Fact Check: Is There A Small Business Exemption in the Paycheck Fairness Act?

Senate Majority Leader Harry Reid (D-NV) has filed cloture on the long pending Paycheck Fairness Act (S.3772) which queues the bill up for possible action during the lame-duck session of Congress. The labor unions, trial lawyers and other activists are going to find it hard to make a persuasive case for legislation that will expose employers to the threat of unlimited damages and increase litigation costs while doing little to actually prevent instances of illegal discrimination. Many of these groups and Members of Congress try to diminish the economic impact, asserting that small businesses are exempt from the bill. Recently Rep. Chellie Pingree (D-ME) claimed: “It is also important to say that this only applies to big business, this does not apply to the sandwich shop around the corner.”

Really? Really? Well let’s take a look…

The legislation’s Section 11 is in fact named: “Small Business Assistance”. This provision states that the bill would go in effect 6 months after the date of enactment. Additionally the bill directs the Department of Labor and the EEOC to provide small businesses “technical” assistance to comply with the new law as well as reiterating that the bill would apply to employers covered by the Fair Labor Standards Act (FLSA).

Well who is covered by the FLSA? For this we turn to Department of Labor’s Wage and Hour Division, which enforces that law. And, according to the Labor Department “almost every employee working in the United States” is covered by the FLSA.” Well then, who’s exempted?

Employers that have fewer than two employees and do less than $500,000 a year in business would not be covered. That really is a SMALL business.

But wait, there’s more. Even if a business meets these thresholds, the only employees who would not be covered by the FLSA would be the ones who do not produce goods for interstate commerce, or closely-related process or occupation directly essential to such production, who are not involved in domestic service and are not engaged in interstate commerce. So that means if an employee makes a phone call to another state, sends mail to another state, travels to other states or even processes credit card transaction is engaged in “interstate commerce”.

Using the Department of Labor’s own example that means the exemption from the FLSA – and thus the Paycheck Fairness Act – would apply to employees working for small independently owned retail or service businesses, as long as they do not use a credit card machine or place a call out of state and are essentially “cash only” stores of less than two employees would not be covered by the Paycheck Fairness Act.

So yes, the Paycheck Fairness Act does technically have a “small business exemption.” However, that exemption effectively exists in name only, as almost all employers would be subject to its provision. Claiming that the bill exempts small businesses is tantamount to claiming that the Employee Free Choice Act protect secret ballots for workers…

Keith Smith

Keith Smith

Senior Vice President at National Association of Manufacturers
Keith Smith serves as senior vice president of public affairs and mobilization at the National Association of Manufacturers (NAM). He helps lead the association’s issue advocacy campaigns as well as the NAM’s national grassroots advocacy network.
Keith Smith

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