On January 29, 2009, President Obama signed the Lilly Ledbetter Fair Pay Act of 2009 (the “Fair Pay Act”) into law. The Fair Pay Act is the first law passed by the newly elected Congress and the first legislation signed into law by President Obama. Through this legislation, Congress overturned the Supreme Court's decision in Ledbetter v. Goodyear Tire & Rubber Co., 550 U.S. 618 (2007). Ledbetter held that employees contesting compensation decisions under employment discrimination laws are limited to the same 180 or 300-day statutory period of limitations (depending on the state) applicable to other discrimination claims.

How the Fair Pay Act Broadens Employer Liability

The Fair Pay Act significantly expands employer liability by modifying statutory protections for employees alleging unlawful compensation-related decisions:

  • The statute of limitations period has been extended from the current 180 or 300-day period.

The Fair Pay Act enables employees to file claims of alleged pay discrimination under Title VII of the Civil Rights Act of 1964, the Americans with Disabilities Act of 1990, the Rehabilitation Act of 1973, and the Age Discrimination in Employment Act of 1967 without adhering to the normal 180 or 300-day statutory period of limitations. Congress believes that the limitation imposed by the Supreme Court in Ledbetter “ignores the reality of wage discrimination and is at odds with robust application of the civil rights laws that Congress intended.” By amending the statutory period of limitations, the Fair Pay Act permits an employee's 180 or 300-day limitation period to restart each time the employee receives a paycheck or post-retirement benefits check based on an allegedly discriminatory decision affecting the employee's compensation.

  • Congress redefines an “unlawful employment action.”

Under the Fair Pay Act, an unlawful employment practice has been redefined to occur when either: (1) a discriminatory decision or other practice affecting compensation is adopted; (2) an employee becomes subject to the decision or practice; or (3) an employee is affected by application of a discriminatory compensation decision or practice, including each time wages, benefits, or other compensation is paid, resulting in whole or in part from such decision or other practice.

The broad language of the Fair Pay Act increases the likelihood that employees alleging any discrimination claim in any way affecting compensation – including claims concerning promotions, demotions, training opportunities and employee benefits – will seek to expand those claims to encompass employment practices in effect for years or even decades. This will almost undoubtedly increase the expense and complexity of many otherwise routine employment discrimination claims.

  • The Fair Pay Act covers non-employees “affected” by a discriminatory pay decision.

The Fair Pay Act applies to non-employees who claim to have been “affected” by discriminatory pay decisions. Such individuals could include spouses and other family members of deceased employees. While Congress settled on this extraordinarily broad coverage, the Equal Employment Opportunity Commission and courts subsequently will clarify its applicability.

  • The Fair Pay Act will apply retroactively to pay discrimination claims.

The Fair Pay Act will be retroactively applied to pay discrimination claims made after May 28, 2007 (the date the Ledbetter decision was issued). Accordingly, otherwise untimely claims made after that date could be resurrected and claims dismissed by courts during this period may be subject to refiling under the new legislation.

How Employers Can Help Control the Increased Exposure Arising from the Fair Pay Act

In light of the Fair Pay Act, employers should take additional precautions regarding their compensation decisions and data. Some of these precautions include:

  • Review current compensation documentation practices.

Employers should carefully review their current documentation practices for all compensation-related decisions. The company's decisions pertaining to all employment practices affecting compensation (including promotions, demotions, training and overtime opportunities, and employee benefit determinations) should be well documented to rebut any potential unfair pay claims. Additionally, such documentation now should be preserved indefinitely.

  • If not already in place, develop specific criteria for compensation decisions.

Employers should use specific criteria in making compensation-related decisions. Such criteria facilitate a documented process by which the employer’s compensation decisions can be proven and allegations of discrimination rebutted.

  • Periodically monitor compensation decisions.

Moving forward, employers should periodically review their compensation practices to ensure that all components are monitored. Periodically running statistical analysis on compensation decisions can help protect against exposure potentially arising years later under the expanded limitation periods created by the Fair Pay Act.