How the Paycheck Fairness Act is bad legislation

The Paycheck Fairness Act would be bad legislation
The Paycheck Fairness Act would be bad legislation

For a number of years the Obama administration has been trying to get the Paycheck Fairness Act passed. I first wrote about this in 2008 and several times since then. The Paycheck Fairness Act is a supposed amendment to the Equal Pay Act of 1963. The EPA has provided protection to women in pay situations where women perform the same work that men perform. On April 9, 2014 the Senate once again turned down this legislation. It was bad legislation in 2008 and it has not improved since. There are three components that make this bad legislation, let me explain.

Reason 1- No differentiation

According to an analysis of the PFA by attorneys Kehoe and Lorber of Seyfarth Shaw, the legislation alters the “factor other than sex” defense of pay decisions that companies make. The EPA says that compensation decisions have to be based on business decisions that are not gender based. That means a company cannot pay a woman less than a man if all other factors such as years of experience, education and performance are equal. This factor allows companies to make a distinction between workers in the amount of money paid for differences in performance, degree, etc. Under the PFA that distinction would be removed. In essence any employee in a job would have to be paid exactly the same thing as any other employee in the same job with no allowance for performance. This would result in a system of people working down to the lowest common denominator since there is no reward possibility for working hard. This is much the way union pay grades work as well.  You can read Kehoe and Lorber’s analysis here.

Reason 2- Increased and unlimited penalties

Currently under the Equal Pay Act employers are liable for back pay, front pay, liquidated damages, interest and attorneys’ fees. Under the Paycheck Fairness Act those penalties will continue but unlimited compensatory and unlimited penalties will be allowed. Additionally, unlike the Civil Rights Act of 1991 that limits damages based on company size, there would be no restriction on company size. Conceivably a company with $1 million in revenue could be fined as much as a company with $1 billion in revenue.

Reason 3- Class action suits

Under the PFA the hurdle for class actions suits gets altered from what is allowed under the EPA. The EPA says that for someone to be included in a class action suit they must “opt-in” to be included. Under the PFA every possible employee is included and if they do not wish to be included they must “opt-out.” This significantly increases the potential harm that can be done to an employer, even to the point of putting them out of business if they are a small company that is hit with unlimited damages.

Why this legislation?

The current attempt to get this legislation is based on the myth of pay inequality. Yes, I said pay inequality. The current administration wants to get rid of an inequality in pay that is based on bad facts by passing legislation that makes everyone’s pay the same. Stay tuned for tomorrow’s post and I will address the myth of gender pay inequality.

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