The Final Countdown: Canada’s Revised Pay Equity Act Effective August 31, 2021

Seyfarth Synopsis: On July 7, 2021, Canada’s Minister of Labour announced an August 31, 2021, effective date for Canada’s Pay Equity Act.  The Act and its implementing regulations contain detailed and strict requirements for employer pay equity plans, so employers should begin thinking about the process for developing their pay equity plans.

On July 7, 2021, Canada’s Minister of Labour, Filomena Tassi, announced that the country’s Pay Equity Act will be effective August 31, 2021 and phased in over a three year period. As part of that announcement, the Government published final Pay Equity Regulations.  The forthcoming implementation of the Act is seen as furthering the Government’s goal of economic recovery after the pandemic, which has had a disproportionate negative effect on women in the workplace.

The Act requires that men and women in federally regulated workplaces (e.g. federal public sector, private sector, parliamentary workplaces, and the Prime Minister’s and ministers’ offices), receive equal pay for work of equal value. At this time, the Act and Regulations will not apply to Indigenous governing bodies as employers.  The first Pay Equity Commissioner, Karen Jensen, will administer and enforce the Act and its Regulations.

The Act applies to employers with ten or more employees and requires those employers to:

• Establish a pay equity plan that examines any differences in compensation between positions of equal value that are mostly held by women and those mostly held by men;
• Eliminate differences in compensation identified in the plan; and
• Revise and update their pay equity plan at least every five years to ensure that no gaps have been reintroduced and to close gaps if they exist.

Establishing a Pay Equity Committee

Whether an employer is required to develop a pay equity committee to implement the pay equity plan depends on the size of the employer.  The Act also sets forth specific requirements for the composition of the pay equity committee, which must include employer and employee representatives, so employers should carefully review the requirements when determining who it will include on its pay equity committee.  If the employer cannot satisfy the requirements, it must apply to the Pay Equity Commissioner for authorization to establish a committee with an alternative composition.

Required to “Make All Reasonable Efforts to Establish” Pay Equity Committee	Pay Equity Committee Voluntary
Employers with 100 or more employees	Employer with 10 to 99 employees if all of its employees were non-unionized employees on the date on which the employer became subject to the Act
Employers with 10 to 99 employees if some or all of its employees were unionized employees on the date on which the employer became subject to the Act

 Role of Pay Equity Committee and Purpose of Pay Equity Plan

The employer’s pay equity committee is responsible for developing and implementing the employer’s pay equity plan.  Smaller employers without unionized employees may implement their pay equity plan without having to establish a pay equity committee.

The goal of the pay equity plan is to identify pay gaps between male and female employees and then determine necessary modifications to close said pay gaps.  Employers must post their pay equity plans and take active steps to maintain and update the plan as needed.

Timing Requirements

Employers with ten or more employees will have three years to develop and implement a pay equity plan.

If an employer begins employing an average of ten or more employees at any time after the Act becomes effective, those employers will be subject to the Act January 1 in the following year.  Those employers will then be required to develop a pay equity plan within three years of that day.

Developing a Plan

Employers must follow a number of steps to develop their pay equity plan:

1. Identify Job Classes. Identify the existing job classes.

2. Determine Gender Prominence. Employer or pay equity committee determines the gender predominance of each job class.

A job class is to be considered predominant in one gender if (a) at least 60% of the positions in the job class are occupied by one gender; (b) historically, at least 60% of the positions in the job class were occupied by one gender; or (c) the job class is one that is commonly associated with women or men due to gender-based occupational stereotyping

3. Calculate Employee Compensation. Employer or pay equity committee determine the value of work and calculate the compensation associated with each gender predominant job class by considering the skill, effort and responsibility required to perform the work and the conditions under which the work is performed.

The employer or committee must include any form of remuneration payable for work performed by the employee (e.g. salaries, commissions, vacation pay, severance pay, bonuses, benefits and employer contributions to pension funds).

4. Identify Necessary Compensation Increases. The employer or pay equity committee compares the compensation associated with female-predominant and male-predominant job classes of similar value in order to determine which female-predominant job classes require compensation increases. The Act provides two calculation methods employers or pay equity committees must use to compare employee comparison, referred to as the “Equal Line Method” or the “Equal Average Method.”

5. Set Date Compensation Increases Become Payable. The employer or pay equity committee must identify the date by which it will pay compensation increases. The increases are required to be paid the day after posting the final pay equity plan unless the total amount of compensation increases exceed 1% of the employer’s annual payroll, in which case the increases can occur in phases over a number of years.

Posting Requirements

Employers or pay equity committees must post a number of documents under the Act, including: draft and final versions of pay equity plans, certain documents issued by the Pay Equity Commissioner such as notices and orders, and the results of the Canadian Human Rights Tribunal’s inquiries into questions of law or jurisdiction.

Employees are permitted to submit comments on the draft plan.

The Regulations provide details to guide employees in creating their pay equity plans, so employers should refer to the regulations when developing and maintaining their pay equity plans to ensure the pay equity plan comport with the Act’s requirements.

In light of the complexity of these new rules, employers should work with legal counsel to ensure they are properly complying with the Act and its Regulations when developing their pay equity plans.

Penalties

Failure to comply with the Act could result in substantial fines and penalties.  Employers who do not comply with the Act could face the following:

• $30,000 fines for employers with up to 99 employees.
• $50,000 fines for larger workforces.
• Compliance audits and orders.
• Possible complaints being filed with the Pay Equity Commissioner (which may get referred to the Canadian Human Rights Tribunal).

As always, Seyfarth’s Global Pay Equity Group’s attorneys are available to assist employers in navigating these new requirements and ensuring that they are ready for the ongoing trend toward greater pay transparency generally.