Senate watchers are reporting that the Senate may vote on the Paycheck Fairness Act (PFA) (S. 3772) as early as this week. The House previously passed the PFA in 2009, but the law failed to clear the Senate. If this law passes, it will mark a major expansion of federal employment discrimination law and will force many employers to dramatically change their compensation practices to mitigate the risk of pay discrimination lawsuits.

The PFA amends the existing Equal Pay Act (EPA), which prohibits pay discrimination based upon sex. The PFA makes five key changes to existing law:

  1. Under the current EPA, employers can defend against claims of pay discrimination by demonstrating that a pay difference between male and female employees is caused by "any factor other than sex." Under the PFA, employers would have to show that the "factor other than sex" is "bona fide," meaning that it is "not based upon or derived from a sex-based differential in compensation," is "job-related with respect to the position in question," and "is consistent with business necessity." Further, these defenses will not be available "where the employee demonstrates that an alternative employment practice exists that would serve the same business purpose without producing such differential and that the employer has refused to adopt such alternative practice."
  2. The PFA would prohibit an employer from retaliating against an employee who, among other things, has "inquired about, discussed, or disclosed the wages of the employee or another employee." While such retaliation is already prohibited by the National Labor Relations Act and some states’ laws, including Illinois’, the remedies provided by the Act (see point 3) would substantially increase the cost of such claims for employers.
  3. Currently, employees suing under the EPA can obtain back pay plus liquidated damages capped at the amount of back pay, plus attorneys' fees. Under the PFA, employees could sue for uncapped compensatory damages (including emotional distress) and punitive damages, potentially opening the door to significant jury awards for modest pay differentials.
  4. Presently, the EPA allows employees to sue on behalf of a class only if all members of the class affirmatively "opt in" to the lawsuit. The new law would change the procedure, allowing plaintiffs' lawyers to sue on behalf of an entire class of employees unless each individual employee affirmatively opts out of the class. The effect is to make class actions larger, easier for employees to join, and therefore more attractive for plaintiffs' lawyers to file.
  5. The PFA would require the EEOC to issue rules mandating the collection of pay information from employees, and would require the office of Federal Contract Compliance Programs to vigorously investigate and enforce compliance with the act.

The practical implications of these changes are potentially huge. For example, under present law, if a man and a woman apply for two openings in the same job title, but the male is offered a higher salary because he negotiated for it while the woman did not, the woman may be able to sue under the PFA. Similarly, if a male candidate is offered a higher salary than a female candidate because he earned more than the female candidate at his prior job, the female would potentially have a claim under the PFA. Note that the PFA is gender-neutral, so these scenarios could work in reverse as well. In short, the PFA could greatly restrict employers' flexibility in setting compensation, replacing the present prohibition on sex discrimination with a de facto mandate for consistency in pay between employees in similar jobs.

The Obama Administration and Department of Labor strongly support the PFA. On September 21, 2010, Secretary of Labor Hilda Solis pushed for the legislation during a live webcast featuring Lilly Ledbetter, plaintiff in the Ledbetter Supreme Court decision and namesake of the Ledbetter Act, which dramatically expanded the statute of limitations for pay discrimination claims under federal law.

Supporters of the law frequently cite the disparity in pay between men and women, noting that women in the United States earn significantly less than their male counterparts.. However, many have questioned the validity of this wage differential as evidence of intentional employment discrimination. For example, in the forward to a 2009 study commissioned by the Department of Labor, former Deputy Assistant Secretary for Federal Contract Compliance Charles E. James, Sr. wrote the following:

Although additional research in this area is clearly needed, this study leads to the unambiguous conclusion that the differences in the compensation of men and women are the result of a multitude of factors and that the raw wage gap should not be used as the basis to justify corrective action. Indeed, there may be nothing to correct. The differences in raw wages may be almost entirely the result of the individual choices being made by both male and female workers.

Employers who are concerned about how this legislation may affect their business should contact their members of Congress. We will continue to monitor and report on the progress of the PFA.