Bill will cause deluge of equal pay class actions as it passes US House, attorneys say

The just-passed federal Paycheck Fairness Act, which expands sex discrimination class actions, damages, and company reporting requirements, could prohibitively increase litigation in pursuit of giving victims stronger tools to assert their rights, California attorneys say.

The bill was passed 242-187 by the U.S. House of Representatives on Wednesday. Eight Republicans broke ranks to join the majority while no Democrats voted against it.

More specifically, the bill amends the Equal Pay Act, a portion of the Fair Labor Standards Act. It changes viable defenses for pay disparities from “any factor other than sex” to “bona fide factors” such as education, training, or experience. It also creates liability for punitive damages and compensatory damages, and states sex discrimination cases can be brought as opt-out class actions, adding plaintiffs without affirmative consent.

“By allowing federal pay equity claims to be brought as class actions, the act merely encourages litigation,” said Susannah Howard of O’Melveny & Myers LLP.

She pointed to the difficulty in current cases of defining legal reasons for disparities, especially given competing studies on what wage gap exists. Some say the gap shrunk over the past 50 years, but remains around 80 cents for women to each dollar for men. Converse studies say the gap decreases or entirely disappears when time worked, career choice, or other factors are controlled for.

“Figuring out whether individuals with different pay are in fact performing equal work is the most difficult question in the pay equity context — a question this legislation does not address,” Howard said.

Kelly M. Dermody of Lieff Cabraser Heimann & Bernstein LLP offered a different perspective, saying the bill “closes some loopholes for interpretation that otherwise could be misused to impede equal pay efforts.”

“The bill makes clear that pay differences must be based on legitimate factors, such as prior education or experience, and not based on illegitimate ones, such as prior pay at another employer. It also makes clear that employers must be prepared to justify the pay gaps of workers across different job sites,” she said.

Other provisions of the bill center on information that could either perpetuate or shroud in secrecy the pay gap. It adds retaliation protections for workers discussing their pay with each other, forbids asking for prior pay in interviews, and requires that employers with over 100 workers report more compensation, promotion, hiring, and firing data with respect to sex to the U.S. Equal Employment Opportunity Commission.

In those ways, the bill echoes legislative thrusts by other states and a dispute between two federal agencies. Multiple states including California have passed laws concerning prior pay and workers discussing compensation. Earlier this year, a federal judge ruled the Office of Management and Budget illegally stayed the Commission from adding similar disclosures to its EEO-1 form, intended to uncover pay disparities for enforcement purposes.

“Importantly, the bill supports efforts by the [commission] and the Department of Labor to collect pay data from employers, which will have the benefit of causing employers to improve equal pay monitoring and transparency,” Dermody said.

“This bill is reflective of similar legislation in other states intended to strengthen the courts’ ability to enforce equal pay practices for women,” said Charles O. Thompson of Greenberg Traurig LLP.

Ryan Wu of Capstone Law APC acknowledged the bill’s changing of equal-pay lawsuits to opt-out class actions would cause the stakes to skyrocket.

“This would dramatically expand the size of pay disparity class actions, as employees, due to fear of retaliation or a simple oversight, often will not opt in to collective actions. This change, coupled with expanding compensatory damages and penalties, would give this law a lot of teeth,” he said.

According to John K. Skousen of Fisher & Phillips LLP, that might encourage settlement rather than vindication by companies.

“This could become another conflagration like wage and hour lawsuits in the area of equal pay. Many employers are going to prefer to settle and survive,” he said.

“At the end of the day, pay equity class actions will be extremely difficult to prove on the merits, yet the potential damages at stake ... will encourage attorneys to file them and encourage companies to settle,” Howard echoed.

Though the bill faces an uphill climb in the Senate, Howard added its provisions for negotiation training for women are admirable. Wu said it could run afoul of ever-strengthening arbitration law, particularly with respect to class action waivers.

“If class waivers are enforceable as to pay disparity claims, many of those cases would end up in individual arbitration, which would undermine the congressional objective of deterring employers from engaging in wage discrimination on the basis of sex,” he said.