On 1/29/2009 President Obama signed into law the Lilly Ledbetter Fair Pay Act which expands the time period in which employees can pursue discrimination claims related to employment compensation. This will result in a substantial increase in the number of pay-related lawsuits.
What Has Changed
Support for the law began after the bill's namesake, Lilly Ledbetter, filed suit against her former employer claiming that she was paid less money than equally qualified, and in some cases lesser qualified, men over a span of almost 20 years. The U.S. Supreme Court ruled that the claims were time-barred since time limits for filing a charge of discrimination began to run when an employer makes an allegedly discriminatory compensation decision – not, as Ms. Ledbetter argued, every time an employee receives what she considers to be a lesser paycheck motivated by unlawful discrimination.
In response to the Court's ruling, sponsors drafted the Ledbetter Fair Pay Act, which expands the limitations period in which aggrieved employees can claim that they were subject to unlawful discrimination relating to compensation. The Act expressly overrules the Supreme Court's Ledbetter decision and states that an unlawful employment practice occurs not only when an employer makes the initial allegedly discriminatory compensation decision (most commonly upon hiring), but also upon "the application of a discriminatory compensation decision or other practice, including each time wages, benefits, or other compensation is paid." In short, under this Act, each individual paycheck, or other compensation alleged to be discriminatory, can be considered a distinct unlawful employment act which starts the limitations period anew.
The Ledbetter Act expands the remedies available to aggrieved parties by allowing employees to seek back pay for a period of two years predating their charges, as long as the past violations are "similar or related" to those that occurred during the charge period, a standard which will likely be easy to satisfy in cases where employees have been compensated under the same allegedly discriminatory structure for a significant period of time. By its express terms, the Ledbetter Act amends Title VII, ADA, the Rehabilitation Act, and the Age Discrimination in Employment Act, and will therefore affect compensation claims based on age, race, disability, and other statutorily-protected classes.
What Does This Mean For Your Business?
The Act is primarily procedural and therefore imposes no new substantive requirements on employers beyond what is already required. However, as this Act gains notoriety, employees (and their attorneys) will be scrutinizing compensation practices and it is advisable that employers do the same.
Because of the broad scope of the Act, you should review all of your compensation and benefits policies, (not just those relating to salaries and hourly wages) to ensure that policies are being applied consistently, and that there are appropriate guidelines for compensation decisions, both at the time of hire as well as upon advancement within the organization.
The Act will also have a significant impact on employee recordkeeping. You will need to be both methodical and vigilant in keeping detailed records related to any compensation decisions pertaining to current employees. Additionally, because the Act itself references benefits and is not strictly limited to paychecks, even inactive employees on leave, retirees, or any other inactive or former employee who still receives some form of compensation from the organization may be entitled to the Act's protections.
The number of wage-related lawsuits is poised to become a wildfire, but you don't need to get burned. With a little foresight and regular review of your policies, you can assure that you are in compliance with all of your obligations under the law.
This Legal Alert provides highlights of a particular new law. It is not intended to be, and should not be construed as, legal advice for any particular situation.