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 LEDBETTERTo 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.
Goodyear appealed 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 toactually be madewithin 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 employeeis affectedby 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 ACTThe 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 disability discrimination.
Fortunately for 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.
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 adversely impacted.
•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 COMECompanies 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 merit.