Q1: What makes a seniority system “formal”?

A1: A formal seniority system is normally documented. For example, it may be described in an employee’s manual or guide, or where there is a union, in a collective agreement. There must be evidence that the system has been in existence and consistently applied in the organization. The employer must be able to demonstrate that the system defines and recognizes length of service to the organization and is known to the affected employees.

Temporary Employee Training or Development Assignment

Employers may pay employees in a temporary training assignment a “training” wage that may be either higher or lower than the regular job rate paid to an incumbent of a job class. For example, management trainees, who are rotated through a number of non-managerial jobs as part of their training, may be paid at the rate of their management job class which is a higher than the rate paid to their co-workers who fill the non-managerial jobs on a permanent basis. On the other hand, sometimes trainees continue to receive the wage of their “home” position throughout the training period, even though they may be performing work of higher value.

If a temporary training assignment meets the following conditions, the portion of the incumbent’s wage in training that is greater or lower than the regular job rate would not be used for comparison purposes. To qualify as a permissible difference, a temporary training or development assignment:

• is equally available to female and male employees;
• leads to career advancement for employees in the program;
• is temporary for each employee involved, either of a fixed duration, or until a specific goal is achieved; and
• identifies the normal job rate for the job class.

Merit System

A merit system may be the basis for a permissible difference in the rates paid to incumbents in equal or comparable job classes if an employer is able to show that the difference is based on a performance rating system that:

• has systematic ratings of how well employees are performing (these ratings must be applied consistently to employees, at regular and defined intervals and must be related to pay levels or increases);
• was brought to the attention of employees in some formal and consistent way;
• does not discriminate on the basis of gender; and
• identifies the normal job rate for the job class.

An employer may have a merit system where a “reference rate” is identified for a job class. This reference rate is paid to an employee who performs his/her work in a fully competent manner, and it may be used as the job rate. Pay equity is achieved when the reference rate for the female job class is at least equal to that of the male job class of equal or comparable value. Employees who exhibit exceptional performance would be paid above the reference rate.

An employer’s merit system must be gender neutral. Similar to the selection of sub-factors for a gender neutral job comparison tool or mechanism, the performance criteria used in the merit system and its application should not result in gender bias. The Tribunal stated in Law Society of Upper Canada v. Unknown Respondents, 1999 CanLII 14823 (ON PEHT):

“The Tribunal will carefully scrutinize merit compensation systems to ensure that they are consistently applied and that gender bias, which may not be apparent on the face of the system, does not creep into its application.”

Red Circling

“Red circling” pay practices are referred to in [8. (1) (d)] and enables an employer to pay an employee higher than the maximum rate or salary range for their assigned job as a special provision and is allowable under the Act. The Act does not prevent the red circling of any job classes; however, its only application under the Act is to allow employers to use this red circling as a “permissible difference” for pay equity purposes. For an employer to claim that the difference in wages between a female and male job class of comparable value is due to red circling, a number of criteria must be met:

• The value of the red circled position was downgraded;
• This downgrading of the position was based on a gender neutral re-evaluation;
• The compensation of the incumbent is frozen; and
• The incumbent’s compensation is frozen until the new, lower compensation rate catches up to the red circled rate.

For example, if duties and responsibilities of a job class are reduced significantly, the position may be re-evaluated and, as a result, be assigned less overall value. In this case, an incumbent may keep the current compensation tied to the former value of the position but have future increases frozen or curtailed until the lower pay rate attached to the new lower valued position catches up. An employee’s compensation cannot be reduced to achieve pay equity [9. (1)] CUPE, Local 1623 v. Greater Sudbury Regional Hospital, 2005 CanLII 60099 (ON PEHT).

Q&As Red Circling

Q1: Can the red-circling of a job exclude it from a pay equity process?

A1: No. The newly established pay rate for the red circled job will be used in pay equity comparisons.

Q2: Can an employer red circle a female job class?

A2: Yes, the Act does not prohibit the practice of red circling. If a female job class receives a lower rating as a result of a gender neutral job re-evaluation, nothing prevents an employer from red circling that female job class.

Q3: Can red-circling be used to compensate for pay increases for female job classes?

A3: No. Red circling should be used where it is appropriate; it cannot be used to avoid the spirit and intent of the Act.

Skills Shortage

The Act permits wage differences between employees in equal or comparable female and male job classes as a result of a skills shortage only if the employer can demonstrate:

• a skills shortage is causing a temporary inflation in compensation;
• difficulties in recruiting employees with the requisite skills for positions in the job class; and
• the job rate for the job class is identifiable.

An employer should consider how broadly the positions were advertised, the length of time the search has gone on and whether internal candidates have been trained and are now available. Employers can refer to outside data, such as labour market indicators, to help demonstrate a skills shortage, but would also need to show difficulty in recruiting (Anonymous Group of Employees v. Melitta Canada Inc., 1995 CanLII 7204 (ON PEHT))

To claim that wage differences are due to a skills shortage, employers are required to demonstrate that the shortage is temporary in nature. For example, there may be insufficient graduates in an occupation or specialty at a given time, but there is evidence that more qualified people will be graduating or moving into the relevant market at an identifiable future date. This permissible difference, however, should not be used to justify all market stresses. Job rates reflecting long standing inflation due to past skills shortages may qualify for exemption. (Welland County General Hospital (No.2) (1994), 5 P.E.R. 12 – No link available)