President Obama has signed his first law: the Lilly Ledbetter Fair Pay Act. As we reported earlier this week, the law makes it easier for employees to bring charges of discriminatory compensation. Under the new law, every paycheck reflecting a previous discriminatory pay decision can start the 180-day or 300-day deadline for filing a charge with the Equal Employment Opportunity Commission. The law also applies retroactively to May 28, 2007, the day before the Supreme Court's decision in Ledbetter v. Goodyear Tire and Rubber Co., 550 U.S. 618 (2007) that it is intended to reverse.

The law presents significant challenges for employers. To address them, employers should, among other measures:

  • Analyze current wage or salary rates for employees. Employees may now claim that pay decisions made decades ago were discriminatory and that the resulting pay differential today violates Title VII. Even if the people who made the original decisions have long since departed, employers will be required to justify those decisions if the effects of the decision linger on in the form of different pay in the present.
  • Consider changing compensation schemes to remove the chance that discrimination enters the picture. For example, pay systems with lock-step compensation by position are less likely to be infected with previous discriminatory choices than systems in which compensation is considered on a case-by-case basis.
  • Document pay decisions that impact pay now and in the future. Now more than ever, any decision that might affect future compensation (including starting pay, bonuses, raises, year-end performance reviews, whether to send an employee for training or certification, or any discipline that impacts compensation) must be documented to defend potential claims from employees that pay decisions made years or even decades ago were discriminatory.
  • Re-evaluate performance appraisal systems to help eliminate potential claims that they are discriminatory.
  • Consider training and re-training supervisors and employees on anti-discrimination laws.
  • Re-evaluate record retention policies to ensure that documentation of actions that might affect pay in the future is retained in the event the employer must prove the reasons for the decision.