U.S. House of Representatives Passes the Paycheck Fairness Act: What It Could Mean for Employers

5 min

The Paycheck Fairness Act (PFA) has repeatedly been reintroduced in Congress since 1997, and after it passed the U.S. House of Representatives on April 15, 2021, the Democrat-controlled Senate could make 2021 the year it finally becomes law. The PFA is intended to close loopholes in the Equal Pay Act and, if enacted, will likely lead to an uptick in wage and hour litigation for all employers. With President Biden urging the Senate to quickly pass the PFA after declaring the pandemic's impact on women in the workplace a national emergency, employers should consider now – rather than later – how to minimize their risk of a wage discrimination claim.

Legal Risks Employers Need to Be Aware Of

By way of background, the Equal Pay Act of 1963 (EPA) is part of the Fair Labor Standards Act (FLSA) and is aimed at abolishing wage disparity based on sex. Several portions of the PFA are specifically intended to make it easier for plaintiffs to bring wage claims arising from alleged gender discrimination. Below is a list of some of the more relevant considerations for employers in the event the PFA is enacted.

  1. Similarly Situated. The PFA would ease a plaintiff's burden for establishing that they are similarly situated to other employees. The proposed statute would allow employees to demonstrate wage disparity by comparing their wages to the wages earned by employees who perform substantially equal jobs at any of the employer's places of business located in the same county or political subdivision. This could encourage a lockstep system in salary and promotions for employees employed in the same geographic areas.
  2. Salary History Inquiries. The PFA would prohibit employers from inquiring about a prospective employee's wage history. The only exception is if a prospective employee references his or her wage history in an effort to negotiate a different rate of compensation. Employers should consider reminding their hiring managers about the dos and don'ts of interview questions. The PFA also sets forth an anti-retaliation provision, under which an employer is prohibited from retaliating against an employee or prospective employee who complains about an employer's illegal inquiry into a prospective employee's wage history during the hiring process. Under the proposed statute, employers that impermissibly inquire about a prospective employee's wage history or retaliate against an employee for filing a complaint would be subject to civil penalties and payment of special damages to the prospective employee.
  3. Discussions of Wages. The PFA would prohibit employment agreements under which employees promise not to discuss or disclose their compensation. This prohibition already exists for many employers that are subject to the National Labor Relations Act. The PFA would expand this prohibition to additional employers. The proposed statute would also prohibit employers from retaliating against employees who inquire about, discuss, or disclose their wages or another employee's wages (including inquiring or discussing with the employer why the wages are set at a certain rate or salary).
  4. Oversight. Under the PFA, employers with 100 or more employees would need to provide wage data to the U.S. Department of Labor. The information would be made publicly available every 18 months. Plaintiffs pursuing wage disparity claims may use an employer's wage data information as an exhibit during related litigation.
  5. Opting Out of Class Actions. The PFA will adopt Rule 23 of the Federal Rules of Civil Procedure, which will make it easier for a group of plaintiffs to challenge an employer's pay practices as a class action. Under current federal law, plaintiffs must affirmatively opt in to a lawsuit in order to become a class member, but with the PFA, class members would automatically be considered part of a class unless they specifically choose to opt out. The likely result: larger class action lawsuits.
  6. Narrowing the "Factor Other Than Sex" Affirmative Defense. Under the current version of the EPA, an employer may defeat a wage disparity claim by identifying a "factor other than sex" as a nondiscriminatory reason for the pay differential. The PFA would substantially narrow this affirmative defense by requiring employers to demonstrate that (i) the pay differential is caused by a bona fide factor, such as education, training, or experience that is not based on sex; (ii) the factor is job related; (iii) the factor is consistent with a business necessity; and (iv) the factor accounts for the entire pay differential. Under the proposed statute, a business necessity is defined as something required to keep a business operating. These extra requirements and narrower definitions could make it more difficult for employers to avail themselves of the "factor other than sex" affirmative defense.
  7. Enhanced Penalties. The PFA strengthens the enforcement of the EPA by holding an employer liable for compensatory damages and punitive damages if the plaintiff can demonstrate that the employer acted with malice or reckless indifference to the plaintiff's rights. Today, EPA plaintiffs can only recover liquidated damages up to the amount equal to the awarded back pay and attorney's fees and litigation expenses. It is still unclear whether monetary caps will be added to the bill for sex-based wage discrimination under the Equal Pay Act, as is the case under Title VII of the Civil Rights Act of 1964 for intentional discrimination based on sex, race, religion, disability, color, and national origin.

While the list above is a wide-ranging analysis of the major considerations employers should be aware of, it is not exhaustive. Attorneys at Venable LLP are staying abreast of this bill's progress in the Senate and will provide relevant updates. Employers are encouraged to contact the authors of this article or any attorney in the Labor and Employment Group for further guidance on the legal implications should the PFA pass the Senate.