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What the Fair Pay Act Means For Your Business

Written by: Allison Grace

Article Overview: The Lilly Ledbetter Fair Pay Act was signed into law this year and may mean an increase in pay discrimination claims. Read this summary of actions you can take to protect your business.

What the Fair Pay Act Means For Your Business

The Lilly Ledbetter Fair Pay Act of 2009 was signed into law in January 2009. The Act overturns a controversial decision by the US Supreme Court that significantly impaired an employee’s opportunity to file suit for pay discrimination. Specifically, the statute of limitations within which employees were required to file suit began to run when the underlying pay decision was made, not from the point at which the employee received the paycheck being challenged. Those in opposition to this ruling argued that employees do not typically learn of pay disparities until significant time has passed, often beyond the statute of limitations period.

The Lilly Ledbetter Fair Pay Act essentially eliminates the statute of limitations on claims of pay discrimination. Under the Act, employees can file a claim for pay discrimination years after the alleged underlying discriminatory decision occurred, so long as the charge is filed within 180 days of the issuance of the last discriminatory paycheck (300 days in jurisdictions with local or state laws prohibiting the same form of compensation discrimination). What this means is that the statute of limitations starts again each time the employee receives a paycheck. This also applies to retired employees receiving pensions based on an amount resulting from past discriminatory pay practices.

As a result of this Act, employers will be forced to contend with old claims for which they have no documentation or the documentation has been destroyed, or witnesses who are no longer available or do not recall key information. Additionally, companies may face the threat of litigation from former employees who left the company years ago. The back pay recovery period is capped at two years from the filing of the charge of discrimination.

Steps you can take to be prepared:
Focus on recordkeeping. Keep records for pay decisions as well as performance appraisals that affect pay and job classification decisions. Proper documentation is critical going forward. This documentation should include a well-documented communication compensation policy, identifying whether compensation is based on performance, length of service or cost-of-living adjustments. If you don’t have a written compensation policy, get one now.

Gut check. A full scale pay audit is a good idea, but not always practical with so many competing priorities. If it’s not realistic, then pay attention to your gut. If you get an odd feeling about a department or manager and think that discrimination may have played a role in a pay decision, then look at the performance and compensation activities in that particular area, rather than a full-scale audit. If you find something that raises concerns, drill down to get to the bottom of it. Or run a quick across-the-board analysis to identify where there may be pay discrepancies between employees based on race, gender, national origin or disability. You might want to do this in conjunction with an attorney so your findings are protected by attorney-client privilege, in the event you do find pay disparities.

Move away from merit increases. Consider awarding pay based on objective factors such as job title and years of service, rather than on performance. Everyone in the same category of job title and years of service would get the same percentage increase. Or you can provide lump-sum payments rather than increasing base salaries. The reason to do this is that the pay won’t have a continuing effect under the law.

Reduce discretion in pay decisions. Review how much discretion is involved in pay decisions and ensure that you don’t give any single person complete discretion to make decisions regarding compensation. Implement processes whereby approvals are required.

Future issues. The Act does not specifically address hiring, promotion, training or termination decisions, but it is possible that these may come out through litigation in future years. To protect your business on the hiring side, consider limiting the discretion that hiring managers have when it comes to employment offers so you don’t have issues from the start.

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Article Tags: classification decisions, compensation discrimination, controversial decision, disparities, issuance, jurisdictions, ledbetter fair pay act, lilly ledbetter fair pay act, limitations period, paycheck, pensions, performance appraisals, proper documentation, recordkeeping, recovery period, significant time, state laws, statute of limitations, us supreme court, what this means



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