The Lilly Ledbetter Fair Pay Act of 2009 (the Ledbetter Act), which recently went into effect, and which is retroactive back to May 28, 2007, has been lauded as restoring a basic protection against pay discrimination and disparities, but will inevitably prove to be a challenge to employers on several different levels.
Considering this comprehensive new law was the very first act signed by the Obama Administration, it has received a considerable amount of media attention. And with good reason: The Ledbetter Act overturned a 2007 U.S. Supreme Court decision, which was Ledbetter versus Goodyear Tire and Rubber Company. The Supreme Court held that Ledbetter’s case was time-barred because no discriminatory acts (here, the issuance of a paycheck) had actually taken place within the 180-day statute of limitations period.
The new law, which is endorsed by the EEOC, has a far-reaching, significant effect on a number of pending and new discrimination claims. It amends Title VII of the 1964 Civil Rights Act, the Americans with Disabilities Act (ADA), the Age Discrimination in Employment Act (ADEA) and the Rehabilitation Act to provide that an unlawful employment practice occurs (and the corresponding 180/300 day deadline is triggered) with respect to discriminatory compensation when either: (1) the defendant company makes a discriminatory compensation decision or adopts such a practice, or (2) the plaintiff is actually affected by such a decision or practices (including each specific time any related payment is made).
For employers, the law creates the possibility that actions from years ago could lead to a rash of new discrimination claims. As a result, employers could be subject to lawsuits of recent pay and/or benefits decisions, as well as those made in past years. It also effectively ends the traditional, uniform statute of limitations on discrimination claims, which could prove to be disastrous for many companies.
Insight into the Ledbetter Act
It is imperative that employers understand the basic provisions of this new law, which includes restarting the 180-day (or in some instances, 300-day) period for filing a charge each time an employer issues and an employee receives any allegedly discriminatory piece of compensation.
This is referred to as the “paycheck rule,” and therefore could mean every time an employee receives a paycheck, they have another statutory time period in which they can file a claim.
The new law also restarts the statutory limitations calendar upon the receipt of retirement benefits. So for those few people who still get retirement benefits from a company, anytime they get a retirement check, they can file a claim if they feel they were discriminated against.
The new law also allows an aggrieved person, such as a spouse, child, relative or other individual who was affected by an act of pay discrimination to file claims, even if the person who received the allegedly discriminatory paycheck is no longer alive.
And since there’s not a lot of definition around the Ledbetter Act currently, the result is that the courts will, over time, rule on questions that arise in application of the new law.
Administrative Implications
The administrative implications of the new law alone are extensive and should be considered when complying with this law.
Most companies do not retain records indefinitely, and therefore the individuals who made those pay decisions could be long-gone from the company when a claim is filed, making it difficult to go back and reconstruct the reasons for those pay decisions.
If a claim is filed, the court will subpoena all pay records. If a company does not have the records anymore, it could pose a huge problem. This means that some changes may have to be implemented within the company in order to develop new record retention policies.
A second implication is that a concern exists about the open-ended definition of “compensation” under the new law, which refers to inequalities in wages, benefits or other compensation. This includes wage-based contributions to defined contribution and defined benefit pension plans and other types of benefit plans.
To put that in laymen’s terms: It could now be possible for an employee to file a claim of pay discrimination as long as he/she is receiving payouts from these benefit plans, no matter how long ago he/she ceased employment with the company.
So beware, employers! You may have employees that are long-gone, but because they are receiving some sort of pension benefit or any other payments from your company, they may still be able to file a claim and not have it barred under an applicable statute of limitations period.
A third implication depends on how the law is interpreted, but it may also be possible for an employee’s heirs to file a claim if, for example, the employer-paid life insurance is offered based on a multiple of an employee’s pay, and the pay the employee received was discriminatory.
Considering the broad interpretation of the new law, which could lead to claims of pay discrimination, it is incumbent on employers to:
- Identify and eliminate any potentially discriminatory practices and
- Evaluate their records retention policy and retention schedules for the records of terminated or retired employees, in order to be better-prepared to defend any possible future claims.
For more information on record retention guidelines, read the following HRTools.com Insights:
In my next Insight, I’ll explain what employers should do to better understand and comply with the Lilly Ledbetter Fair Pay Act.