The Perfect Storm

Employers in California and across the nation are facing some of the most difficult times in almost 80 years on the employment and labor front. In addition to the bad economy, employers are struggling with the new regulations already put into place by the Obama administration, such as the newly enacted Ledbetter Fair Pay Act. Employers are also concerned about the looming regulations the administration said it supports, primarily the Employee Free Choice Act. Oh, and we cannot forget, the new Secretary of Labor, Hilda Solis, has vowed to ramp up the Department of Labor’s field audits on employers with the help of 150 new investigators it will be hiring under the American Recovery and Reinvestment Act.

What should employers do?

First, it is not a bad time to conduct an audit of pay practices to ensure compliance with the existing regulations. If an employer is going through layoffs, there is a very good likelihood that its pay practices will be under close scrutiny. Second, employers need to understand what their obligations will be if the Employee Free Choice Act is actually enacted. With the decrease of union membership over the last few years, employers need to review what their obligations are when dealing with unionizing efforts.
 

Obama's First Law Sends A Clear Message To Employers

President Obama signed the Ledbetter bill into law today. The bill overturned the Supreme Court’s ruling in Ledbetter v. Goodyear Tire & Rubber, which held that employees must file a discrimination claim within six months after being discriminated against. Ledbetter argued that the Supreme Court should apply a type of continuing violations doctrine to her situation. Under such a theory, Ledbetter argued that the first discriminatory act (receiving a lower than deserved raise because of her gender) continued with each additional pay raise because pay raises are cumulative over time. Therefore, she alleged that even though she had no evidence that her pay raises during the applicable 180 day time period to file a suit were discriminatory, the original discrimination continued into this time period. The Supreme Court rejected this argument, but now the new law allows employees to file a lawsuit 180 days after receiving their final paycheck, even if the discrimination took place decades earlier.

The new law removes any time limits on pay discrimination claims. A discrimination case can now be brought long after evidence has gone stale or witnesses have died, which was the case with Ms. Ledbetter's former boss. There is no doubt that this will result in more litigation against employers. 

What is the effective date that this law applies?  May 28, 2007.  And yes, that is not a typo - the law is retroactive.  This is the date of the Supreme Court's decision in the case. 

What Does Obama Have Next For Employers?

The Paycheck Fairness Act. This bill, which Obama co-sponsored while in the Senate, provides for stronger remedies under the already existing Equal Pay Act. This Act was coupled with the Ledbetter bill, but Democrats were worried that the two bills together would raise too much of an opposition to their passage. Therefore, the PFA was severed from the Ledbetter bill, and will definitely be placed on the President’s desk in the next couple of months, if not sooner.

The PFA would create a new, more difficult legal standard for employers to meet in showing that their pay structures were not discriminatory. Under the new standard, employers would have to show that wage disparities are job-related, not sex-based, and could only use a defense if they prove that business necessity demands the unequal pay. Under the current Equal Pay Act, employers need only show that the difference in wages results from “any factor other than sex” and the employer does not have to show a business necessity for the difference in pay.

As James Sherk of the Heritage Foundation points out:

Under the PSA, the government will inject itself into areas of business over which it has no experience. For instance: Does experience constitute a "bona fide factor other than sex"? A woman earning less than a man with more experience could argue that her employer should be required to send her to training and then pay them identical wages. She would have a strong case to argue that experience was not a "bona fide" factor because an alternative employment practice would eliminate the disparity.

The paycheck fairness legislation would also require the use comparable worth in creating "voluntary" wage guidelines for industries, and makes class action lawsuits on these grounds easier to bring. The Wall Street Journal notes:

Voluntary or not, these guidelines would become the basis for more litigation against companies that didn't follow them. Meanwhile, the bill strips companies of certain defenses against claims of sex-based pay discrimination. It also makes it easier to bring class actions, and it allows plaintiffs to claim unlimited punitive damages even in cases of unintentional discrimination.