Co-authored by Camille Olson and Gerald L. Maatman, Jr.

The plaintiffs’ class action bar is focusing on creation of new theories to attack pay and promotion decision-making by employers. One area of focus is a new legislative proposal that would transform class action litigation in this context  based on the Paycheck Fairness Act (reintroduced in the Senate on September 14, 2010 and re-designated as S. 3772, formerly S. 182, 11th Cong. (2010)).

A vote on the Paycheck Fairness Act (“PFA”) could occur before the Thanksgiving holiday. By reintroducing a new version of the Paycheck Fairness Act, Senate Majority Leader Harry Reid, D-Nevada, hoped to revive the gender-based pay equity legislation that has been stalled in committee for almost 18 months. The House of Representatives passed its version of the legislation on January 9, 2009.

Speculation has increased since election night about Democratic Party priorities for the “lame duck” Congressional session spanning the brief period between the election and the end of the year. The Republican party picked up 60 House seats and will take control of the House in January. Democrats will retain control of the Senate, but with a reduced majority. President Obama has been clear that equal pay issues are priorities for his administration.

Speaking at a briefing on the PFA bill sponsored by the Hudson Institute on November 10, former U.S. Department of Labor Secretary Elaine Chao stated that while the PFA masquerades as “feel-good” legislation deserving the support of all who believe in fair treatment of women in the workplace, she predicted “its unintended but utterly predictable consequences” because the legislation is “all about generating lawsuits,” primarily for the benefit of plaintiffs’ class action lawyers. Chao said that if truth in advertising laws applied to employment legislation, the bill would be dubbed “the Job-Killing Trial Attorney Bonanza Act.”

Given this context, the stakes are high for employers. If enacted, the PFA would significantly expand remedies and alter the dynamics of class action litigation in this context.

The PFA would alter the landscape of equal pay litigation, similar to the way in which the Civil Rights Restoration Act of 1991 altered the contours of Title VII litigation. In addition to strengthening enforcement and augmenting remedies, the new legislation would make substantive changes by eliminating employer defenses and altering burdens of proof. Most significantly, the proposed PFA would facilitate class action litigation against employers. There are 5 keys areas where the PFA would transform class action litigation, including:

  • Punitive Damages – Unlike Title VII, where punitive damages are capped based on employer size up to a maximum of $300,000 compensatory and punitive damages under the proposed PFA would be unlimited. Punitive damages must be supported by findings of “malice” or “reckless indifference.”
  • Definition Of “Establishment” – The Equal Pay Act would require equal pay for men and women who perform substantially equal work in the same establishment. The proposed law would cover pay disparities between employees working not only in the same physical location, but between employees working in the same “county of similar subdivision of a state.” This change has implications for employers with more than one location in a single county. Pay for employees at a corporate headquarters may need to line up with pay grades for a call center or retail operation in the same county. Employees working in a less expensive suburb could have their compensation compared to the compensation of employees working in a more expensive urban area in the same county.
  • Opt-Out Class Actions- Currently under the Equal Pay Act, FLSA-style opt-in collective actions are the rule. Employees not opting-in are not bound by the judgment. Under the new legislation, any class action for gender-based pay discrimination may be maintained as an opt-out class action under Rule 23 of the Federal Rules of Civil Procedure, meaning that class members are part of the litigation unless they affirmatively opt-out. This typically translates into larger class sizes, making the cases more attractive to plaintiffs class action attorneys. Likewise, these types of claims have a greater value, making settlement and litigation burdens more extensive and burdensome.
  • Disclosure Of Confidential Wage Information – Currently, under the National Labor Relations Act and some state laws, employees may not be disciplined for discussing their wages. The new legislation would broaden these protections, encouraging sharing of compensation information and creating a remedy for employees who suffer an adverse employment action for inquiring about, discussing, or disclosing compensation information. The new legislation also would require the EEOC to collect compensation data, and it provides little guidance or assurance about whether such data would remain confidential and be protected from disclosure to the public and competitors.
  • Restricted/Eliminated Affirmative Defenses – Affirmative defenses under the Equal Pay Act include proof that the pay differential is based on a seniority system, merit system, quality or quantity of production, or factors other than sex. Under the proposed legislation, “factors other than sex” would be replaced with a bona fide factor other than sex if business necessity demands it and no alternative employment practice will serve the same business purpose. “Bona fide factor other than sex” means, for example, education, training or experience, but must be job-related. Subjective factors and practical factors such as prior salary history would not satisfy the new standard. Even objective differences in qualifications, such as a college degree, could be rejected as a basis for increased compensation unless enhanced compensation for college graduates is justified by business necessity. These standards could result in more frequent denials of summary judgment for employers, and result in protracted wrangling over whether a particular qualification is a “business necessity” or whether another business practice would be just as effective.

Even if legislative effort on passage of the PFA ultimately stalls, employers can expect that that federal enforcement agencies, largely unaffected by election results, will continue or increase their regulatory efforts in this area. Both the OFCCP and the EEOC have already stepped up enforcement efforts on pay disparity issues over the last year, and many expect that over the next two years, these and other federal agencies will seek to advance President Obama’s labor and employment agenda through rule-making and initiation of systemic, class-like litigation against employers.