Warning: ‘Retention raises’ can land employers in hot water

Employers everywhere do it all the time: An employee threatens to leave, so the company offers him or her more money in the form of “retention raises” to stay.

But beware: One of your peers was recently dragged into court over this pay practice, after getting hit with claims it violated the Equal Pay Act. And the court feels the claim has legs.

Could this well-intentioned pay practice backfire on your company with costly consequences?

Check out the specifics of this case and how you can ensure no management moves are being made that could land you in legal hot water.

Retention raises a common business practice

So where did this go wrong for this employer?

Another employee in the same department accidentally got access to salary history data. She noticed her salary sat between $14,000 and $42,000 less annually than four of her male colleagues. (They had comparable rank and tenure.)

The reason for that discrepancy? Those male employees had been offered retention bonuses.

The female employee went to her supervisor requesting a raise to even out the pay scale. But she was denied.

An internal review uncovered that of the 20 salary renegotiations over a 10-year period, only four involved women and only one of those resulted in a pay increase for female employees.

The employee sued her employer. She asserted their retention bonus practices violated her state’s Equal Pay Act.

The company won the first round in a lower court. A short-lived victory — an appeals court said the employee had enough of a case that it should go to trial.

Now the company will either have to defend itself in court or settle with her, both of which are expensive.

Periodic pay reviews can catch exposures

As this case shows, even a completely benign and common business practice can open up compliance exposures.

This employer acted with the best of intentions: It simply wanted to hang on to valued employees. But those moves had ripple effects. And those created a very expensive headache.

Periodic pay reviews could have identified this liability before another employee did. Yes, it can be a time-consuming exercise. And it can involve multiple types of data analysis.

But it’s well-worth it if you catch something before it turns into a costly legal claim.

Cite: Freyd v. University of Oregon, 9th Cir., No. 19-35428, 3/15/21.