One Good Reason To Examine Your Compensation Practices: The Lilly Ledbetter Fair Pay Act

Volume 8, Issue 7
May 14, 2009

The Lilly Ledbetter Fair Pay Act, signed in January 2009, significantly expanded an employer's potential liability for claims of pay discrimination by amending the statute of limitations for any such claims asserted under Title VII, the Age Discrimination in Employment Act, the Americans with Disabilities Act, and/or the Rehabilitation Act. The breadth of the Fair Pay Act and the potential for an increase in individual and class wage claims requires an employer's attention to an area frequently overlooked - pay practices.

To explain the Fair Pay Act, we must start with a discussion of Ledbetter v. Goodyear Tire & Rubber Co., Inc., 550 U.S. 618 (2007), the United States Supreme Court decision the Act was enacted to overrule.

Lilly Ledbetter, a long-term Goodyear employee, challenged her pay under Title VII and the Equal Pay Act as she was retiring. She argued that during her employment several of her supervisors had evaluated her unfairly because of her gender, resulting in lower wage increases than her male counterparts. She contended that as a result, when she retired years later she was earning significantly less then the men. While a Title VII claim must be filed with the EEOC or state agency within 180 or 300 days of the alleged discrimination (depending upon the state), Ms. Ledbetter had never challenged her evaluations and resulting pay at the time of the alleged discrimination; instead, she sought upon her retirement to remedy discrimination she allegedly suffered years earlier which she believed had a continuing discriminatory effect upon her wages.

The issue before the Supreme Court was when Ms. Ledbetter's claim arose for purposes of the statute of limitations. The Court held that the limitations period for alleging pay discrimination under Title VII began on the date the pay was established, and not the date of the most recent paycheck. Thus, the Court rejected the theory that the discrimination was a continuing violation which occurred every time Ms. Ledbetter was paid - a theory which would have significantly expanded her time frame for challenging the alleged discrimination.

The Lilly Ledbetter Fair Pay Act specifically notes Congress' disagreement with and desire to overrule the Ledbetter decision. The Act amends not only Title VII (which applies to race, sex, national origin, and religion), but the ADEA, the ADA and the Rehabilitation Act to allow any pay discrimination claim to be filed within 180/300 days (depending on the state) of the issuance of the last discriminatory paycheck, regardless of how long ago the actual compensation decision was made.

Under the Act, an employer commits a violation "when a discriminatory compensation decision or other practice is adopted, when an individual becomes subject to a discriminatory compensation decision or other practice, or when an individual is affected by application of a discriminatory compensation decision or other practice, including each time wages, benefits, or other compensation is paid, resulting in whole or in part from such a decision or other practice." Thus, an employee claiming unfair pay can file a Charge of Discrimination with the EEOC or the state agency either 180 or 300 days from the last time he is paid even if the alleged unlawful pay began years earlier and the employee knew of or suspected discrimination then.

The essential result of this expansive Act is the elimination of the statute of limitations for pay discrimination claims. Employers may find themselves defending a supervisor's decision to withhold a raise or issue a negative evaluation long after that supervisor has moved on to greener pastures. Because the statute of limitations on a pay discrimination claim now restarts each time the employee receives a paycheck, the employee can wait years before challenging the supervisor's decision. As such, an employer's ability to present solid documentation as to the reasons for compensation decisions will be essential to its ability to fend off stale claims. Moreover, employers must be able to prove that discrepancies in employees' wages are based upon legitimate factors, such as the employees' actual duties and merit.

In light of the Fair Pay Act, employers are wise to consider a variety of steps to shore up their pay practices, such as: 1) ensuring that all supervisors are documenting reasons for decisions that impact employees' wages (including promotions, raises and evaluations) and retaining those records indefinitely; 2) reviewing employees in the same or comparable job classifications to determine whether there are pay disparities and whether any such disparities can be explained by legitimate, non-discriminatory and demonstrable business reasons; 3) reviewing job descriptions to ensure they accurately portray each employee's actual duties; 4) ensuring employee performance evaluations are properly completed in a timely manner and can be used as support for pay and promotional decisions; 5) reviewing existing pay administration policies to ensure zero tolerance for any discriminatory practices; 6) developing objective, measurable rules for compensation decisions which can be applied uniformly within work groups or departments and a structured review process for supervisor's decisions; and 7) implementing compensation administration training programs for supervisors and managers who have input regarding pay.

KZA Employer Report articles are for general information only; they are not intended and should not be construed to be legal advice. Reading or replying to such articles does not establish an attorney-client relationship. In addition, because the subject matters and applicable laws discussed in Employer Report articles are often in a state of change and not always applicable to every type of business entity or organization, readers should consult with counsel before making decisions based on the same.