Living With Lily Ledbetter's Wage Law

 The first legislative action from the Democratic congress and the Obama administration involving labor and employment matters focused on pay discrimination.  President Obama signed the Lily Ledbetter Fair Pay Act of 2009.  The legislation overturns a US Supreme Court case involving Ms. Ledbetter and has a major impact on the issue of timeliness in wage discrimination cases. 

 Under the statute, a discriminatory pay decision occurs each time a pay check is issued; not when the initial pay decision was implemented.  This language effectively does away with the statute of limitations which under Title VII of the Civil Rights Act of 1964 which was 180/300 days.  Most significantly, the statute applies to all disparate pay claims and not just those arising under Title VII.  Under the statute, an unlawful employment practice occurs when an individual becomes subject to or affected by a pay decision or "other practice.”  "Other practice” would include those which affect compensation issues such as performance ratings where performance is a factor in compensation decisions or in job classifications impact pay. 

 As a result, employers now need to recognize that challenge actions could go back to the date of hire of an employee, perhaps beyond. Record retention now becomes extremely significant in light of the "evergreen” nature of pay discrimination claims.  Record retention policies must be reviewed with respect to records which directly or indirectly involve or impact compensation.  For example, if performance evaluation is considered in the employer's decision with respect to pay, the employer would need to retain its compensation policies as well as the specific evaluation of employees indefinitely since theoretically, an employee could challenge a pay decision today ten years from now.

 Employers now must place an emphasis on the content of documents pertaining to pay decisions.  Those documents must be complete and reflect what happened and why.  The documents may well be the only evidence available to the company since managers involved in a particular pay decision may no longer be employed at a time when a challenge occurs.

We suggest that employers need to audit their compensation criteria, considering specifically:

•  What are the criteria?
• Are they objective and non-discriminatory?
•  Are the criteria consistently applied?
•  Are the criteria supported by documentation?

An audit of compensation criteria is particularly prudent in light of the second wage statute on the horizon, the Paycheck Fairness Act, which was passed by the House in January of this year.  This statute expands damages to include compensatory and punitive damages.  It allows suits to be brought as class actions.  The definition of "same establishment” as existed under the Equal Pay Act has broadened.  Finally, the employer's affirmative defense on difference based on factors other than sex now must include proof that the factors are job related and consistent with business necessity, an increase in the employer's burden. 

For the first time, pay discrimination has its own statute.  Prior to the Ledbetter act, an employee had to look to each of the various federal civil rights statutes to bring pay claims.  With the practical effect of the elimination of the limitations, companies can find themselves subject to claims for decisions made at a time beyond the knowledge of current management.  The potential for such a lack of institutional history is especially true in today's economy where lay offs and job restructuring have led to the departure of many long term management employees and it is therefore critical that employers undertake the assessment of their wage payment policies and practices.

For further information on this issue contact:

Gregory Meihn, Esq. at gmeihn@foleymansfield.com
Thomas Harder, Esq. at tharder@foleymansfield.com