According to an article published by three professors of law and economics, employers structure benefit plans to discriminate against protected groups. In an article titled “Passive Discrimination: When Does It Make Sense to Pay Too Little?,” Professors Jonah Gelbach, Jonathan Klick and Lesley Wexler develop a theory that certain employers offer benefits plans that discriminate – either intentionally or unintentionally – against African Americans, women and members of particular religious groups. They analyze the economic effects of such benefit schemes and then go on to offer legislative and policy solutions designed to counter this alleged “passive discrimination.”

The authors concede that many employers structure benefits plans for perfectly appropriate reasons – such as to attract applicants who share certain desirable traits. For example, if patience is a characteristic that an employer is seeking, it might offer lower-than-market salaries but significant deferred compensation packages. On the other hand, if an employer wishes to identify aggressive, risk-taking candidates, it might offer compensation packages based largely on commissions or profit-sharing arrangements.

What the authors point out, however, is that while many employers structure their benefits plans to further legitimate, business-based goals, other employers may develop benefits plan structured to achieve more nefarious purposes. For example, studies have shown that African Americans, in the aggregate, are more likely to value upfront compensation over deferred compensation. Therefore, according to the authors, employers wishing to discriminate, if they were aware of this generalized alleged characteristic of African Americans, could offer lower salaries and greater deferred compensation. In the same manner, employers could take advantage of gender differences to structure compensation packages less desirable to women. For example, studies show that women, as a group, are more risk-averse than men. Therefore, they may be less likely to pursue jobs that are solely commission based. This would seem to indicate that savvy employers wishing to discriminate against women would pay employees largely on commission.

A fundamental problem with proving claims of passive discrimination is that there are many perfectly appropriate reasons to offer employees deferred compensation or commission-based compensation plans. Employers who offer these packages equally to all applicants or employees will have a strong defense to claims that they have treated members of protected classes differently. In the absence of any direct evidence of discriminatory animus, plaintiffs will find it next to impossible to bring a disparate treatment claim. They will be forced instead to bring a disparate impact claim, using statistics to try to show disparities in the treatment of different groups. However, as the authors concede, statistical differences, without concrete examples of individuals being discriminated against, rarely are sufficient to support a disparate impact claim. Employers will usually be able to explain that a particular compensation structure is job related and consistent with business necessity. In addition, the U.S. Supreme Court, in City of Los Angeles Dep’t of Water & Power v. Manhart, 435 U.S. 702, 710 n.20 (1978), severely undercut the viability of benefits-based disparate impact cases, noting that even completely neutral practices may have disproportionate effects on particular groups and indicating that the Court had “never held that discrimination must always be inferred from such consequence.” Ultimately, so long as an employer offers a compensation plan to all applicants or employees, regardless, of their membership in a particular group, it will be quite difficult to establish a claim for “passive discrimination.”

How then should society address this alleged passive discrimination? The authors propose amending Title VII to make such claims easier to prove, although they concede that this may result in unintended consequences. Alternatively, they suggest educational programs to help employers understand the potential effects of their pay systems. Of course, any education program could have the perverse consequence of providing employers with information about how best to engage in the very discriminatory acts sought to be avoided. Finally, a third option discussed by the authors is to create employer incentives, through EEOC programs, tax law or other regulatory mechanisms.

While the specific theories discussed by the authors may take some time to gain traction, they fit within a larger framework in which compensation discrimination is receiving increased attention. Multiple amendments to Title VII and the Equal Pay Act have been proposed, each attempting to make it easier for women, in particular, to prove pay discrimination. For example, the Lilly Ledbetter Act, which would allow Title VII pay discrimination claims to accrue each time an employee receives a paycheck, even if the alleged discriminatory act occurred years before, nearly made it through Congress this year.  Now that the Democrats have won this year’s federal elections, bills such as these will likely continue to make their way through the legislative process, and some may become law.  While there have been no bills yet proposed regarding “passive discrimination,” there is every possibility that legislation could attempt to address this perceived ill as part of a larger effort to eradicate pay discrimination.