by David S. Fortney, Fortney & Scott, LLC
Well-counseled employers know their company’s compensation systems increasingly are subject to enforcement actions and litigation challenges. The trend of employers facing significant challenges to their compensation systems is both continuing and accelerating.
Recent developments include renewed efforts by the White House to enact legislation to increase employers’ legal liabilities and damages, stepped-up enforcement actions directed at federal contractors, and a record-setting quarter-billion-dollar jury verdict and settlement in private litigation.
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Efforts to step up enforcement and pass legislation
Leading the renewed interest in expanding the challenges to employers’ compensation systems is the White House. On July 20, President Barack Obama issued a statement calling for renewed efforts to pass the Paycheck Fairness Act (PFA). That same day, Vice President Joe Biden and members of the White House Middle Class Task Force and Council on Women and Girls announced recommendations from the Equal Pay Enforcement Task Force. The Equal Pay Enforcement Task Force’s recommendations provide the road map for what employers can expect during the Obama administration on compensation enforcement matters such as:
- improving interagency coordination and enforcement efforts to maximize effectiveness of existing authorities, which includes the U.S. Department of Labor (DOL) coordinating with the U.S. Department of Justice (DOJ) to allow the DOJ to file enforcement litigation actions against federal contractors;
- collecting data on the private workforce to better understand the scope of the pay gap and target enforcement efforts;
- undertaking a public education campaign to educate employers on their obligations and employees on their rights;
- implementing a strategy to improve the federal government’s role as a model employer; and
- working with Congress to pass the PFA.
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Pending legislation — the PFA
The PFA would fundamentally change how compensation decisions are made. The bill eliminates the “reason other than sex” defense and substitutes instead a requirement that the employer prove that its pay practices are divorced from any discrimination in its workplace or at the employee’s prior workplace and that the pay practice is job-related and consistent with “business necessity.”
Additionally, it would be easier to file class actions, and the current statutory caps on compensatory and punitive damages would be eliminated. If it’s enacted, companies will have far less flexibility in addressing different salary histories for new hires, different salary demands from existing employees, the size of pay raises for people promoted into new roles, and similar situations that today yield differing compensation results for employees.
The PFA was passed by the House of Representatives as part of the Lilly Ledbetter Fair Pay Act in 2009, but it wasn’t passed by the Senate. Following the White House’s renewed push, the PFA has been reintroduced in the Senate and is pending as part of a larger economic reform bill.
OFCCP files compensation enforcement action
In May, the DOL’s Office of Federal Contract Compliance Programs (OFCCP) filed litigation claims against AstraZeneca PLC alleging violations of Executive Order 11246. The OFCCP claims that AstraZeneca underpaid female pharmaceutical sales specialists as compared to male counterparts. The agency is demanding that the company identify and provide to affected employees relief, including lost wages, interest, front pay, salary adjustments, fringe benefits, seniority, and all other employment benefits under the threat of cancellation of $50 million in current federal contracts and debarment from entering into future contracts. The OFCCP’s case is pending.
Additionally, the agency has indicated that it will revise its compensation regulations and take additional steps to step up compensation enforcement. Stay tuned — there will be more developments affecting federal contractors.
Major verdict on class-action compensation claims
Employers face growing litigation exposures for class-action claims challenging their compensation decisions. In July, class-action litigation against Novartis alleging compensation and additional sex discrimination claims was settled for $175 million, following jury verdicts in May awarding $250 million in punitive damages — the largest ever in a sex discrimination verdict. The settlement included $60 million in back pay plus detailed monitoring by the plaintiffs’ attorneys and reports. Velez v. Novartis Pharms. Corp., S.D.N.Y., No. 04 Civ. 9194.
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