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.

From the pages of In Business magazine.

There is general agreement that women and men with the same experience should get paid the same for performing the same work.

What’s not as clear is what constitutes similar experience, or whether the most recent legislative attempt to close the gender wage gap — the Paycheck Fairness Act — is even necessary to do so.

As it stands now, the Paycheck Fairness Act stands little chance of becoming law in the current Congress.

Democrats have been trying to pass the PFA for going on 22 years, and while in March the Act passed the U.S. House on a 242–187 vote margin, with seven Republicans joining Democrats in passage, the proposal faces stiff opposition in the Republican-controlled Senate.

Still, the Paycheck Fairness Act, which is not a new law but rather an amendment to the Equal Pay Act of 1963, keeps getting reintroduced every couple years, and proponents argue it’s a necessary measure to close the gender wage gap they say results in American women earning just 80 cents on the dollar compared to men — a gap the Equal Pay Act and Fair Labor Standards Act have failed to adequately address.

Not so fast, argue opponents of the Paycheck Fairness Act. Wage discrimination based on gender is already illegal, and rather than fixing a wage gap that might actually be much less than we’ve been led to believe, the PFA would apply unnecessarily punitive damages to employers that would have a harder time defending themselves against wage discrimination claims.

Wisconsin enacted its own equal pay law in 2009, the Equal Pay Enforcement Act, but it was quietly repealed in 2012 by then-Gov. Scott Walker and Republican legislators, leaving Badger State employers and employees subject only to federal provisions.

In this exercise in “What if the Paycheck Fairness Act, in its current form, became law?” IB found that the truth of the matter, as it so often does, lies somewhere in the murky middle.

What is fair?

The question of fair pay is a difficult one.

Does fair pay come in the form of ostensibly rigid pay scales that treat every employee the same, regardless of experience or performance? Or does salary start from the same point for everyone and diverge based on experience, education, productivity, talent, and any number of other, potentially more nebulous criteria?

Try arguing over how many cookies your children can have for dessert — after they’ve already had ice cream and cotton candy earlier in the day — and you quickly realize “fair” is entirely in the eye of the beholder.

In short, the Paycheck Fairness Act seeks to:

  • Require employers to prove that pay disparities exist for legitimate, job-related reasons and not based on gender alone;
  • Ban retaliation against workers who discuss their wages;
  • Limit how employers can use the salary history of prospective employees;
  • Create a negotiation and skills-training program;
  • Remove obstacles in the Equal Pay Act to allow workers to participate in class-action lawsuits that challenge systemic pay discrimination; and
  • Improve the Department of Labor’s (DOL) tools for enforcing the Equal Pay Act.

U.S. Rep. Mark Pocan, who represents Wisconsin’s Second Congressional District, and U.S. Sen. Tammy Baldwin are both co-sponsors of the Paycheck Fairness Act.

“There is paycheck inequality for hardworking American women across this country, and it is time we do something about it,” Sen. Baldwin said in a release upon introduction of the proposal in January. “Many women are working full time, and many are working two jobs to make ends meet, yet far too many are barely getting by, and far too many women and children are living in poverty. The least we can do is level the playing field and give women a fair shot at getting ahead because they deserve equal pay for equal work.”

Rep. Pocan’s office did not respond to a request for comment on the current legislation.

According to a House Democratic Fact Sheet, pay inequity not only affects women, it affects children, families, and the economy as a whole. “Women are the sole or co-breadwinner in two-thirds of American families with children and providing equal pay to women would have a dramatic impact on their families.

“If women were paid the same as men, the poverty rate for all working women would be cut in half (from 8.0 percent to 3.8 percent) and the poverty rate for working single mothers would be cut by nearly half (from 28.9 percent to 14.5 percent),” the fact sheet continues. “The wage gap undermines women’s financial security and limits their ability to save for retirement, contributing to more women living in poverty. For the 15.3 million single women — divorced, widowed, separated, and never-married women living on their own — equal pay would mean a significant drop in poverty rates from 10.8 percent to 4.4 percent.”

An analysis of the Paycheck Fairness Act by the American Bar Association (ABA) notes, “Gender-based wage discrimination remains a pernicious problem in the workplace despite enactment over 50 years ago of the Equal Pay Act of 1963 (EPA), which made it illegal for employers to pay unequal wages to men and women in the same workplace who perform substantially equal work.”

This wage gap cannot be dismissed entirely as the inevitable by-product of “women’s choices” in education, career, and family matters, the ABA analysis continues. “Recent authoritative studies show that even when all relevant career and family attributes are taken into account, there still is a unexplained gap between men’s and women’s earnings.”

Causing, not correcting problems

While no one really disputes the pay disparity between men and women, there are some groups that argue the bill is simply a solution in search of a problem.

In a March 26 letter to the U.S. House of Representatives, Neil Bradley of the U.S. Chamber of Commerce, the nation’s leading business advocacy group, said the Chamber opposes the Paycheck Fairness Act (H.R. 7) because it would undermine efforts to combat pay discrimination by conflating discriminatory practices with other non-discriminatory factors that result in legitimate pay disparities.

“Factors such as experience, education, location, and shift work can and often do result in pay differentials between employees employed by the same business in similar positions,” Bradley wrote. “Current law recognizes that these are legitimate, non-discriminatory distinctions. H.R. 7 would impose a new multifactor test that includes a vague ‘business necessity’ test that would effectively eliminate the ability of an employer to make compensation decisions on the basis of such factors. As a result, employees will not be compensated based on the attributes they bring to the job and their actual contributions to their employer.”

“The proposal is an unnecessary intrusion into the workplace that will expose employers to frivolous lawsuits and interfere with workplace flexibility … ” — Bill Smith, NFIB Wisconsin state director

Bradley also argues the Paycheck Fairness Act would for the first time allow for compensatory and punitive damages. “The [Equal Pay Act] is a strict liability statute that requires no employer intent to act unlawfully for a violation to be found. If an employee is the victim of intentional discrimination, then he or she should bring a claim under Title VII of the Civil Rights Act of 1964, where punitive and compensatory damages (capped at certain levels) are available.

“This bill would also modify existing rules concerning collective actions, making it easier for plaintiffs’ attorneys to mount class-action suits by reducing the criteria necessary for employees to join a class,” Bradley adds. “While a potential boon to the trial bar, these changes are likely to result in more frivolous litigation rather than appropriate enforcement against actual gender-based pay discrimination.”

It’s a sentiment shared by Bill Smith, Wisconsin state director for the National Federation of Independent Business.

“The Paycheck Fairness Act has failed to become law because members of Congress recognize adequate pay protections already exist under current law,” states Smith. “NFIB strongly supports equal employment opportunity and appropriate enforcement of the Equal Pay Act, which protects all employees, and Title VII of the Civil Rights Act of 1964, which covers employers with 15 or more employees. The Paycheck Fairness Act would expand remedies under the Equal Pay Act to include unlimited punitive and compensatory damages, significantly eroding the ability of employers to defend legitimate pay disparities.”

Smith says proponents believe the PFA is necessary to respond to employers who devalue certain occupations, trades, and professions dominated by women. “They argue there is a significant gender wage gap that is unfair and discriminatory. However, this so-called gap is exaggerated when consideration is given to variables such as education, maternity policies, child rearing, flexible work arrangements, part-time work, shift differentials, etc. The wage gap between men and women shrinks dramatically when the variables are considered in calculating the basis for wage disparities.”

According to Smith, there are bad employers who may discriminate based on several protected classifications under current law. However, employees have a number of remedies available under current law that they may pursue to address alleged discrimination.

“The payment scale in the typical marketplace can include many factors that are the basis for wage disparities,” explains Smith. “The same experience for the same work is just one criterion that may provide a fair and justified wage difference between men and women.

“The proposal is an unnecessary intrusion into the workplace that will expose employers to frivolous lawsuits and interfere with workplace flexibility that is sought by employers and employees,” Smith adds.



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.”

Click here to sign up for the free IB ezine — your twice-weekly resource for local business news, analysis, voices, and the names you need to know. If you are not already a subscriber to In Business magazine, be sure to sign up for our monthly print edition here.