The Lilly Ledbetter Fair Pay Act of 2009: A Proactive Guide for Employers

This is the twenty first in a series of brief articles that Moye White is sending to its clients and friends to provide practical insight about the opportunities and challenges presented by today's economy.

The Lilly Ledbetter Fair Pay Act, signed into law on January 29, 2009, amends federal discrimination laws to encompass discriminatory pay decisions based on gender, race, religion, national origin, disability, and age. Many believe that the Act will create a flood of new discrimination claims, creating expensive and time-consuming problems for employers. However, due to administrative exhaustion requirements, which can take anywhere from three months to one year or even longer, the true impact of this new Act remains to be seen.

In response to the Act, many employers have taken a wait-and-see approach before taking steps to ensure compliance. This article addresses a more prudent approach – how to analyze current pay systems and take proactive steps now to minimize the impact the Act may have on employee discrimination claims.

Summary and Background of the Lilly Ledbetter Fair Pay Act:

Goodyear Tire hired Lilly Ledbetter, for whom the Act is named, in 1979. Ledbetter worked as a supervisor at Goodyear for nearly twenty years. Initially, her pay was on par with the other, mostly male, supervisors at the plant. However, as time passed, a significant wage disparity developed between Ledbetter and her male counterparts, despite her consistently outstanding performance reviews.

After discovering the pay disparity, Ledbetter filed a discrimination claim with the Equal Employment Opportunity Commission (EEOC) and sought to recover back pay and other damages from Goodyear. Ledbetter prevailed at trial, and the jury awarded her more than $3 million in damages for back pay, mental anguish and punitive relief. However, due to statutory damage caps, the award was later reduced to $360,000, and the verdict was ultimately overturned entirely by the Supreme Court in Ledbetter v. Goodyear Tire and Rubber Co.

In Ledbetter, the Supreme Court held that the 180-day time period for filing a discrimination claim with the EEOC runs from the date of the first alleged act of discrimination, whether or not the employee was aware that the act occurred. A discriminatory wage claim therefore expired 180-days after the original pay decision was made.

What the Act Does:

The Lilly Ledbetter Fair Pay Act of 2009 effectively extends the time period for an employee to file a discriminatory wage claim. As a result, the Act exposes employers to discrimination claims based on pay decisions made long ago and places added burdens on employers to scrutinize and document compensation and other employment decisions.

Under the new Act, each allegedly discriminatory paycheck is considered a discrete act of discrimination. Every paycheck triggers a new 180-day limitations period within which an employee may file a discrimination claim with the EEOC under Title VII (or a 300-day period for filing state agency claims where, as in Colorado, there is a state antidiscrimination agency [the Colorado Civil Rights Division]). In addition to applying to race and gender-based claims under Title VII, the Act also applies to claims under the Age Discrimination in Employment Act, the Americans with Disabilities Act and the Rehabilitation Act.

Potential Good News for Employers - Recent U.S. Supreme Court Decision:

On May 18, 2009, the Supreme Court addressed the Act for the first time in AT&T Corp. v. Hulteen. Hulteen dealt with a pregnancy discrimination claim based on AT&T’s seniority policy prior to 1978, when treating pregnancy-related conditions less favorably than other medical conditions was not considered unlawful discrimination. The AT&T policy exempted pregnancy leave from seniority accrual for pension purposes. Thus, because Hulteen took pregnancy leave before AT&T changed its policy, she received less service credit than if she had taken general disability leave, resulting in a lower pension payment.

Hulteen argued to the Court that AT&T’s policy was an “unlawful employment decision or practice” under the Ledbetter Act. The Court rejected her argument and found that because the Pregnancy Discrimination Act was not passed until 1978 (Hulteen took pregnancy leave prior to this time), an employer could not reasonably be held to comply with an anti-discrimination law that was not yet in effect. The Court ultimately held that Hulteen had no legitimate discrimination claim against AT&T.

Why is the Hulteen decision potentially good for employers with respect to the new Ledbetter Act? Had the Court agreed with Hulteen’s argument, there would be strong support for the notion that employers could be held liable for compensation decisions made long before the Ledbetter Act was passed, even if the decision was not discriminatory under existing law at the time. While the Hulteen decision should not be viewed as precedential authority on the Ledbetter Act, it sheds some light on how courts may view retroactive claims under the new Ledbetter Act.

Best Practices for Compliance:

Adopting the following best practices now is a prudent step toward minimizing the potential impact that a fair pay or wage discrimination claim may have on your company:

Implement Consistent Document Retention Policies – Timely documentation and retention of personnel issues, including pay decisions, performance and attendance, is a key best practice to protect a company in the event of any type of discrimination claim. The IRS requires employers to retain payroll and other pay records for four years; however, in light of the new Act, we recommend putting a hold on personnel document destruction policies until courts provide more guidance as to just how far back a claim may go. If retaining hard copies is too burdensome, consider implementing an electronic storage policy.

Use Objective Evaluation Guidelines For Pay Decisions – If you have not already done so, develop, document and implement objective guidelines for compensation decisions, such as length of service or certain sales or account milestones. Apply the guidelines uniformly among employees by position, job classification, group and department. Companies that make pay decisions based on subjective criteria will be under far more scrutiny in the event of a discrimination claim than those with well-documented, objective criteria.

Evaluate Your Current Compensation System – Analyze current practices with respect to pay decisions. Documentation to support past performance and pay decisions will be essential to defending a wage discrimination claim. Consider hiring a third party compensation specialist to conduct a disparate impact statistical analysis on all employee compensation packages. Analyze the data to detect any disparities based on gender, race, ethnicity, age, disability or other protected class.

Consider Performance Bonuses Versus Performance-Based Salary Increases – A bonus is ordinarily a one-time, annual occurrence. A raise, on the other hand, shows up in every paycheck and restarts the applicable statute of limitations (180- day or 300-day clock) each time a paycheck issues. Because of this, consider compensating top performers with mid-year bonuses that are not tied to a standard year-end performance evaluation and raise.

Consult Employment Counsel – As always, it is prudent to consult employment counsel when making employee-related policy changes and dealing with any potential discrimination claims. Moye White LLP offers a wide variety of legal services, from providing employers risk management services and advice, to defending against discrimination claims.

For more information contact: Suzanne Rauch, Jennifer Gokenbach or Jim Miller, Chair, Trial Section at (303) 292-2900.

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