Paycheck Fairness: Boon or Burden

Employers will have to take a careful look at their pay practices if a proposed equal pay law takes effect. The Paycheck Fairness Act has little chance for passage before the mid-term election, but there is a chance it could be considered in the lame duck session of Congress that follows, providing ample incentive for employers to self-audit their pay practices.

The measure would limit the defense employers can use, and expand on damages established under the 1963 Equal Pay Act. Backers say the law is necessary because women make only 77 cents for every dollar men earn. Opponents call it a ruse to empower trial lawyers to file junk lawsuits, and make it more difficult for companies to expand and hire.

President Obama already has signed the Lilly Ledbetter Fair Pay Act, which eliminated the statute of limitations on pay disparity claims, and a key provision of the proposed law would narrow the affirmative defense that employers can use in defending against gender-based discrimination claims.

Currently, when an employer is sued for sex discrimination in its pay practices, the employer can successfully defend the claim by showing the pay practice is based on "any factor other than sex." Under the new law, the employer would have to show a "bonafide reason other than gender." Examples of bonafide reasons other than gender are education, training, and experience.

Jon Anderson, an attorney with Godfrey & Kahn, said it might take year years of litigation to figure out what the new affirmative defense actually means. "I think what this bill does is really turn the burden of proof on its head," he added.

The Paycheck Fairness Act also contains enhanced penalties. Under the existing law, damages are limited to back pay and liquidated damages equal to back pay. Under the enhanced penalties of the new law, there would be the possibility of compensatory and punitive damages. Compensatory could include emotional-distress damage and out-of-pocket damages, and punitive damages are the type seen in very large verdicts that are meant to address aggregious, reckless violations of the anti-discrimination laws.

In addition, the proposed law would continue to hold employers liable if they retaliate against an employee for inquiring about, discussing, or disclosing wages of themselves or others; and makes it easier to form classes for the purpose of wage-related class-action lawsuits.

Paying the Price

Fred Gants, a partner with Quarles & Brady, doubts the bill will become law in this session of Congress because it contains some fairly dramatic changes. "What it does is tilt the scales much more against the employer," he said.

Jennifer Mirus, a partner in the Boardman Law Firm, said it's unclear whether market factors will become a legitimate defense. In any event, employers may want to establish more rigid pay-grade standards that allow for less discretion for managers to negotiate up or down. Said Mirus: "If you have a department of 12 made up of eight men and four women, and the men make an average of 17% more, you'd better look back and be able to show why that's the case, and that pay-raise disparities are objectively supported by performance evaluations or production."

Sign up for the free IB Update — your weekly resource for local business news, analysis, voices and the names you need to know. Click here.