Adjusting to the Ledbetter Pay Law

By Joanne Sammer Feb 9, 2009
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The Lilly Ledbetter Fair Pay Act of 2009 is the first law signed by President Obama and is likely to be a sign of what is to come from the new administration. The law overturns a 2007 U.S. Supreme Court decision, Ledbetter v. Good Year Tire & Rubber Co., that barred pay discrimination lawsuits filed more than 180 days after the first discriminatory paycheck was issued. The new law states that the statute of limitations resets as each discriminatory paycheck is issued.

For employers, the law creates the possibility that actions from years ago could lead to a rash of new discrimination claims. “This represents an unprecedented extending of the statute of limitations,” says Denise Bleau, a partner with law firm Buckingham Doolittle & Burroughs in West Palm Beach, Fla. “It is renewed every time an employee receives a paycheck.” As a result, employers could be subject to lawsuits as a result of recent pay decisions as well as those made many years ago.

Reviving the Past?

The administrative implications of the law alone are extensive. Because most companies do not retain records indefinitely and the individuals who made those pay decisions could be long gone from the company, “it could be difficult to go back and reconstruct the reasons for those pay decisions,” says Bleau.

Although HR managers and executives support the idea of pay equity, many are concerned with how the law will play out in reality. For example, Lane Transou, SPHR, manager of comp and benefits for Parker Drilling Company in Houston and a member of the SHRM Total Rewards/Compensation and Benefits Special Expertise Panel, is concerned about the open-ended definition of compensation under the law. The law focuses on inequities in wages, benefits or other compensation, which include wage-based contributions to defined contribution and defined benefit pension plans and other benefit plans. Therefore, it could be possible for an employee to file a claim citing pay discrimination as long as he or she is receiving payouts from these benefit plans no matter how long ago he or she ceased employment with the company.

Moreover, depending on how the law is interpreted, it might also be possible for an employee’s heirs to file a claim if, for example, employer-paid life insurance is offered based on a multiple of an employee’s pay. “Does (the exposure) ever really end?” asks Transou. Because of the open-ended nature of the law, Transou expects her company to be evaluating its records retention policies and retention schedules for the records of terminated or retired employees.

Dealing with the Changes

This law is likely to light a fire under many employers to identify and eliminate any potentially discriminatory pay practices. “I expect to see a big change going forward,” says Rich Guzzo, a principal with Mercer in Washington, D.C. “Employers are likely to be more proactive in identifying and eliminating pay inequities.”

By analyzing pay data, employers can identify outright problems and areas that will require further investigation. From there, the employer can come up with a solution to address the problem. “There are legitimate factors that can trigger a change in pay,” says Guzzo. “The trick is to leave the legitimate factors alone and root out the unlawful factors.” Identifying differences between people who have similar jobs but do not have similar pay can help root out pay differences based on unlawful factors, including age, gender, disability and ethnicity.

Although every employer should be alert to problems with pay inequity, employers that provide managers and supervisors a fair amount of discretion when making pay decisions should be particularly diligent. For example, it is important to consider how much more pay employees with high performance ratings receive and how those pay levels compare to others with similar jobs and performance ratings. There could be certain parts of the organization, such as regions and business units, with a concentration of pay inequity. In those cases, companies can evaluate how performance reviews and pay decisions are handled in each situation to find out what is causing things to get out of alignment. “This could be a systems or performance management problem or miscommunication,” says Guzzo. “It is not always caused by human error.”

Even if an employer is confident that it has no situations that have resulted in pay inequity, it should still be paying close attention to pay programs both past and present. After all, government and employee scrutiny in this area is unlikely to lessen in the future.

Audit the past. For employers concerned about what ghosts may be hiding in past compensation decisions, an audit of past decision-making and actions regarding pay is a good idea. This can allow companies to identify and deal with problems before they result in costly litigation. "Looking at compensation packages, employers need to have good reasons why those salaries were set as they were," says Avis Bishop-Thompson of DeCotiis, FitzPatrick, Cole & Wisler LLP in Teaneck, N.J.

Secure the future. Even if past pay-based decision-making has been appropriate, companies should still take steps to make sure problems do not creep into the system in the future. Therefore, it makes sense to monitor pay policies and performance management processes to avoid future problems.

Review records retention policies. Because the law makes it possible for a company to be sued at almost any time for pay inequities no matter how far in the distant past, it is a good idea to reconsider records retention policies.

Train and educate managers and supervisors. Making pay decisions is often as much of an art as a science. Therefore, it is a good idea to make sure supervisors and managers understand how to make sure pay and performance evaluations are done objectively and fairly and with adequate documentation. Ongoing training and communication can help emphasize the importance of pay equity issues and the risks of poor pay-related decisions.

Become more proactive. No matter what happens in the wake of the Ledbetter law, it is bound to be just the beginning of the changes employers are likely to face in the coming years. “Things are very different in this administration than they were under the prior administration,” says Guzzo. “On a range of issues, such as executive pay, the federal government is likely to be much more assertive than in the past.”

Joanne Sammer is a New Jersey-based freelance writer.

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