As anticipated, less than two weeks into the new administration, employment compliance has already grown more complex. On January 29, President Obama signed the Lilly Ledbetter Fair Pay Act, taking the first step in what is expected to be a series of pro-employee changes to the employment laws that will bring significant new challenges to employers.  

Effective Immediately – All Pay Decisions in the Spotlight, Not Just Gender  

In a nutshell, the Fair Pay Act extends the time within which employees can bring claims for pay discrimination. Previously, such claims had to be filed within 180 days of the making or adoption of the discriminatory decision. Now, they can also be brought within 180 days of the receipt of any compensation affected by the decision. Therefore, a discriminatory decision that was adopted years ago and is still in effect can be challenged after the employee receives his or her most recent paycheck.  

Importantly, with all the attention focused on the gender-based pay discrimination that was the subject of the Ledbetter v. Goodyear case which gave birth to the Fair Pay Act, some employers may be surprised to learn that the statutes of limitation for all pay discrimination claims have been extended, not just gender. Therefore, the time for employees to bring pay discrimination claims based on race, color, national origin, religion, disability and age have also been extended by the Act.  

Coming Soon – Harsher Penalties for Violations and More Difficult Defense of Claims  

The next bill likely to pass is the Paycheck Fairness Act. This bill would amend the existing Equal Pay Act (which requires employers to provide equal pay for “equal work”) by expanding the compensatory relief available and permitting punitive damages. It would also limit an employer’s ability to justify any differential in pay on the grounds that it is job related and consistent with business necessity, by allowing the employee to establish that there was an “alternative employment practice” that would serve the same business purpose without a pay differential, but the employer failed to adopt it.  

What Employers Should Do Now  

  1. Conduct a privileged pay audit to identify whether pay disparities exist 1. and be quietly proactive in remedying them. Many employers, particularly those who have been on the defense end of the numerous wage and hour class action cases filed over the past five or more years, may have “audit fatigue” and balk at going around again with payroll and employment records and outside counsel. Doing so, however, may help employers avoid another expensive round of such claims and, where issues are identified, start the company on the way to full compliance. As part of this audit, employers should consider the justifications for differentials in light of the anticipated new “alternative employment practice” criteria discussed above in the Paycheck Fairness Act.
  2. Conduct a privileged job classification audit to support any pay differentials. Employers should also audit their job classifications to discern whether any jobs that may traditionally have been held by male employees and paid at higher rates are susceptible to challenges that they are classified in a discriminatory way, whether expressly or impliedly, and whether there are now alternative practices that could eliminate any pay differentials.
  3. Check your employment policies to determine if you have an unlawful policy prohibiting employees from discussing their wages with each other. One of the reasons plaintiff Lilly Ledbetter allegedly waited so long to raise her pay disparity claim was because her employer had a policy forbidding employees to discuss wages. This policy violates federal law (e.g., NLRA § 158(a)(1)) and some states’ laws (e.g., Cal. Labor Code § 232). A better practice is to encourage employees to discuss any questions or concerns about their rate of pay or other compensation issues with their department head or the company’s Human Resources Manager (rather than with their co-workers). However, see below for advice in balancing such inquiries with the privacy rights of your employees.
  4. Develop a system for responding to requests for information about pay. As news of the expanded time for bringing pay discrimination claims spreads, employers can expect an increased number of requests by employees for information about their pay relative to their co-workers. Employers must determine whether they are required to provide such information if no lawsuit has been filed and, if so, to develop a mechanism for responding to such requests without interfering with the privacy rights of other employees. For example, employers may wish to develop a generic summary of pay information for a particular position with differentials identified as being based on permissible criteria such as seniority, education and/or training.
  5. Check your record retention policies. Because of the extended time periods for pay discrimination claims, employers may now be required to dig back through years of old records to defend the claims. Accordingly, employers should revisit their record retention policies and also investigate the best technological methods for retaining this information in this new era.
  6. Update your performance review practices to ensure pay decisions are properly documented. Since pay decisions are more vulnerable to challenge now, make sure that managers giving performance reviews and taking part in annual salary decisions understand the potential issues involved. Managers should develop a standard format for making these determinations and ensure they are properly documented should it become necessary to defend any type of pay discrimination claim.
  7. Alert and train your managers to be on the watch for retaliation claims. As employees begin to request the type of information needed to support pay discrimination claims, we can expect an increase in retaliation claims for seeking such information from co-workers, supervisors or human resource departments. Train your managers that retaliation based on such requests is unlawful and your HR personnel to be alert to the possibility that it may occur.
  8. Be sensitive to possible increases in gender tensions. In these difficult economic times, if one group’s pay must be increased (as the equal pay statutes require to remedy pay disparities), economic consequences will necessarily follow. This could cause increases in tension between male and female employees if, for example, a perception is created that “women are to blame” for layoffs. Not only could such tension create the potential for gender discrimination claims, but could also give rise to sexual harassment claims—sexual harassment need not be based on sexually charged behavior but can be based on any harassing actions that are taken “because of sex.” Train your managers to be sensitive to this potential issue.
  9. Be aware of increased activity by government agencies. Because the EEOC and U.S. Department of Labor are required by the Fair Pay Act to obtain data from employers about employee pay information, employers can expect heightened scrutiny of their practices and data by these and other agencies. If you receive any notice or request from any agency for employment data or seeking to come on your premises to review records, you should check with your counsel as to the manner in which you should respond to such information requests, and to understand the rights of and limitations on these agencies in coming to your employment site.
  10. Check the Department of Labor Web Site. Finally, under the Fair Pay Act, the U.S. Department of Labor is required to “make readily available” accurate information on compensation discrimination and to assist the public in understanding and addressing such discrimination. This assistance includes, among other things, “instructions for employers on compliance.” While the site likely will not answer all your questions, it can give focus to any audit or investigation you conduct and, where you determine the assistance of counsel is needed, can guide you and your attorneys in assessing and remedying the issues in the most efficient way possible.  

Conclusion  

The combination of difficult economic times and new employee-friendly legislation could be a combustible combination for employment litigation. But employers can do their best to prevent such a firestorm by acting now to identify potential issues and problems, remedy them, and train their managers accordingly.