If you were an employer, why would you hire somebody in an economy that’s barely growing, when you could be hit by all sorts of employee-related expenses in the future, the way employers have already been hit by increased costs due to Obamacare? Employers are worried about additional costs that could force them to lay off newly hired workers if Congress passes cap-and-trade global warming legislation (which would impose massive costs on many industries, requiring cutbacks in production). Recent EPA rules aimed at global warming will wipe out at least 800,000 jobs, with a blizzard of additional new rules expected to follow. And the stimulus package, despite its $800 billion cost, did little for employers, wiping out export-sector jobs, and funneling green-jobs money to foreign firms. (The current weak “recovery” actually began in June 2009, before the stimulus package even began being spent.)
Thanks to steadily-expanding government red tape, every time you set a worker’s pay, or have to fire a lazy or incompetent employee, you now face the risk of being sued (You are less likely to hire someone if you can’t fire them later if they turn out to be lazy or incompetent). Employees who are fired for even good reasons often turn around and sue the employer for age, race, sex, or disability discrimination, or for the “hostile work environment” they claim existed during their employment due to things like overheard remarks. Getting meritless lawsuits tossed out is expensive — years ago, it was typically $25,000 on legal bills if the employer succeeded in getting rid of the lawsuit at the earliest possible stage (on a pre-trial motion to dismiss), $75,000 at the next stage (”summary judgment”), and $250,000 if the employer won at trial. Under a legal double-standard called the Christiansburg Garment Rule, if the employer wins, the worker seldom has to pay the employer’s legal bills; but if the worker wins, the employer has to pay the worker’s legal bills as a matter of course (or even a multiple of the employee’s legal bills if the lawsuit is brought in some liberal states like New Jersey (see Rendine v. Panzer (1995)).
You are much less likely to hire someone if you can’t avoid being sued by them later over the pay package you negotiated with them when they were hired. That’s now a real possibility for employers. Setting employee pay has gotten harder under the Obama administration due to the 2009 Lilly Ledbetter Fair Pay Act, the first law signed by President Obama, which essentially eliminates the deadline for bringing pay discrimination claims against employers, meaning that employees can wait many years after their pay is set, and sometimes even after they are fired, before bringing a lawsuit against their employer. (Some courts have even allowed employees to use the new law to challenge demotions many years after they occur, under the theory that their demotion indirectly affected their pay.) The Ledbetter Act was named after Lilly Ledbetter, who waited until she was about to retire before suing over alleged pay discrimination, meaning that the supervisor who allegedly discriminated against her was dead and unable to defend himself against discrimination charges by the time the jury decided her case. (Ledbetter testified in her deposition that she knew of the pay disparity by 1992, but didn’t file a complaint with the EEOC until 1998). The Ledbetter Act overturned the deadline applied by the Supreme Court in its 5-to-4 ruling against Ledbetter.
The Obama administration wants to make it even easier to sue for discrimination through bills like the Civil Rights Restoration Act and the Paycheck Fairness Act. The Paycheck Fairness Act would require equal pay for some employees who do unequal work, and allow them to seek unlimited punitive damages against their employers. Right now, most pay discrimination claims require a showing of unequal treatment (that is, intentional discrimination), although, under Title VII of the Civil Rights Act, big employers can be ordered to pay very limited amounts (back pay, not emotional distress or punitive damages) for certain practices or pay scales that have an unintentional “disparate impact” on women or minorities (like paying people more because they have a high-school diploma, if the job supposedly doesn’t really require a high-school diploma). The Paycheck Fairness Act would import such standards into the Equal Pay Act, which covers even tiny employers (unlike Title VII), and subject them not merely to back-pay claims, but to uncapped punitive damages and claims for “emotional distress” over pay disparities.
It would require the employer to prove in court things that no tiny employer could ever afford the legal-fees to demonstrate. Under the Paycheck Fairness Act, an employer would have to show an overriding “business necessity” and lack of any alternative to justify the use of certain factors “other than sex” in setting pay scales. This is worrisome, because even under existing laws that allow lawsuits over “unintentional” discrimination, employers have been forced to spend hundreds of thousands of dollars on expert witnesses to show that a challenged practice was reasonable, only to have the courts say that that was not enough, that the practice had to be more essential (and more closely-related to technical requirements like “content validity” and “construct validity”).