Richard D. Alaniz
Trivia question: What was the first law that President Obama
signed into law after being elected?
Hint: It has absolutely nothing to do with General Motors,
universal health care, or New York banks.
Answer: President Obama’s first act upon taking office was to
sign the Lilly Ledbetter Fair Pay Act of 2009. Although it hasn’t received much
fanfare in the wake of some of President Obama’s other activities, the
ramifications of the Act are only now starting to be understood and they aren’t
good for employers.
THE STORY OF LILLY LEDBETTER
To understand the Act,
it helps to start with the story of the law’s namesake, Lilly Ledbetter. For nearly 20 years, Ledbetter worked as a
supervisor at a Goodyear Tire & Rubber Co. plant in Alabama. When Ledbetter
was hired in 1979, she received the same pay as her male colleagues. During her
time at Goodyear, her supervisors gave her annual salary reviews - and as she
rose to become an area manager in a traditionally male-dominated position, her
raises were smaller than those of her male counterparts. She learned of the pay
disparities when someone left an anonymous note in her mailbox, showing how her
salary compared with the salaries of male co-workers doing the same job. By the
time she filed a lawsuit in 1998 claiming gender discrimination under Title
VII, she was making 40 percent less than some of her male colleagues who had as
much or less seniority.
In March of 1998,
Ledbetter requested that the Equal Employment Opportunity Commission (EEOC)
open an investigation into whether or not she was being discriminated against.
In July of 1998, she filed a formal charge of discrimination and eventually
sued under Title VII in federal court. The jury found in favor of Ledbetter and
awarded her $3 million in back pay and damages.
arguing that Title VII pay discrimination claims were subject to a statute of
limitations of 180 days. Goodyear contended that Ledbetter could only allege
discrimination in conduct that occurred within 180 days of her requesting an
investigation from the EEOC, meaning as far back as September of 1997.
The 11th Circuit
agreed and reversed the lower court verdict saying that Ledbetter needed to
show discriminatory conduct in her pay determination during the 180 days before
she contacted the EEOC. The Court further held that Ledbetter could not sue for
conduct that merely affected her pay during the 180 day period. Since all of
the decisions regarding Ledbetter’s salary had been made years ago, there was
no discriminatory conduct that she could point to between September 1997 and
March 1998. And therefore she lost.
Ledbetter appealed the
case to the U.S. Supreme Court which upheld the ruling of the 11th Circuit. The
Supreme Court established that actual intentional discrimination must occur
within 180 days of the employee referring the matter to the EEOC or their
window for suing has closed. The Court rejected Ledbetter’s contention that
each paycheck she received was an independent act of discrimination that
granted her an additional 180 days to sue.
Having lost before the
courts, Ledbetter moved her fight to Capitol Hill. In 2007, several Democratic
members of Congress introduced the Lilly Ledbetter Fair Pay Act which reversed
the Supreme Court’s ruling. With the strong backing of women’s rights groups
and labor unions, the bill passed both houses of Congress. And on Jan. 29, 2009,
President Obama made it the first new law of his presidency.
SO WHAT EXACTLY DOES IT DO?
Under the old law, a
discriminatory compensation decision had to actually be made
within 180 days of when the plaintiff reports it to the EEOC. The Ledbetter Act
amends the law by permitting an employee to file a wage discrimination claim
within 180 days of the date when the employee is affected
by a discriminatory wage decision or practice. In addition, while federal law
gives plaintiffs 180 days, some states give plaintiffs 300 days.
This subtle change is
an implicit adoption of the “paycheck rule” that Ledbetter had argued for,
unsuccessfully, to the Supreme Court. The new law makes the receipt of each
individual paycheck an event that affects the employee. Therefore, the date a
discriminatory wage decision is made is irrelevant. The only relevant question
is when the last time the employee was paid.
For example, Susan is
an employee of XYZ Corporation. In January of 2000, Susan is promoted to
supervisor. Her boss discriminates against her by only offering her 75 percent
of the salary she would receive if she were a man. In March of 2009, Susan is
discussing salaries with a fellow supervisor and discovers she is being
underpaid. She sues. Under the old law, Susan had 180 days from the date the
discriminatory decision was made, in this case January of 2000. Therefore, her
window for suing has closed. Under the new law, Susan’s last paycheck is the
moment when her 180 days to sue clock begins to run. Since she was still being
paid in March of 2009, she is well within the time period to sue, even though
the discriminatory decision happened nine years earlier.
A FEW OTHER NOTES ON THE ACT
The Ledbetter Act is also not limited to gender discrimination.
Any group that qualifies as a protected class under Title VII of the Civil
Rights Act of 1964, the Age Discrimination in Employment Act, the Americans
with Disabilities Act and the Rehabilitation Act can claim compensation
discrimination. This includes race, color, religion, national origin, age and
employers, while the new law significantly lengthens the amount of time that
employees have to claim pay discrimination, it does not change the type of
damages they can claim. Congress has limited the amount of compensatory damages
that employees can claim to up to two years of back pay.
SO WHAT SHOULD I DO NOW?
Prepare for a wave of new discrimination lawsuits. Once employees
become aware of the change in the law, every disgruntled employee who belongs
to a protected class will give thought to filling a lawsuit. The law itself is
retroactive to May 28, 2007, the day before the Supreme Court delivered its
decision in the case, so employers now face liability exposure to decisions
that were made years ago. If you haven’t done so already, now is the time to
begin working to minimize your risk of lawsuits. Companies need to review every
phase of their compensation determination policies and procedures to ensure
they comply with the new law.
• Document Retention
Companies should immediately halt any document destruction
policies that they normally employ. No documents related to compensation should
be destroyed until the company has had an opportunity to reevaluate what needs
to be kept. With the retroactivity of the law, documents from June of 2007
could be critical in a future lawsuit. Companies should also try to centralize
all of the documentation relating to salaries, raises, and merit bonuses so the
company can more easily analyze trends and ensure no protected class is being
• Pay Disparity Review
Every company should plan to conduct an external audit of their
different job classifications to see if pay differentials exist between members
of a protected class and those that aren’t. The reason for this is that
statistical analysis has become the favored technique of plaintiffs’ attorneys
to demonstrate discrimination when no direct evidence exists. If any
disparities exist, companies should review the circumstances of each individual
compensation decision and determine whether the disparity can be justified on
legitimate business grounds.
• Manager and Supervisor Training
Education of managers and supervisors is also critical.
Plaintiffs’ attorneys have powerful new tools with which to sue companies. The
managers and supervisors who make compensation determinations need to know the
importance of thoroughly documenting the non-discriminatory business reasons
why a particular employee is paid more than another employee in a comparable
position. Nothing shoots down a discriminatory compensation lawsuit more than a
memo from the supervisor explaining how the candidate who didn’t receive the
raise was bringing in 10 percent less business per month than the employee who
was given the raise.
THE WORST MAY BE YET TO COME
Companies should also be aware of another potential piece of
legislation that relates to pay discrimination. Congress is considering the
Paycheck Fairness Act, which would amend the Equal Pay Act of 1963 and impose
harsher penalties for discrimination violations. In its current form, the bill
would make it harder for employers to defend pay disparities between men and
women, and would make it easier for employees to file class-action lawsuits
regarding pay discrimination.
In these difficult economic times, employees and former employees
will be quicker to pounce on any compensation decisions that could be seen as
discriminatory. The Ledbetter Act could make such claims more likely, and
employers should protect themselves from a potential new wave of lawsuits by
ensuring, and documenting, that compensation-related decisions are based on