The Paycheck Fairness Act - Redefining "Factors Other Than Sex"

On March 11, 2010, the Senate Health, Education, Labor and Pensions Committee held hearings on the pending Paycheck Fairness Act, a measure that would fundamentally change the Equal Pay Act of 1963.

In his testimony before the Senate HELP Committee, Acting EEOC Chairman Stuart Ishimaru stated:

"The wage gap is alive and well in America, with the typical full time year round female worker making $0.77 for every dollar earned by her male counterpart... Although some of the pay gap can be explained by differentials in experience or as a result of the differences in the occupations men and women typically do, the Shriver Report estimates that about 41% of the pay gap cannot be explained by these factors... The Paycheck Fairness Act provides essential tools toward realizing the promise of equal pay. Passage of this legislation would make it easier to establish violations of the Equal Pay Act, by clarifying the affirmative defense for 'factors other than sex'..."

The Equal Pay Act currently prohibits employers from paying a female employee less than a male employee for "substantially equal" work. The EPA does not require a demonstration of discriminatory intent, and an employer will be liable for such a pay differential unless it can demonstrate that the discrepancy is attributable to:

1. a seniority system;
2. a merit system;
3. a system which measures earnings by quantity or quality of production;
4. any factor other than sex.

The Paycheck Fairness Act would restrict the "any factor other than sex" defense, requiring the employer to show that the pay differential is not only caused by something other than sex, but also is related to job performance and is consistent with business necessity.

In her testimony before the Senate HELP committee, Jane McFetridge, the Managing Partner of Jackson Lewis's Chicago office, stated that the Paycheck Fairness Act would replace the "any factor other than sex" defense under the Equal Pay Act with a more demanding requirement. Under the Fair Pay Act, an employer would have to show that the difference in pay was based on a "bona fide factor other than sex" that is "job related" and "consistent with business necessity". Further, Ms. McFetridge notes that the "business necessity" defense would be unavailable in the event a plaintiff demonstrated that "an alternative employment practice" exists that would serve the same business purpose.

Ms. McFetridge testified:

"It will take years of costly litigation to sort out what is meant by these new affirmative defenses. In the meantime, employers are left with little guidance as to how to conduct their business under this paradigm... As a practical matter, there is simply no way an employer will be able to demonstrate that each and every pay determination it makes is consistent with business necessity."

It remains to be seen whether the Paycheck Fairness Act will in fact be passed by the Senate. Like the Ledbetter Fair Pay Act of 2009, the Paycheck Fairness Act has some significant implications for modeling compensation decisions.