The first workplace bill to reach President Barack Obama’s desk is a pay-related law. Just days after the inauguration on Jan. 29, 2009, Obama signed the Lilly Ledbetter Fair Pay Act into law, which is retroactively effective May 28, 2007. The swift enactment of the Ledbetter Act is not surprising since Lilly Ledbetter was a fixture in the Obama campaign.
The Ledbetter Act expressly overturns the U.S. Supreme Court’s 2007 decision in Ledbetter v. Goodyear Tire & Rubber Co. Inc. 127 S. Ct. 2162 (2007). In that case, the U.S. Supreme Court expressly rejected the “paycheck rule”—that every paycheck issued was a separate act of discrimination. By doing so, the Supreme Court decision established a limited timeframe in which employees could bring pay discrimination claims. The Supreme Court decided that employees were required to file pay discrimination claims with the U.S. Equal Employment Opportunity Commission (EEOC) within 180 days of the original discriminatory pay-setting decision, even if the violation continued to affect the employee’s compensation long after the 180-day period expired.
The Ledbetter Act broadens the type of occurrences that are unlawful employment actions for purposes of triggering a pay discrimination claim. Under the act, an unlawful employment practice occurs when (1) a discriminatory compensation or other practice is adopted; (2) an individual becomes subject to the discriminatory decision or practice; or (3) an individual is affected by application of the discriminatory decision or practice, including each time discriminatory compensation is paid. With the paycheck rule now in effect, employees may seek to reclaim lost compensation, no matter when the initial discrimination took place, as long as the claim is filed with the EEOC within 180 days (or 300 days in some states) of the receipt of any compensation affected by the violation. Moreover, although combating gender-based pay discrimination was the impetus for the legislation, the Ledbetter Act prohibits pay discrimination based upon all of the protected categories under Title VII of the Civil Rights Act of 1964, the Age Discrimination in Employment Act, the Americans with Disabilities Act and the Rehabilitation Act, i.e., race, color, religion, national origin, age and disability.
Impact of the Ledbetter Fair Pay Act
The Ledbetter Act is likely to trigger a surge in pay discrimination claims and unanticipated liability. The statutory enactment of the paycheck rule will allow employees to challenge pay-related decisions years after they occurred. Significantly, Congress made the effective date of the Ledbetter Act retroactive to May 28, 2007, the day before the Supreme Court issued the Ledbetter decision. As a result, claims made after May 28, 2007, which would have been untimely because of the Supreme Court’s rejection of the paycheck rule, now become viable.
The Ledbetter Act, however, does not require employers to repay employees for decades of discriminatory pay differentials. Congress limited the amount of lost income that an employee can recover to no more than back pay for two years prior to when the employee filed the discrimination claim.
Steps Employers Can Take to Minimize Exposure
The impact of the Ledbetter Act will be an increase in pay discrimination claims and greater oversight by the EEOC and the U.S. Department of Labor. There is the chance that employers will be called upon to defend activities and decisions that occurred years, and even decades, ago by unknown and long gone managers. In some cases, employers may have to defend not just their pay rates, but all other conditions of employment that are impacted by pay scales, i.e., pensions, bonuses and severance pay. With no apparent end in sight to the economic meltdown and as employers assess various cost-cutting strategies, the potential risk of pay discrimination claims must be considered.
While the balance seemingly has tilted in favor of employees on pay-related issues, through careful planning, employers can minimize the risks and costs of noncompliance with pay equity laws. Some of the steps that employers can take are the following:
1. Review all compensation-related policies, procedures and programs with employment counsel.
2. Conduct a self-audit of all job classifications to determine whether there are pay differentials and, if there are any, the rationale for the pay differential.
3. Ensure supervisors and managers sign a document to acknowledge their understanding of any pay adjustments awarded based upon performance evaluations.
4. Emphasize to employees the availability of an internal complaint mechanism to address inequities in pay during antidiscrimination training.
5. Examine existing record retention and litigation protocols to ensure that if a pay discrimination lawsuit is filed, the information required to defend the claim is accessible and preserved.
Patrick Hicks is the Founding Shareholder of the Reno and Las Vegas Littler Mendelson offices. Hicks is Nevada’s most experienced employment law litigator and trial attorney, and he regularly appears in all state and federal courts in Nevada and elsewhere. He can be reached at phicks@littler.com.
Sandra Ketner advises and represents employers in a broad range of employment law matters for Littler Mendelson, including wrongful termination litigation, harassment and discrimination litigation, and other statutory and common law claims pertaining to employment law. She can be reached at sketner@littler.com.
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