New Fair Pay Act Poses Risks and Challenges For Employers

Recently, President Obama signed new legislation which effectively removes any statute of limitations with respect to any claim of discrimination based upon compensation, known as the Lilly Ledbetter Fair Pay Act of 2009. This new law amends the Civil Rights Act of 1964, the Age Discrimination in Employment Act, and the Americans with Disabilities Act. This new law is intended to reverse the 2007 decision of the Supreme Court in Ledbetter v. Goodyear Tire & Rubber Co.

The new law provides in part:
"For purposes of this section, an unlawful employment practice occurs, with respect to discrimination in compensation in violation of this title, when a discriminatory compensation decision or other practice is adopted, when an individual becomes subject to a discriminatory compensation decision or other practice, or when an individual is affected by application of a discriminatory compensation decision or other practice, including each time wages, benefits, or other compensation is paid, resulting in whole or in part from such a decision or other practice."

This new law will impose additional recordkeeping responsibilities on businesses, especially human resources departments, and will expose businesses to possible liability which will be difficult to calculate.

Under the Ledbetter decision, an employee had 180 days to file a charge of discrimination with the Equal Employment Opportunity Commission (EEOC), and a longer period in many states, including California, if the employee felt that he or she had been discriminated against on the basis of a compensation decision made by the employer. Once a particular decision had been made, such as a salary increase, an increase based upon a performance review, or a bonus, the employee would have 180 days under Federal law, and longer periods in many states, to challenge that decision as discriminatory. Under the new law, that 180 day period is all but abolished.

Now a new period of limitations begins to run either:

* When a discriminatory compensation decision or other practice is adopted,
* When an individual becomes subject to a discriminatory compensation decision or other practice, or
* When an individual is affected by application of a discriminatory compensation decision or other practice, including each time wages, benefits, or other compensation is paid.

In other words, each time an employee receives a paycheck, the decision which resulted in the payment of the amount of that check may be challenged within 180 days after the employee receives the check, not 180 days from the date the decision was made which resulted in that check. Thus, it may be possible for employees to challenge as discriminatory decisions made several years earlier if those decisions impact current compensation.

This new law means that employers must deal with the reality that by the time a compensation decision is challenged as discriminatory, witnesses may not be available because they have left the company, or cannot be located, or records may have been lost or destroyed pursuant to a company's records retention policy.

This new law should immediately prompt employers to review their recordkeeping practices. For example, it might be advisable to archive such documents showing the manner in which bonuses were calculated, pay plan documents used by the company in the past, as well as historical records of job classifications and the compensation levels applicable to those job classifications at various points in time.

This new legislation should also serve as a reminder to all employers that in defending employee claims, there is no substitute for excellent documentation. Many cases are won or lost based upon the quality of the documentation that is available when a claim is made or a lawsuit filed.

Finally, this new legislation should serve as a signal to all employers that the current administration in Washington will be quite eager to support legislation which is not in the best interest of business.

Russell J. Thomas, Jr.
Attorney at Law
THOMAS & ASSOCIATES
4121 Westerly Place, Suite 101
Newport Beach, California 92660
Tel: (949) 752-0101
Fax: (949) 257-4756
Email: russ@employersattorneys.com
Web: http://www.employersattorneys.com
J.D., Harvard Law School, 1967

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