Lilly Ledbetter: Congress Gives Employees a Better Way to Sue for Pay Discrimination

Lilly Ledbetter: Congress Gives Employees a Better Way to Sue for Pay Discrimination

You may have heard the name “Lilly Ledbetter” in the news lately. The new Lilly Ledbetter Fair Pay Act raises the stakes for employers by allowing your employees to file pay discrimination lawsuits for decisions made many years ago.

BAD FACTS MAKE BAD LAW

Lilly Ledbetter worked for Goodyear Tire & Rubber. After a long career with the company, she sued, claiming that she had received poor evaluations because she was a woman, and that her pay was not increased as much as it would have been if she had been evaluated fairly. When she retired from the company, she was being paid significantly less than any of her male colleagues. Ledbetter did not sue the company promptly after the pay decisions were made. When she eventually did sue, the jury agreed that she had been discriminated against and awarded her $3.5 million in damages.

When the U.S. Supreme Court heard the case on appeal, they found a problem with Ms. Ledbetter’s case. Under federal law, a discrimination claim usually must be filed no more than 300 days after the discriminatory decision is made. Even though she was still feeling the effect of prior decisions to pay her less than her male counterparts, the U.S. Supreme Court held that Ms. Ledbetter waited too long to challenge those decisions. Congress didn’t like the Supreme Court’s interpretation of the law, and sought to undo the Court’s decision by changing the law. The Lilly Ledbetter Fair Pay Act was the first significant bill signed by President Obama upon taking office.

WHAT DOES LILLY LEDBETTER DO?

The new law opens the door to lawsuits over pay decisions that were made in the past, so long as the employee is still feeling the effects of those decisions. Even if the pay decision was made a decade or more ago, the new law restarts the 300 day clock every time the employee receives a paycheck. The employee need only prove that the original decision was discriminatory, and that the paycheck still reflects that decision. A successful claimant can recover up to two years of back wages. The new law doesn’t just apply to gender discrimination claims. Pay decisions that are based upon race, national origin, religion, age or disability are also included.

Here is an example of how a Lilly Ledbetter claim might play out. Suppose that in 1995, a female employee loses out on a promotion to a male employee. In 2002, the same employee is denied a pay raise after she takes time off for back surgery. She complains that the manager was sexist as to the 1995 promotion, and in 2002, a different manager was mad at her for taking time off even though she had a disability. Both managers don’t work for the company anymore. The employee sues, arguing that she would now be paid $1500 per month more, but for these discriminatory decisions.

In this example, the new Lilly Ledbetter Act would allow her to bring these claims for discrimination, even though the employer will likely find it nearly impossible to prove (or even explain) why the decisions were made.

WHAT SHOULD EMPLOYERS DO?

To prepare for and avoid possible Lilly Ledbetter claims, there are a number of steps that employers should take:

• Lilly Ledbetter puts a premium on documentation of pay decisions. You should document the reasons why each similarly situated employee was granted or denied raises, promotions, or other employee benefits.
• Develop specific guidelines for how pay decisions will be made. This will improve uniformity, and the guidelines will be useful later when you try to explain the pay decision.
• Periodically run the numbers on employee compensation packages among similarly situated employees. If employees perform the same job but are not comparably paid, you may need to adjust compensation levels to bring them in line. If there is a good reason for the disparity, document what that reason is.
• Supervisors should not have the discretion to cut special compensation deals without getting the approval of someone in the company who is looking at the big picture. Years from now, it may be very difficult to explain why the “star” applicant (who ended up getting fired) was paid so much more than everyone else when he was hired.
• If an employee complains about pay, be very careful in responding to and investigating the complaint. In many cases, the complaint may not be meritorious, but the employer’s poor handling of the complaint may result in a retaliation claim.
• Consider adopting pay ranges or standard rates of pay for different job categories. This will help ensure that similarly situated employees are paid about the same.
• Consider rewarding exceptional performance through bonuses rather than a raise in annual compensation. The effect of a raise in base pay lingers for years, while a bonus is a one-time event. Make sure performance evaluations are both accurate and timely. When preparing documentation, think about whether it supports the decision you are making regarding pay, and how that documentation compares to other similarly situated employees.
• Don’t toss your payroll records and performance reviews . . . ever. Even keep the records of former employees, as those records may be needed for comparison purposes if a long-term employee eventually makes a Lilly Ledbetter claim.

Lilly Ledbetter significantly raises the stakes for employers. However, it is only one of the many legal changes that have come into play over the past few months. Because of the risk, complexity, and changing nature of employment laws, we recommend that our clients call for advice in drafting policies and making employment decisions. We also provide on-site training to help our clients stay out of trouble. Please contact a member of our Employment Group if you would like to discuss your employment practices.