Under the federal Equal Pay Act, once a plaintiff has made a prima facie case of pay discrimination based on gender, the burden of proof shifts to the employer to demonstrate legitimate business reasons for the disparity. Earlier this month in a 2-1 decision, the Fourth Circuit Court of Appeals (which includes North Carolina and South Carolina) concluded that an employer must show the actual rather than possible business reasons for the disparity in order to avoid a jury trial.

In EEOC v. Maryland Ins. Admin., the EEOC sued a Maryland state agency based on disparate pay claims made by several female fraud investigators. The defendant sought summary judgment on the basis that the pay differences between the plaintiffs and noted male comparators were based on hiring step levels that take into account prior experience, relevant licensing, and special skills. The district court agreed, granting the motion for summary judgment.

On appeal, the Fourth Circuit disagreed, remanding the case for jury trial. In its decision, the panel majority said that in order to receive summary judgment under the EPA, employers must demonstrate the actual reasons for the pay disparities, not possible or plausible causes. In this case, the fraud investigators appeared to perform substantially identical work. While the hiring step system was a plausible reason for the pay differences, its application involved discretion by the hiring manager and therefore did not provide a conclusive explanation for the pay differences. While the employer may ultimately prevail, a jury – not a judge – must make this determination.

The dissenting judge based his opinion largely on a states’ rights argument, questioning the ability of a federal agency to set hiring requirements for state jobs. For employers, the ruling means that EPA claims in the Fourth Circuit are more likely to result in an unpredictable jury trial instead of an early judicial determination. This case demonstrates the need for employers to carefully review their pay practices, correct unexplainable disparities, and thoroughly document legitimate business reasons for pay differences among employees in the same general job classifications.