The Paycheck Fairness Act: What employers need to know
From its enactment in 1963, the Equal Pay Act (The EPA) was charged with the difficult challenge of fostering pay equality between men and women. Its failure to close the wage gap over the past forty-six years, however, has led to new legislation called the Paycheck Fairness Act (The PFA) that was passed in the House of Representatives in January and awaits vote in the Senate this Fall. The Senate is expected to pass the bill before the end of the year, and employers need to be aware of the changes and requirements that could result.
Employer practices under the Paycheck Fairness Act
Under the EPA, an employer could justify a pay disparity between men and women by asserting that any other factor other than sex was used in determining employee pay. Under the new law, the onus would shift very strongly onto the employer who would now be required to show not only that bona-fide, business-related factors were used in making salary decisions but also that such factors were not themselves based or derived from a sex-based differential in pay. Additionally, even where an employer can successfully assert such factors, this defense is rebuttable by an employee who can show that the employer refused to adopt an existing alternative employment practice that would serve the same business purpose without producing a differential in pay between men and women.
Use of salary history to determine compensation may no longer be an option. As a practical matter, the tightening of the law could mean the end of the use of salary history as a determining factor in setting a woman's pay at a new job. Federal courts have long struggled and differed on this common, albeit controversial, practice and have never been able to clearly or uniformly define when its use was permitted as a factor other than sex under the EPA. The PFA's more strictly-worded requirements, however, would specifically require an employer to show that a woman's prior salary was not derived from gender-based differential in pay. This would present a difficult task for employers in a world where women still make only 78 percent of what a man does for the same work.
Under the new law, employers will need to be careful in terms of what they ask women about their salary history and, if they do request this information, how they decide to use it. While the question itself may not be rendered summarily illegal under the law, it may well be one that employers are advised not to ask on an interview. With passage of the new law, federal courts will surely weigh in on this issue again, and employers will need to keep a vigilant eye on how this PFA provision is interpreted going forward.
Other practices likely to receive increased scrutiny. In addition to using salary history, other common employer practices are likely to be more closely scrutinized under the PFA, including salary retention plans and market forces policies.
In a salary retention plan, employees are commonly transferred to another position within a company while retaining their prior salaries. This practice has often been recognized as a legitimate factor other than sex defense under the EPA when it is aimed at rewarding longevity of service and avoiding additional expenses incurred in searching for and training new employees—legitimate business goals seen as being gender neutral. Under the new law, however, a more careful analysis must be undertaken and the legality of such a practice will ultimately lie not in whether the intent was innocent or even whether the practice was a legitimate one, but rather whether the impact of the practice would lead to discriminatory wages paid to women.
While there is no need to eliminate legitimate, truly gender-neutral salary retention programs, employers would be well-advised to investigate the impact such a program has on women's salaries. If the results suggest a pay disparity, the employer should consider restructuring the program in a way that distributes pay equally.
Similarly, most employers are already well aware that they may not pay women less simply because they believe these women will work for less or because women have inferior bargaining power. This is an illegal use of the market forces (or market demand) defense. A market forces defense is allowed under the EPA only where the market demand calls for particular skills rather than for a specific gender. Under the new law, however, even skill-based market force salary determinations must be scrutinized closely to ensure that the practice is not in any way based or rooted in gender discrimination. To comply with the law employers will need to ensure that if they base an applicant's pay on market demand, that this demand has no historical basis in gender-preference. As with salary history, it would not be surprising to find some skill-based market forces claims to also have some ties to gender discrimination. Some such ties may be latent and deep-rooted but under the PFA, courts will be under a greater duty to undertake just such an analysis.
It is important to note that while the PFA establishes three factors—an employee's education, training or experience—that may legitimately be used by employers in the hiring and employment process, it does not specifically address any other specific employment practice. While this article references several noteworthy employer practices—salary history, salary retention plans and market demand policies—this list is anecdotal rather than exhaustive and federal courts will be charged with interpreting the PFA in helping to determine how the law will specifically restrict such practices.
The purpose of the PFA, and what employers must keep in mind, for now however, is that pay practices will be more carefully examined under the new law and those that have any basis in discrimination are likely to be struck down. The PFA's equal pay provision is not concerned with listing or labeling employment practices, nor even with what employer intent may be behind such practices. The provision is focused on only two things:
- eliminating practices that have any basis in gender discrimination; and
- placing the burden on employers to determine which practices and policies have just such a basis.
Sharing salary information with co-workers
While strengthening the EPA is clearly the most significant function of the PFA, the legislation also contains a novel provision that prohibits employers from retaliating against employees who discuss or disclose wages among one another. This provision addresses a common practice among employers who have prohibited employees from discussing their wages with fellow employees.
Previously, under the Fair Labor Standards Act (the FLSA), employers were prohibited from retaliating against an employee only once a complaint had been filed (or investigation initiated) against the employer. The PFA, however, does not tie this restriction to any existing complaint, action or investigation. This is an intriguing revision to the law that gives employees a unique right—the affirmative ability to discuss wages with their co-workers.
Negotiation training for women
It is well-settled that salary negotiation is an inherently non-discriminatory, legitimate business practice and that employers may generally engage (or choose not to engage) in such negotiation at their own discretion. Nevertheless, studies have shown that men tend to negotiate their salaries upward while women, overwhelmingly, do not. There is little doubt that this dichotomous behavior has been part of the reason that the gender pay disparity has persisted and the PFA attempts to remedy this situation, not by imposing any negotiation requirements on employers (as this would conflict with overwhelming black-letter law), but by allocating federal grants for negotiation skills training programs for women. As it currently stands, employers have no obligation to behave or negotiate any differently under this provision.
While the goal is admirable, the means provided for are arguably problematic as some claim that the clause fails to recognize that women represent a minority, not a disability, and are afforded the very same opportunity to negotiate as men.
Other PFA provisions
Employers should also be aware that the new law, among other things:
- Toughens penalties for violating the EPA by providing for compensatory and/or punitive damages previously unavailable under the law.
- Allows employees to bring opt-out class-action claims under the EPA for the first time. Previously, such class actions were opt-in, a more difficult claim.
- Creates a National Award for Pay Equity for employers who have made substantial efforts to eliminate pay disparities between men and women.
- Directs the EEOC to complete and submit a survey of pay data collected from employers for use in helping to enforce the equal pay laws.
- Reiterates the small business exemption under the PFA (for those businesses otherwise exempt under the FLSA) but also provides technical assistance material to help other small businesses comply with the PFA's more stringent requirements.
Source: Jeffrey Lax is an Assistant Professor at Kingsborough Community College in Brooklyn, New York (jlax@kbcc.cuny.edu). Professor Lax teaches courses in law and business and has practiced in the areas of employment law and commercial litigation.
Reprinted with permission. © CCH
(Submitted Oct. 2009)
<p>If passed by the Senate as expected, employer pay practices will be more carefully examined under the new law and those that have any basis in discrimination are likely to be struck down.</p>