity plans may arise in situations where an employer wishes to establish separate plans for different divisions of employees.

To date, there have only been four reported decisions from the Commissioner on whether to approve an application for multiple plans.³ In these decisions, the Commissioner has confirmed that the onus is on the employer to provide sufficient arguments and evidence to meet a two-part test:

1. The employer must first pass a threshold question of whether it is possible to identify enough predominantly male job classes for a comparison of compensation to be made in relation to predominantly female job class.
2. The employer must demonstrate that (i) the workplace parties whom the Commissioner considers would be affected by the application have been given the opportunity to make representations; (ii) the application has not been denied on the threshold question of whether there are enough male comparators; and (iii) the Commissioner is of the opinion that it is appropriate in the circumstances.

Based on the above test, the application for multiple plans was denied in three of the four decisions.⁴ In each of these decisions, the employer was able to satisfy the first part of the test (i.e. the threshold question), however, it was the second part of the test which proved to be determinative.

The Commissioner has set out several guiding principles for analyzing what will be considered appropriate in the circumstances for the second part of the test:

• There are no fixed categories in which multiple plans will be appropriate and each application turns on its merits
• The impact multiple plans will have on reinforcing occupational gender segregation is an important consideration
• It is crucial to assess whether the proposed multiple plans will proactively redress systemic pay-based gender discrimination in the workplace⁵
  

Where an application for multiple plans was partially granted in the CN Decision, the Commissioner relied on factors, such as, the distinct mandate of the division, the independent management of the division, and the separate human resources support system.⁶

It is important to note that the Commissioner has rejected the following arguments made by employers under the second part of the test:

• It will be challenging to create a single pay equity plan given the number of employees⁷
• A single plan is likely to increase the time required to implement proactive pay equity
• There are concerns regarding the confidential nature of management and executive compensation
• The approach to compensation for different levels of employees varies (i.e. salary, hourly, collective agreements, management and executive incentive plans, etc.)
• There is a divergence of communities of interest for the employee groups
• A single pay equity plan will lead to decreased acceptance of results
• The employees should be separated along the existing labour relations lines
• There are separate collective bargaining timelines for different unions
• There is support of the affected parties for multiple plans
• There are concerns that multiple unions may not reach a consensus on issues
• The are efficiencies achieved by placing different groups in different plans
  

In summary, these early decisions suggest that a single pay equity plan will be strongly favoured and that exceptions under the Act will not be granted easily. The default process in applications for multiple plans is for the Commissioner to decide the application based on the written record. As a result, the Commissioner has stressed the importance for employers to provide actual evidence that multiple plans will (i) contribute to achieving the purpose of the Act; and (ii) serve to proactively redress systemic pay-based gender discrimination in its workplace.

Given the confidential nature of management and executive compensation, employers have asked whether there is a mechanism under the Act to exclude certain positions when calculating total compensation in the pay equity plan. The short answer is, “no”.

The Act broadly defines “employee” in section 3(1)(c) as, “a person employed by an employer referred to in paragraph (2)(e) on or in connection with the operation of any federal work, undertaking or business, as defined in section 2 of the Canada Labour Code …”.

The Pay Equity Act Legislative Guide (PEA Guide) provides further guidance on the employees to be included and excluded in the application of the Act.⁸ The PEA Guide clarifies that an “employee” includes:

• Non-management and management employees, which generally include executives and chief executive officers
• Unionized and non-unionized employees
• Full-time and part-time employees
• Permanent, casual and temporary employees
• Dependent contractors [Act s. 3]
• Employees performing federally regulated activities as part of a separate unit for a provincial employer
• Employees on long-term leave (for example, sick leave or maternity leave).
  

For private sector employers, the Act only excludes the following persons from the definition of “employee”:

• Independent contractors
• Persons employed under a program designated by the employer as a student employment program
• Students employed by the employer solely during the student’s vacation periods

Section 19(1)(d) of the Act requires the bargaining agent to select at least one person to be a member on the Pay Equity Committee to represent the employees who are members of the bargaining agent. However, there may be instances where a bargaining agent does not wish to have its members participate on the Pay Equity Committee. This might be for several reasons, including, having no predominantly female job classes in their bargaining unit.

The legislation does not directly contemplate this scenario. However, the Act does contain a mechanism under section 19(3), whereby an employer can apply to the Commissioner for authorization to establish a committee with different requirements those set out in the Act. The Canadian Human Rights Commission (CHRC) has also provided some guidance on these authorization applications in the form of an IPG.⁹

In assessing the evidence provided in each application, the Commissioner will determine whether the request is appropriate under the circumstances and whether the employer has made “all reasonable efforts” to comply with the Act. In determining whether an employer has made all reasonable efforts, the Commissioner may consider, among other factors, the degree of the effort (e.g. the length of time of the effort, how many times the effort has been made and the resources dedicated to the effort) and the type of effort (i.e. the action itself).

In assessing the evidence from each application, the Commissioner may also consider:

• Comparable standards and practices within the particular industry (if available)
• The actions that an employer could have reasonably taken but did not
• Whether corrective measures have been taken to address the inability of the employer to establish a pay equity committee

When this situation arises, we recommend having the bargaining agent confirm, in writing, their decision to not participate on the Pay Equity Committee. This can take the form of a signed acknowledgement confirming that the employees represented by the bargaining agent have been notified of their responsibility to comply with the Act, the employees are aware of the bargaining agent’s position regarding non-participation, the employer has taken genuine and meaningful steps to engage and inform the bargaining agent, and the bargaining agent is satisfied that the purpose of the Act can be achieved without a representative of the bargaining agent on the Pay Equity Committee.

The Pay Equity Committee is composed of members who are (i) selected by the employer to represent it; (ii) selected by and represent the bargaining agent, if applicable; and (iii) selected by and represent non-unionized employees. In this role, the committee member will be given access to information that is not in the public domain and that is of a personal and/or confidential nature. This includes personal information about employees as defined by the Personal Information Protection and Electronic Documents Act, SC 2000, c 5 (“PIPEDA”), as well as information designated as confidential by those who have provided that information, including, but not limited to rates of pay, salary ranges, commissions, bonuses, payments in kind, gender identities, direct and indirect advantages received by the employer, and other information necessary to develop the pay equity plan in accordance with Act.

The Act addresses confidentiality in section 24(1) which provides that, “[e]ach person who is or was a member of a pay equity committee to which information is provided in accordance with section 23 must keep confidential — except for the purpose for which it is provided — any of the information that is specified by the employer, employee or bargaining agent, as the case may be, as being confidential”. Moreover, breaches of section 24 of the Act can result in complaints brought against the committee member under sections 149, 150, and 151 of the Act.

Notwithstanding the protections in the Act, we recommend having each committee member sign off on (i) terms of reference; and (ii) a confidentiality agreement. Although not required under the Act, the terms of reference can serve as a helpful guide for committee members on objectives, expectations, attendance, and code of conduct. Similarly, a confidentiality agreement can help to ensure that all committee members are aware of their legal obligations with respect to confidentiality, including the collection, use, and disclosure of confidential and personal information.

When voting on a Pay Equity Committee, only two votes are cast: (i) one representing all employer committee members; and (ii) one representing all employee pay equity committee members, including members who represent different bargaining agents and non-unionized employees. To cast a single representative vote, all the members who represent the employees must agree on their position. If they are unable to come to a unanimous decision, then the employer’s vote determines the outcome. This “built-in” mechanism should reduce the number of disputes, but it is still possible for the employer and employee representatives to be deadlocked on an issue.

In the event that representatives cannot resolve an issue related to a step in the pay equity exercise internally within the committee, the Act provides recourse to the Commissioner who must assist with resolving matters in dispute.¹ While the Act refers to the Commissioner facilitating dispute resolution, it does not mandate a specific form of action such as mediation. However, the CHRC’s PEA Guide provides the following additional guidance: "Upon receipt and acceptance of a notice of matter in dispute, a notice of objection or a complaint, the Commissioner will first try to help the parties settle the matters that are appropriate for settlement, including by providing information to the parties and proposing the use of a dispute resolution method such as mediation.”¹¹

To be proactive with respect to potential disputes, we recommend that employers implement terms of reference for committee members, as outlined above, as well as provide third-party training to committee members on their duties, responsibilities, and the objective of the Act.

KPMG Law’s Pay Equity Team has the capabilities to help organizations understand their legal and compliance obligations as it relates to pay equity legislation across Canada. We can guide organizations through the multi-step pay equity process and support their business in developing a pay equity program that aligns with their corporate objectives. Deliverables include policies, legal advice, licensed tools, job evaluation and compensation, training, and coaching.