Paycheck and Arbitration “Fairness” Legislation May Create Major Employer Headaches

May 14, 2009

Two pieces of legislation are currently pending in Congress that may create significant developments in the employer-employee relationship. First, the Paycheck Fairness Act (H.R. 12 and S. 182) would amend the Equal Pay Act in order to create new damages and causes of action while removing impediments for employees to bring suits. Second, the Arbitration Fairness Act of 2009 (H.R. 1020 and S. 931) would amend the Federal Arbitration Act so that mandatory arbitration clauses in employment, consumer and franchise agreements are unenforceable. Each new piece of legislation, if enacted in its current form, could usher in a new era in employment-related litigation that is decidedly pro-employee.

The Paycheck Fairness Act

The Paycheck Fairness Act is major legislation that seeks to amend the Equal Pay Act of 1963 (EPA). The Paycheck Fairness Act passed the house on January 9, 2009. One day earlier, it was introduced in the Senate by then Senator Hillary Clinton (D-NY). Currently, it is pending on the Senate Legislative Calendar. Specifically, the Paycheck Fairness Act would make the following changes to the EPA:

  • Bar retaliation against workers who share information about wages with other employees;
  • Allow for compensatory and punitive damages;
  • Allow for opt-out class actions (as opposed to the current opt-in collective actions under the Fair Labor Standards Act, 29 U.S.C. § 216(b)); and
  • Narrow the “any factor other than sex” affirmative defense by requiring employer-proffered rationales for pay disparity to be job-related, bona fide factors linked to business necessities.

The Paycheck Fairness Act, especially when combined with the recently-passed Lilly Ledbetter Fair Pay Act (see 1/30/09 article), could trigger a wave of individual and collective wage-and-hour actions. Moreover, these bills should encourage employers to take appropriate measures to ensure their compensation policies and procedures are updated and being implemented properly. Employers also should start looking more closely at their compensation structure (preferably in a privileged context) to ensure that any disparity is based on bone-fide factors related to business necessity.

The Arbitration Fairness Act of 2009

On April 1, 2009, the Supreme Court of the United States ruled in the case of 14 Penn Plaza LLC v. Pyett (07-581) that mandatory arbitration clauses with respect to ADEA claims are enforceable (see 4/2/09 article). In direct response to that decision and the increasing willingness of many courts to enforce mandatory arbitration agreements, Congress has begun an attempt to overturn 14 Penn Plaza and other precedent favoring arbitration.

On February 12, 2009, Rep. Hank Johnson (D-Ga.) introduced the Arbitration Fairness Act of 2009 in the House. Currently, this bill has been referred to the House Subcommittee on Commercial and Administrative Law. Not to be outdone, on April 29, 2009, Sen. Russ Feingold (D-Wis.) introduced an almost identical version of the bill in the Senate, also called the Arbitration Fairness Act of 2009. Currently, this bill has been referred to the Senate Committee on the Judiciary.

Substantively, the Arbitration Fairness Act of 2009 seeks to make pre-dispute mandatory arbitration provisions contained in employment, consumer and franchise agreements unenforceable. However, mandatory arbitration clauses in employment agreements entered into before enactment of the Arbitration Fairness Act would still be enforceable. Finally, pre-dispute arbitration clauses in collective bargaining agreements unrelated to an employee’s ability to seek judicial enforcement for discrimination claims would still be enforceable.

Enactment of this legislation would drastically alter the employment landscape, as employers would no longer be allowed to include arbitration clauses in employment agreements. Instead, if an employer prefers the arbitral forum, it would have to wait until after a dispute arises and then seek an agreement with the employee to resolve the matter in arbitration.

McGuireWoods will continue to monitor these developments and provide further updates as these and other employment-related legislation come closer to enactment. For further information regarding pending legislation in Congress or for assistance in analyzing your current compensation and arbitration options, please contact the authors or any member of McGuireWoods’ Labor & Employment or Employee Benefits teams.