On Jan. 29, President Barack Obama signed the Lilly Ledbetter Fair Pay Act into law, which substantially eases restrictions on employees suing for wage discrimination. Contrary to its title, the act applies to all pay discrimination claims, whether based on sex, race, color, religion, sex, national origin, age or disability.
This article explains the impact of the act on employers.
The act provides for a viable claim each time a paycheck is issued.
The act affects statute of limitations associated with discriminatory compensation claims. Before the act’s passage, employees had a single 180-day period (or 300-day period in the case of claims brought before Wisconsin’s Equal Rights Division) following the occurrence of a discriminatory pay practice within which to file a claim. Now, employees can bring suit 180 days (or 300 days in Wisconsin) days after each paycheck they receive.
The act overturns the United States Supreme Court’s 2007 decision in Ledbetter v. Goodyear Tire & Rubber Company Inc. That case defined the occurrence of an unlawful pay practice, ruling that each paycheck or retirement benefit did not constitute a separate discriminatory practice. Accordingly, employees claiming they were unfairly compensated based on the above-identified protected classes were limited to filing a claim within 180 days with the Equal Employment Opportunities Commission, or 300 days with the Equal Rights Division, following an employer’s initial decision on compensation.
The act reverses the Ledbetter decision, altering the court’s definition of “occurrence of an unlawful pay practice” by setting out three theories under which to sue, stating that an unlawful employment practice occurs when:
- A discriminatory compensation decision or other practice is adopted;
- An individual becomes subject to the decision or practice; or
- An individual is affected by application of the decision or practice, including each time there is a payment of compensation.
What does this mean? Employees are now able to file a pay discrimination suit following the issuance of each paycheck or subsequent to any pay period – every paycheck issued can constitute its own violation of pay discrimination laws. Therefore, employees have 180 days (or 300 for state claims) from the last-issued “discriminatory” paycheck to bring a claim.
The act provides for a viable claim each time a retirement benefit is received.
The act applies each time “benefits or other compensation is paid, resulting in whole or in part from such a decision or other pay practice.” So, under the act, employees receiving retirement benefits based on prior compensation can now bring an action for discriminatory compensation following their receipt of each benefit check. This may well lead to pay discrimination charges being filed even when the alleged discriminatory decision occurred years – or decades – prior to the suit.
The act provides for potential claims by spouses and children.
The act extends its protections to an individual “affected” or who “becomes subject” to a discriminatory compensation decision, but does not define such an individual. Based on that ambiguity, future case law may determine that spouses or children have a cause of action under the act.
The act’s effect is retroactive.
Note, too, that the act is retroactive to May 28, 2007, the day the Supreme Court announced its decision in the Ledbetter decision. Because of its retroactive effect, the act impacts all claims of discrimination filed under Title VII, the Age Discrimination in Employment Act, the Americans with Disabilities Act and the Rehabilitation Act pending on or after May 28, 2007.
Steps an employer can take.
In light of the act, what can employers do to prevent the inevitable increase in pay-based discrimination claims? It is now more imperative than ever to review your compensation and merit-increase structures in order to identify any pay discrepancies that may affect protected classes. You should be able to clearly identify, articulate and produce documentation justifying any differentials that may exist.
In addition, because the act opens the doors to pay-based discrimination claims that may date back many years, it is very important to document (and retain documentation relative to) all pay practices so you can defend yourself where pay discrepancies may exist. Performance reviews, pay scales and disciplinary records are all highly relevant in the defense of a wage discrimination claim and should therefore be retained.
There is no question that employers can expect a marked increase in litigation due to the act’s passage.
