Virginia Pay Bill Will Be a Nightmare for Some Small Employers

by Hans Bader

Pay regulations that are a manageable hassle for the biggest employers can be a nightmare for small employers. One example is SB 1228, a bill pending in the Virginia legislature. If enacted, it would keep employers from setting employee pay based on employees’ past wages, even though wages are usually a sign of what an employee is worth, and often reveal more about an employee’s role in a company than the employee’s mere job title reveals. It would forbid any employer in Virginia, regardless of size, to “rely on the wage history of a prospective employee” in determining the employee’s wage. It would also forbid them from seeking “the wage history of a prospective employee.”

Since federal law permits such wage-setting, and small businesses often don’t have lawyers, some small businesses will likely get sued for violating it, before they even learn about the existence of this law.

SB 1228 also defines certain pay differences as discrimination even when they are unlikely to be due to bias — especially when they occur at small employers, where such pay differences affect only an isolated number of employees, and thus are statistically insignificant. SB 1228 requires pay equity for businesses of all sizes, for all protected classifications — not just sex, but also marital status, religion, race, disability, etc.

Equal pay for different groups would be required not just when they perform equal work, but also when they perform “substantially similar work,” and if a protected class is paid less for substantially similar work than another group, that would be considered discrimination, unless the employer satisfies certain narrowly defined affirmative defenses.

On average, men and women are of equal competence, so it may sometimes be a sign of discrimination if a large employer systematically pays a large number of women less than a large number of men who perform “substantially similar work.”

But pay disparities among a small group of employees usually don’t mean anything, because they aren’t statistically significant. They just reflect the fact that no two people are alike, so an individual woman may be paid more than an individual man, or vice versa, even if they are doing a similar job (for example, one might be better at negotiating their pay).

Let me give you a personal example. I used to work for a think-tank where I was paid less than my senior colleague, even though I did similar work, and I had a better win-loss record in court than he did, in arguing court cases. (See, e.g., CEI v. OSTP, 827 F.3d 145 (D.C. Cir. 2016) (a case I argued expanding FOIA’s reach to government officials’ private email accounts)).

Was my being paid less a sign of discrimination? (My senior colleague was Jewish, and I have a disability, so we have different protected classifications covered by SB 1228).

No, it wasn’t discriminatory. My colleague was universally beloved by his co-workers, and seemed like everyone’s uncle. He was the person employees confided in about their personal problems, like when they were going through a messy divorce. Everyone liked having him around, and he was like the cool dad played by Eugene Levy in the movie “American Pie.”

By contrast, I am shy, and can be grumpy and unapproachable.

The simple truth is that he was paid better in part because he was part of the “glue” of the institution, because of his superior congeniality, and his presence helped boost employee morale.

That was a good reason for paying him more money than me. But not good enough under SB 1228, since it’s not really “job-related,” much less a “business necessity.”

So I could have sued my employer under legislation modeled on SB 1228, for religious or disability discrimination. Even though I was not a victim of discrimination. That seems wrong.

I think small employers — those with fewer than 50 employees — should be exempt from SB 1228, even assuming it makes sense for large employers (which it doesn’t).

Statistical disparities based on a small number of employees just aren’t that meaningful, as some courts have concluded. For example, one appeals court rejected a lawsuit under Title VII of the Civil Rights Act over an unintentional disparity that involved few employees, because “discriminatory impact cannot be established where you have just one isolated decision.” (Coe v. Yellow Freight, 646 F.2d 444 (10th Cir. 1981)). But SB 1228’s more stringent phrasing could lead to employer liability based on a small number of decisions.

That risk is not worth taking, because existing law already bans pay discrimination based on race and sex. Small employers, regardless of size, are already covered by the federal Equal Pay Act, which bans pay discrimination against women — but gives employers more opportunity to prove themselves innocent of pay discrimination than SB 1228 does. Small employers, regardless of size, are also already forbidden from engaging in any intentional racial discrimination (including in pay decisions), by 42 U.S.C. 1981.

For a discussion of how “pay equity” legislation can be unfair to workers — not just employers — by eliminating legitimate factors for compensating employees, see this link. For a larger discussion of pay-discrimination law, see my law journal article at this link.

Hans Bader is an attorney living in Northern Virginia. This column was published originally at Liberty Unyielding.

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7 responses to “Virginia Pay Bill Will Be a Nightmare for Some Small Employers”

  1. Steve Haner Avatar
    Steve Haner

    Too many targets, too little time. This is a dangerous bill for employers, so glad you tagged this. Last year, as you recall, we had the bill mandating employers provide the Attorney General with all the payroll and hiring data so the state could go hunting for examples of what it considered unfairness. So far this year I have not seen anything similar. Yet. But in the intervening time the AG was supposed to come up with another method of gathering that data, so I doubt they’ve lost interest.

    In many union shops pay is tightly regulated, everybody getting paid the same under the contract provisions, no matter which employee is stellar and which struggling. This moves all workplaces in that direction.

  2. James Wyatt Whitehead V Avatar
    James Wyatt Whitehead V

    The word bona fide is used 4 times in the bill. But no real measurement is given for what is genuine. Employers face some stiff penalties from the politburo. At least this part made me chuckle!

    “By contrast, I am shy, and can be grumpy and unapproachable.”

  3. Emilio Jaksetic Avatar
    Emilio Jaksetic

    Steve Haner correctly points out that the proposed bill will move all workplaces in the same direction. The logic of equality meaning equal outcomes, and no tolerance for any differential treatment for any reason point to the same result — every business must conform to reach identical outcomes or results.

    What next? More legislative micromanagement of businesses? Government imposed quotas on businesses? Central economic planning? Creation of an “economic equity officer” to supervise all businesses in Virginia?

    Seem General Assembly wants Virginia to be a business-unfriendly State.

  4. David Bither Avatar
    David Bither

    Setting aside constitutional challenges to CCP style central planning and diktats, small businesses are way ahead of apparatchik. In increasing numbers, companies are simply hiring labor as 1099 consultants and subcontractors. This provides the company with the required workforce, incentivizes the worker to perform at a high level, and avoids overhead costs due to government meddling.

    1. James Wyatt Whitehead V Avatar
      James Wyatt Whitehead V

      1099s can be risky for the employer. If the employee doesn’t do their part the tax man is coming for the employer first.

  5. djrippert Avatar

    Given how far behind Virginia is in everything other than sucking at the federal teat I wonder whether other states are doing anything like this. Let’s be honest – given the lackluster economic performance of Virginia (if you subtract federal money flow), our General Assembly has no business pioneering anything new. So, if this is somehow working elsewhere that would be a big plus in my mind. However, if this is just more liberal experimentation from Richmond I think we should let better run states innovate and then copy the states that are successful. By the way, how are we doing on getting the unemployment checks out the door? Have we caught up to September yet? How are we doing on using the vaccines we have received? Are we out of the “worst five states” yet?

    1. idiocracy Avatar

      Almost 20 years later, the parcel where Eli Lilly was going to build their insulin plant in Prince William County remains empty (save for some building foundations visible from an aerial view).

      Remember all the hype about how that was going to be a major economic boon for Virginia?

      At least, land records show that Amazon bought it, so we can be sure that it PROBABLY won’t turn into a used car lot.

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