Proposed Rules for the Illinois Equal Pay Act Create More Obligations and Confusion for Employers

As discussed in our previous alert, the Illinois legislature amended the State's Equal Pay Act to require businesses with more than 100 employees to obtain an Equal Pay Registration Certificate (“Registration Certificate”) from the Illinois Department of Labor by March 24, 2024. Obtaining a Registration Certificate requires businesses to submit a compliance certification, EE0-1 report, and employee compensation data. Among other items in the compliance certification, an authorized representative of the business must attest that the average compensation for female and minority employees is not consistently below the average compensation for male and non-minority employees.

The amendments left several important questions unanswered, however, including how the Department would determine whether a business had 100 employees, which employees a business must cover in its compensation data, and how businesses should assess “average compensation” for the purpose of the certification.

The Department recently published proposed rules in an attempt to answer some of these questions. The most notable proposals, which only deepen many of these questions, appear below:

• Expanding the scope of employers required to obtain a Registration Certificate. One of the key areas of ambiguity surrounds the counting of employees outside Illinois. The proposed rules reflect the Department's perspective that a business must count an out-of-state employee and include the employee in the compensation data if: (a) the out-of-state employee provides services for a business with a "base of operations" within Illinois; or (b) the out-of-state employee is "directed" or "controlled" by a business located within Illinois. The terms "base of operations," "directed," and "controlled" remain undefined in the proposed rules. A review of the Department’s own Frequently Asked Questions (“FAQs”) suggests that “base of operations” means a location within Illinois where the employee is formally assigned. In other words, if the employee is formally assigned to an Illinois location in the workforce records, then the employee is likely covered.

Even a remote employee who is not directed by, controlled by, or assigned to a location in Illinois might still be covered if they physically reside in Illinois. Given the ambiguity in the rules, the business will want to seek counsel as to whether to include an employee that fits this profile.

The terms “directed” or “controlled” are even more murky in the proposed rules and not addressed in the FAQs at all. With these terms still unclear—and probably undefined for the foreseeable future—businesses should take note of any out-of-state employees who report (directly or indirectly) to a supervisor, work group, or management team located in Illinois. Businesses should likewise consider any out-of-state employees with responsibilities, tasks, duties, or projects related to an aspect of the business operating in Illinois because the Department could take the expansive view that these individuals are "directed" or "controlled" by a part of the business in Illinois. It is especially advisable to take a close look at these issues with the out-of-state employees if the business is on the verge of otherwise reaching 100 employees in Illinois.

• Requiring businesses to admit their Registration Certificate obligation in writing. The proposed rules also require covered businesses to submit an "enrollment form" acknowledging their responsibility to comply with the Registration Certificate obligations. Curiously, the Department proposed a deadline to submit the enrollment form that occurs in the past, requiring it by March 23, 2022 for any covered businesses licensed in Illinois as of March 23, 2021. Not only would this immediately put many businesses into noncompliance, but it would also require businesses to admit in writing that they are subject to the Certificate requirement. 
• Complicating the analysis of "average compensation." The Department proposes to define "average compensation" as "average wages for a specific occupation as defined by the U.S. Bureau of Labor Statistics State Occupational Employment and Wage Estimates." The syntax and phrasing of this definition is also ambiguous. What the Department might mean is that businesses will need to analyze their data by occupation and compare the average wages for each occupation—with reference to the U.S. Bureau of Labor Statistics for the types of occupations to consider. This approach by the Department is unlikely to go away. Regardless of whether the Department enacts the proposed rules in their present form or not, covered businesses should start auditing their compensation data by occupation to identify any areas requiring attention. Taking prompt action can be particularly helpful because the Department looks favorably at a business' proactive efforts to address compensation issues.

Given the issues presented by these proposed rules, businesses may want to consider submitting comments to the Department. The notice and comment period remains open until July 4, 2022, and interested parties may submit comments to Anna Koeppel at the Illinois Department of Labor, 524 S. 2nd St., Suite 400, Springfield, Illinois 62701 or Anna.Koeppel@illinois.gov. Employers interested in submitting a comment or who would like support applying for a Registration Certificate may contact their local Quarles & Brady attorney for assistance.

For more information on how these proposed rules may impact your business, please contact:

• William Walden: (312) 715-5111 / william.walden@quarles.com
• Kaitlin Phillips: (312) 715-5179 / kaitlin.phillips@quarles.com