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eTrends - Congress enacts the paycheck rule with Ledbetter Fair Pay Act of 2009

02.11.2009

pen writingIn keeping with his campaign promises, President Obama signed his first piece of legislation, the Lilly Ledbetter Fair Pay Act of 2009 (“the Ledbetter Act”), into law on January 29, 2009.  The new Act reverses the U.S. Supreme Court decision in Ledbetter v. Goodyear Tire and Rubber Co., holding that the time for filing compensation discrimination charges under Title VII starts to run on the day the initial discriminatory pay decision was made.  Now, the time for filing such a charge (180 days in states that do not have a fair-employment agency; 300 days in states that do) restarts every time an employee receives a paycheck that can be connected to an allegedly discriminatory decision that affects pay (including promotion, demotion, performance reviews, etc.) – even if the decision at issue was made many years ago.  Moreover, the Ledbetter Act applies to and prohibits pay discrimination based on all of the protected characteristics under Title VII, the Age Discrimination in Employment Act, the Americans with Disabilities Act, and the Rehabilitation Act (gender, race, color, religion, national origin, age and disability).   The Act is retroactive to May 28, 2007 (the date before the Ledbetter ruling) so that claims not pursued because of the ruling may now be brought.

The Ledbetter Case

In the Ledbetter case, Ms. Ledbetter was employed as a manager for Goodyear, starting in 1979.  In 1998, after taking early retirement, Ms. Ledbetter filed a charge of discrimination with the Equal Employment Opportunity Commission, alleging that—over the preceding 19 years—she had been unlawfully discriminated against on the basis of her sex, as shown by the fact that her male colleagues had received a higher rate of pay over the years.  The case eventually made its way to the U.S. Supreme Court, which held that a pay-setting decision is a “discrete act” and triggers the 180-day period to file a charge; therefore, Ledbetter could not base a claim on decisions made years before she filed her charge.  The Ledbetter Act changes all of this.

Implications of Ledbetter Act

As a result of the new law, an unlawful employment practice occurs, thereby triggering the charge-filing period, when: 1) a discriminatory compensation decision or other practice is adopted; 2) an individual becomes subject to the decision or practice; or 3) an individual is affected by an application of a discriminatory compensation decision or practice (including each time wages or other compensation is paid or benefits are received).  The Act thus exposes employers to a greater risk of discrimination claims based on employment decisions (such as promotions, demotions, performance evaluations, etc) that occurred years earlier.  For example, an employee preparing to retire might challenge a salary decision made 20 years ago that affected not only her pay over time but will now also affect her retirement benefits.

Proactive Steps for Employers

In light of the Ledbetter Act, employers may want to consider the following:

  • Review record-keeping practices to ensure appropriate documentation of the reasons for employment decisions that have an impact on employee pay.  Make sure that the Company’s decisions are accurately reflected in the documentation and do not depend on the testimony of individuals, as they may be unavailable if claims based on these documents arise years later. 
  • Review record retention practices as documents related to pay decisions now likely will need to be kept longer than in the past.  Consider the Company’s available resources to archive such documentation over a period of years or decades. 
  • Review the procedure by which decisions affecting compensation are made.  Supervisors should not have unfettered discretion around these decisions.  Decisions should be based on objective and measurable factors. Train your supervisors on compensation practices and policies and make sure they understand the need for objectively supportable decisions.
  • Review existing compensation data to determine whether any actual or perceived pay inequities exist. 

For more information, please contact Kim Korando at kkorando@smithlaw.com; Kerry Shad at kshad@smithlaw.com; or Catherine Kimberley at ckimberley@smithlaw.com.

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Smith Anderson publishes eTrends periodically as a service to clients and friends. The purpose of this eTrends is to provide general information about a significant legal development in the field of employment law. Readers should be aware that the facts may vary from one situation to another, so the conclusions stated herein may not be applicable to the reader’s particular circumstances.

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Jamie Greene
jgreene@smithlaw.com
T: 919.838.2045

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