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Paycheck Fairness Act Could Lead to New Lawsuits

February 12, 2021

By Anthony Kaylin, courtesy of SBAM Approved Partner ASE

On January 28, the Democrats reintroduced the Paycheck Fairness Act (H.R. 7), a bill that did not succeed in the Obama administration, as a way to strengthen the Equal Pay Act (EPA).  According to the sponsors, the Paycheck Fairness Act would end the practice of pay secrecy and strengthen the available remedies for wronged employees.  It is a priority not only for the Democrats in Congress, but a plank in President Biden’s gender equality initiatives.

The EPA states that male and female employees are entitled to receive equal pay for equal work. Employers are not allowed to discriminate against employees of the opposite sex for jobs requiring “equal skill, effort, and responsibility, and which are performed under similar working conditions” except for instances in which the employer considers other factors such as seniority, merit, a system which measures quantity or quality of work or any reason other than gender.

Yet the new bill itself does not promote gender equality as it is written and instead promotes new lawsuits.  It essentially makes any case for pay disparity difficult to defend.  The bill provides that instead of being able to justify a wage differential based on “any factor other than sex,” employers would need to provide “a bona fide factor other than sex, such as education, training, or experience.”   The defense would apply only where the employer demonstrates that such factor:

  • Is not based upon or derived from a sex-based differential in compensation;
  • Is job-related with respect to the position in question;
  • Is consistent with business necessity; and
  •  Accounts for the entire differential in compensation at issue.

The defense would not apply where the employee demonstrates the existence of an alternative employment practice that would serve the same business purpose without producing such a differential and that the employer has refused to adopt that alternative practice.

As the HR Policy Association (an organization of HR leaders at the largest employers in the U.S.) points out, “Replacing the ‘any other factor other than sex’ defense with the bona fide factor provision of the Paycheck Fairness Act could present significant challenges for employers defending employee lawsuits (including class actions).”

The proposed bill would make it unlawful to terminate or discriminate against employees because they have inquired about, discussed, or disclosed their own wages, or the wages of another employee (such as by inquiring or discussing with the employer why the wages of the employee are set at a certain rate or salary).   It also would be unlawful to require an employee to sign a contract or waiver prohibiting employees from disclosing information about their wages. 

Additionally, the bill would institute a national pay transparency requirement and a nationwide ban on requests for prior salary history of applicants. There seems to be a philosophy among the government supporters that all employers should pay like the government does, with little distinction for performance.  All ranges and steps are set and public, and raises are the same across the board.

It also establishes the requirements for a new EEO-1 Pay Reporting tool similar to Component 2 reporting, with the same ranges based on W-2 wages for reporting purposes.   The EEOC is currently creating a panel to review the data from the previous Component 2 reporting, but most industry pundits believe the data will not show much since Box 1 of the W-2 (which was used for Component 2) does not include pretax selections such as 401K amounts or healthcare among other things.  The law does not specify anything but W-2 wages.

The bill would also require the U.S. Department of Labor’s Office of Federal Contract Compliance Programs (OFCCP) to conduct an annual survey of pay and hiring data from federal contractors.   Specifically, the bill states that the OFCCP would:

“implement a survey to collect compensation data and other employment-related data (including hiring, termination, and promotion data) and designate not less than half of all nonconstruction contractor establishments each year to prepare and file such survey and shall review and utilize the responses to such survey to identify contractor establishments for further evaluation and for other enforcement purposes as appropriate.”

The new Director of the OFCCP is Jenny Yang, a highly competent person who used to be a Commissioner and then Chair of the EEOC when the EEOC developed and implemented the EEO-1 Component 2 pay collection tool and who should be able to implement the new collection tool for OFCCP without much difficulty.

As a note, the Obama-era bill was introduced on three separate occasions and failed each time.  This time it will likely be filibustered in the Senate.

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