The White House recently issued a new Executive Order (EO) titled “Restoring Equality of Opportunity and Meritocracy.” This EO directs federal agencies to stop using “disparate impact theory” when enforcing civil rights laws. It also mandates a review of existing investigations and regulations relying on this theory.
While federal enforcement of discrimination cases may shift, the need for fair, job-related pay practices will not. Employees can still sue and employers must still comply with the Equal Pay Act and state laws.
Here’s what Total Rewards and Compliance leaders need to know about the latest EO and how Syndio can help as you navigate changes.
How does “disparate impact” apply to pay policies?
Disparate impact isn’t some obscure legal idea; it’s one of the two main ways employees can prove discrimination under most federal civil rights laws. While the first path, disparate treatment, is about intentional bias (“I don’t want to hire her because she’s a woman”), disparate impact focuses on the effects of a policy. It says: if a company policy hurts some groups more than others and is not necessary for the job, it can be challenged in court.
One example of disparate impact would be requiring that job applicants be able to lift 100 pounds for office roles that are mostly desk-based and don’t require lifting. While the policy might appear objective — everyone has to lift the same amount — it doesn’t reflect the actual job requirements and may screen out certain groups more often.
Other relevant examples might include:
- Using AI resume screening tools trained on biased historical data
- Basing new hire salaries on prior pay, without assessing whether it reflects the candidate’s experience or the new role’s requirements, which may perpetuate past pay gaps and increase the risk of a legal challenge
- Paying a premium for a high school diploma in janitorial roles if the diploma is not truly necessary for the duties
Disparate impact is about making sure policies are truly job-related, necessary, and fair in execution and not just in theory.
What does the executive order change?
This new Executive Order means federal agencies like the EEOC and the Department of Justice will likely no longer bring forward cases based solely on disparate impact. The federal agencies will focus on intentional discrimination claims. Some ongoing federal cases (and potentially even settlements) based on disparate impact could also be challenged.
What remains the same?
Crucially, the Executive Order does not:
- Change the underlying civil rights laws. The concept of disparate impact is written into Title VII and only Congress can change that.
- Prevent private lawsuits. Employees can still bring disparate impact claims under federal and state laws.
- Affect the Equal Pay Act. The Equal Pay Act is different from many other civil rights laws because it doesn’t require proving intent.
- Impact state civil rights enforcement. Many states have their own anti-discrimination laws with strong disparate impact protections. Although the EO hints that the federal government may try to override these state laws, any attempt to do so would almost certainly face serious legal challenges.
The bottom line: Fair pay practices remain essential
While it’s true that companies should expect that the federal government will not bring any class action lawsuits challenging neutral policies with a disparate impact, employers should still remain on guard. Pay policies that create disparities can still pose risk if they aren’t clearly tied to the job.
Before the EO, the reality was that the government brought few of these cases forward. To put this in perspective: in 2023, the EEOC filed only 25 systemic lawsuits (only some of which were based on disparate impact), while receiving over 81,000 discrimination complaints.
As the EO does not amend Title VII, employees still have the right to bring private lawsuits alleging disparate impact discrimination. Employees can also still bring claims under the Equal Pay Act, can allege intentional pay discrimination under Title VII, and many state laws continue to provide broader protections than federal law. This means that, despite changes in federal enforcement priorities, the legal risks associated with such claims remain, particularly from private litigation and state-level enforcement.
Bottom line: The key for employers is to establish a clear pay structure, understand how employees are paid, and ensure pay is based on the job, experience, and other neutral, job-related factors.
Learn how Syndio can help
Syndio’s solutions help you identify and address pay disparities and ensure your policies are equitable, consistent, and explainable, supporting a lawful, bidirectional approach to achieving and sustaining pay equity.
The information provided herein does not, and is not intended to, constitute legal advice. All information, content, and materials are provided for general informational purposes only. The links to third-party or government websites are offered for the convenience of the reader; Syndio is not responsible for the contents on linked pages.
