Just a few days after starting its new session, Congress has moved to substantially expand employees’ rights and remedies in pay discrimination cases. On Jan. 9, 2009, the U.S. House of Representatives passed the Lilly Ledbetter Fair Pay Act (H.R. 11) and the Paycheck Fairness Act (H.R. 12), largely along party lines, and then combined them into a single piece of legislation (H.R. 11). Identical bills have been introduced in the Senate, and a vote there is expected later this month. Taken together, the bills would make it easier for plaintiffs to establish pay discrimination, significantly expand the number and size of class actions in such cases, and expose employers to unlimited compensatory and punitive damages even if they never intended to discriminate. President-elect Obama supports the legislation.

Lilly Ledbetter Fair Pay Act

Federal discrimination laws generally require employees to file charges of discrimination with the Equal Employment Opportunity Commission (“EEOC”) within 180 or 300 days after the alleged discrimination occurs. That deadline allows such claims to be resolved relatively quickly, while the evidence is fresh and witnesses are available.

In Ledbetter v. Goodyear Tire & Rubber Co. (2007), the U.S. Supreme Court held that the period for challenging pay discrimination starts to run when an employer first makes the allegedly discriminatory pay decision, not each and every time an employee later receives a paycheck reflecting that decision. The Lilly Ledbetter Fair Pay Act (H.R. 11; S. 181) would overturn that holding. The proposed law says that the period for filing an EEOC charge would begin each time an employer adopts a discriminatory compensation decision or practice, each time an individual becomes subject to such a decision or practice, or each time an individual is affected by its application. The law would apply to claims of compensation discrimination based on sex, race, national origin, color, religion, age, and disability, and would retroactively apply to any claim filed since the Ledbetter case was decided.

An identical bill passed in the House in 2007, but was blocked by Senate Republicans and faced a threatened veto by President Bush. This year, however, the bill has 53 co-sponsors, there are only 41 Republicans in the Senate (at least one of whom supports the bill), and President-elect Obama ran a commercial starring Lilly Ledbetter herself. Employers, therefore, may soon find themselves trying to reconstruct and defend compensation decisions made long ago by persons who may well have forgotten the relevant facts – even assuming they are still alive and can be found.

Paycheck Fairness Act

On Jan. 9, the House of Representatives also passed the Paycheck Fairness Act (H.R. 12) by a wide margin. The Act would amend key parts of the Equal Pay Act of 1963 (“EPA”), which forms part of the Fair Labor Standards Act (“FLSA”). The EPA prohibits employers from paying women less than men for performing the same or “substantially equal” work in the same workplace, regardless of whether the employer intended to discriminate.

Among other things, the Act would:

  • Allow EPA plaintiffs to compare themselves not just to persons in the same workplace, but also to those who work for their employer anywhere in the same county or similar political subdivision.
  • Narrow one of employers’ key defenses to equal pay claims. Employers can now defeat such a claim by showing that a pay difference between a man and a woman in substantially equal jobs was based on “any factor other than sex.” Under the new law, employers would instead be required to prove that such a difference was based on “a bona fide factor other than sex, such as education, training or experience,” and that the factor is job-related, “consistent with business necessity,” and not based on or derived from any sex-based pay disparity. Even then, the plaintiff could prevail by showing that the employer refused to adopt an alternative employment practice that would serve its business purpose without producing such a pay difference.
  • Prohibit taking action against an employee because he or she has asked about, discussed, or disclosed his or her own wages or the wages of any other employee. The only exception would be for employees whose essential job functions give them access to such information and share it with someone who lacks such access.
  • Broaden the EPA’s protection against retaliation by protecting anyone who: (1) has filed a charge or complaint, or instituted an investigation, proceeding, hearing or action under or related to the EPA or FLSA; or (2) has testified or is planning to testify in any such investigation, proceeding, hearing or action.
  • Make it easier for employees to become parties to class actions by treating EPA cases as subject to the “opt-out” procedures under Rule 23 of the Federal Rules of Civil Procedure, rather than the “opt-in” procedures that apply to federal overtime claims. Plaintiffs’ attorneys will thus be able to bring such suits on behalf of large numbers of current or former employees who allegedly received unequal pay, all of whom will be eligible to recover damages unless they affirmatively choose not to participate in the case.
  • Allow EPA plaintiffs to recover compensatory and punitive damages and expert witness fees, on top of the double damages and attorney’s fees already allowed under the law.
  • Require the EEOC to collect information from employers showing what their employees are paid, categorized by sex, race, and national origin, in order to enhance the enforcement of pay discrimination laws.

Sen. Clinton (D–N.Y.) has introduced the Paycheck Fairness Act with 25 co-sponsors, and there is some indication that the Senate will likewise combine this bill and the Ledbetter Act into a single piece of legislation, forcing an up-or-down vote on the entire package later this month. If these laws pass, American employers should prepare to face many more pay discrimination claims, each much tougher to defend and exposing an employer to a significantly greater financial risk.

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If you have any questions about this pending legislation or how it will affect your business, please contact the author or the Reed Smith attorney with whom you regularly work.