Employers should carefully review their compensation programs to ensure that legitimate, non-discriminatory reasons justify any material wage differentials between employees in the same job classifications, and wage rates that are below the current market rate. In Drum v. Leeson Electric Corp., 2009 WL 1350737 (8th Cir. May 15, 2009), the Court of Appeals ruled that a female human resources manager could proceed with her Equal Pay Act, Title VII and Missouri Human Rights Act claims for unequal pay because, in the court's view, the mere fact that the employer had to pay a higher, market rate to secure her replacement did not satisfy the employer's burden of proving that the plaintiff had been paid a below-market rate for reasons other than her gender.  

The plaintiff in Drum earned approximately $42,000 per year. When the employer promoted the plaintiff to another job, the employer increased her salary to approximately $46,000. At the same time, however, the employer replaced the plaintiff with a male employee, at a salary of nearly $63,000.  

In response to the plaintiff's claim of unequal pay, the employer argued that the male replacement was the best qualified candidate for the job and required an annual salary of $62,500, which was consistent with the market rate. The court, however, held that simply showing that the employer had to pay the man a higher, market rate did not adequately explain why the employer had paid the female plaintiff at a rate that was substantially below the market rate for the same job. The court also stated that the employer could not justify the female plaintiff's below-market salary by referring to her prior salaries, unless the employer could demonstrate that her prior salaries were based on a factor other than gender.

The Drum case is significant because it illustrates that: (1) employers should beware of paying employees in protected classes below market rates without a legitimate justification for doing so (e.g., the employer uniformly pays all employees below the market rate, the employee has fewer skills, etc.); (2) employers cannot defend equal pay claims based simply on the defense that they historically underpaid an employee unless they can demonstrate that the historical salaries were based on factors other than the employee's protected class; and (3) employers should establish ranges for their positions and have objective reasons (education, experience, etc.) for paying any employees outside of the established ranges.  

Finally, the recent passage of the Lily Ledbetter Fair Pay Act, which permits employees to file claims for prior compensation decisions each time the employee is adversely affected by the decision, means that compensation decisions made years in the past now can be the basis for new, timely claims. Therefore, employers should proactively evaluate their compensation systems to help avoid costly claims of unequal pay.