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Does the Equal Pay Act need updating?

The Paycheck Fairness Act seeks to amend and improve the “EPA,” but there’s much disagreement about whether it’s even necessary, and whom it would hurt more — employers or employees.

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Legal look

While politicians and lobbyists on both sides of the equal pay debate make sweeping generalizations, employment-law attorneys typically take a more measured approach to discussing the potential ramifications if the Paycheck Fairness Act ever does become law.

One who stands out for his opinions on the PFA is Tom Spiggle, founder of the Spiggle Law Firm, an employment law firm based in Arlington, Virginia, that practices in five states.

“Like all labor and employment bills, this one is the victim of partisan politics,” says Spiggle. “Equal pay is a polarizing issue, with many conservatives believing that there either is no real pay gap between men and women, or if one does exist, it is not the result of sex discrimination. Regardless of the merits of this position — I personally believe it’s not supported by accurate evidence — it is sincerely held by many, particularly in the Republican Party.”

“There is no question that the historically male business community has benefited from less-expensive female labor.” — Tom Spiggle, founder, Spiggle Law Firm

While the EPA, which is a subsection of the FLSA, does disallow gender-based pay differential, it differs from the Paycheck Fairness Act in that the EPA allows a number of defenses to equal pay challenges brought primarily by women, including a catchall that allows a company to escape liability if can show that the pay differential is based on any factor other than gender, explains Spiggle.

“Over the decades since the EPA was passed, many federal courts have allowed liberal use of this defense,” Spiggle contends. “The PFA eliminates this defense and gives the EEOC some tools to gauge, on a macro level, the prevalence of sex-based pay discrimination. This information will help with both education and enforcement efforts by the EEOC.”

Regarding allegations by some in the business community that this will have the perverse effect of disincentivizing the hiring of women, Spiggle says this is red herring. “Unlike in 1963, when Congress passed the EPA, women are an integral part of the business community, including the C-suite. A company that chose to not hire women because of some minor reporting requirement under the law would do so at its own economic peril.”

Spiggle believes there are a couple reasons businesses have not been more proactive active about leveling the pay gap. First, is that individual businesses, even big ones, may not even be aware of pay gap issues that exist within the company because they lack the data. Reporting requirements under the PFA would help eliminate that.

Second, until recently, women have not occupied executive and leadership positions in high numbers. “That is changing, if not as rapidly as it should,” notes Spiggle. “When the female CFO learns that her company pays women less, she will be more likely to see it as a serious problem. As for the business case for the pay gap, I think there is no question that the historically male business community has benefited from less-expensive female labor.”

Laura Lindner, a Milwaukee shareholder with employment law firm Littler, provides another argument for the importance of the PFA.

“The Equal Pay Act and Title VII have not been sufficiently utilized to remedy pay disparities,” Lindner explains. “Women often do not know that they are paid less than a male comparator, and even if they are aware of a pay difference, they sometimes fear retaliation or other repercussions from raising it. Because the amounts of pay differentials and the ultimate recovery for pay discrimination are more limited than in wrongful termination cases, for example, private attorneys are less incentivized to invest their time and resources in pay-discrimination cases.”

“Parts of the [Paycheck Fairness] Act make good sense in helping remedy and avoid pay discrimination.” — Laura Lindner, shareholder, Littler law firm

Until the Equal Employment Opportunity Commission’s (EEOC) recent initiative to require pay data reporting, the EEOC has not stepped up its efforts to find and remedy gender-based pay disparities, most recently focusing its efforts on eradicating sexual harassment, notes Lindner.

In addition, the Lilly Ledbetter Fair Pay Act of 2009, which now enables workers to bring Title VII pay discrimination claims 180 (or 300) days from the last discriminatory paycheck, as opposed to from the discriminatory pay decision (which might have occurred decades earlier), has also been underutilized to challenge past discriminatory pay decisions, which are often difficult for employers to defend given the passage of time and lack of witnesses and documents to explain the decisions.

“Parts of the Act make good sense in helping remedy and avoid pay discrimination, such as limits on asking an applicant for past wage history and prohibiting employers from retaliating against employees who discuss their wages — prohibitions which several state legislatures have already enacted,” says Lindner. “Adopting those prohibitions in national legislation would result in uniform treatment of these issues across the country.

“If more claims or government investigations were brought under the EPA and Title VII, taking advantage of the limitations period in the Lilly Ledbetter Act, that would likely result in more disclosure and scrutiny of pay disparities and more remedial action,” Lindner continues. “The existing laws have mechanisms to address intentional and unintentional pay discrimination and remedies that are proportional to the nature and severity of violations.”

Lindner notes that employers routinely rely on market data and prior wage information in determining pay, including for competitive purposes, and the Paycheck Fairness Act would limit employers’ use of such information even though such data can be an accurate indicator of job-related skill and experience.

Additionally, the Paycheck Fairness Act does not mandate that employers engage in any particular pay analysis, though it does mandate that employers provide pay data to the EEOC for its analysis, which is required to comply with the EEOC’s new EEO-1 Component 2 reporting.

“The type of analysis that employers should do to identify disparities that are potentially caused by discrimination would not change under the Act,” says Lindner. “A potentially more efficacious approach to eliminating pay disparities would be to assist employers in learning how to identify pay differences that are not based on non-discriminatory factors (i.e., comparing apples to apples and controlling for legitimate factors) and facilitate non-litigation, safe-harbor ways to remedy them.”

According to Robert Gregg, a Madison attorney with Boardman & Clark LLP, one of the defenses employers often use in equal-pay cases is based on prior salary. An employer might argue an employee’s compensation wasn’t based on gender but simply on paying that person an enhancement on what they were paid in the past, regardless of gender.

“Some of the courts have said it’s nonetheless an adverse impact because since men tend to have higher salaries and women have lower salaries, then if you simply use the past salary, you’re perpetuating the discrimination,” explains Gregg. “You’re taking some prior employer’s discriminatory practices and you’re adopting them whether you knew it or not. Other federal courts have heard the same argument and said, nope, we don’t see it. Because there is a split of authority, [the Paycheck Fairness Act] would clarify that.”

“All employers should be taking a look at what they do and whether it has any adverse impact.” — Robert Gregg, attorney, Boardman & Clark LLP

Gregg believes if the Paycheck Fairness Act were to become law, it’s reasonable to expect a bump in legal cases testing the new rules.

“Any time you get a new law, there’s interest in it and a little initial boost in people saying it may apply to them,” notes Gregg, “and then it slows down. Now, when the discrimination laws were new, it gave a lot of people the ability to challenge bad practices and unfair treatment. But this is not a new law, it is an amendment to an existing law, so whether it will provide a lot of extra cases, I don’t know. There are already a lot of equal pay cases.”

For her part, Lindner thinks the Paycheck Fairness Act would likely generate significant litigation at the outset.

“The Act places the burden on employers to demonstrate that a ‘bona fide factor other than sex’ explains a pay differential, and the Act’s definition of that term is unworkable,” Lindner explains. “Among other things, the employer must show that factor is job-related and consistent with business necessity. Those tests are adopted from the mechanism for proving a neutral policy or practice has a disparate impact on a class of employees. It is difficult to apply those tests to a wage differential between two individuals and show there is a business ‘necessity’ for paying one employee more than the other.

“Furthermore, even if the employer meets its burden, the employee can demonstrate there is an ‘alternative employment practice … that would serve the same business purpose,’ which is a very vague standard,” Lindner continues. “Courts have uniformly stated that they do not wish to act as a ‘super-personnel department’ and make business judgments about employment policies and practices, and these tests place courts in the position of having to make business judgments.”

The Paycheck Fairness Act would also narrow the scope of the ‘factor-other-than-sex’ defense, and because employees can challenge pay decisions made years ago that employers might not have witnesses or documents to explain, it might make it easier to prove a violation and trigger the remedies under the Act, argues Lindner.

“However, the Act’s liability scheme and its provision of uncapped compensatory and punitive damages involve more complex proof and defenses, which could lead to more litigation — and lengthier and more costly litigation — rather than the more streamlined liability and damages analysis that can result in quicker remedies under the Equal Pay Act,” she states.

Spiggle counters that a worker who brings a lawsuit under the PFA could win double her back wages and get her attorney fees paid, making it possibly worth a protracted legal battle. The big difference, he adds, is that it will be more difficult for employers to escape liability under the PFA.

Gregg says if there’s anything that’s a message for right now, given that the Paycheck Fairness Act is still just a proposal, it should be a reminder that every employer should be paying attention to its hiring and compensation practices.

“All employers should be taking a look at what they do and whether it has any adverse impact, and if they identify an adverse impact they ought to be digging in to find out whether it is something that is caused by discrimination, something caused by unintentional bias, or whether it is something that has a valid basis in business necessity.”

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