The first law signed by President Barack Obama significantly affects the way employers will maintain records related to compensation, and will likely lead to more pay discrimination lawsuits against employers. After it passed both houses of the United States Congress, President Obama signed the Lilly Ledbetter Fair Pay Act of 2009 (“Ledbetter Act”) on January 29, 2009.

The Ledbetter Act overturned a 2007 United States Supreme Court decision, Ledbetter v. Goodyear Tire & Rubber Co., 550 U.S. 618 (2007), in which the Court held that the time limit for filing a pay discrimination charge based on gender with the United States Equal Employment Opportunity Commission begins running when the employer makes a discriminatory decision about an employee’s compensation. The Supreme Court rejected the so-called “paycheck rule,” which allowed the statute of limitations to begin running anew each time an employee receives a paycheck affected by the discriminatory decision. The Ledbetter Act reinstated the paycheck rule for filing a pay discrimination charge under Title VII of the Civil Rights Act of 1964, the Age Discrimination in Employment Act, the Americans with Disabilities Act, and the Rehabilitation Act so that the statute of limitations begins running anew after receipt of each paycheck or post-retirement benefit or pension check that reflects discrimination in pay. The Ledbetter Act effectively grants equal pay rights based on gender, age, disability, race, color, religion, and national origin. Additionally, the Ledbetter Act is retroactive to May 28, 2007, so it will apply to pay discrimination claims filed on or after that date.

Critics expect the new law to result in more pay discrimination administrative charges, more pay discrimination lawsuits, and more pay discrimination claims tacked on to lawsuits based on other employment actions. Since the Ledbetter Act provides that the statute of limitations on a discriminatory decision related to compensation begins anew with each paycheck, employees, who remain employed with the same employer, will be able to challenge decisions ten, twenty, or thirty years later. Claimants will be able to seek damages for a 2 year period prior to the filing of an administrative charge of discrimination. However, as a practical matter, challenges to past employment decisions may be difficult for employers to defend because the decision-makers and supervisors involved may no longer be employed, and employers may not have sufficient records from the past employment decisions.

In light of the above concerns, there are numerous precautions employers can take to prepare for the Ledbetter Act fallout. Such precautions may include—

  • Reviewing all compensation-related policies and procedures with counsel to minimize the likelihood of discrimination in compensation.
  • Reconsidering records retention practices to maintain all compensation-related records of current employees until two years after receipt of the last paycheck or retirement check (unless a longer period is provided under state law)
  • Making sure to sufficiently document the legitimate non-discriminatory reasons for employment decisions that have a lasting impact on compensation.
  • Reconsidering past promotion or pay decisions that may have been affected by discriminatory actions, and making necessary adjustments.
  • Maintaining contact information for past decision- makers and supervisors in case they need information or testimony in the future.
  • Encouraging employees to utilize an internal complaint mechanism to address any alleged pay discrimination.

Along with the new amendments to the Americans with Disabilities Act and the new regulations for the Family and Medical Leave Act, the Ledbetter Act is just one of the recent employment law developments on the federal level. Many more such developments are expected to continue this year and beyond under President Obama and a United States Congress with Democratic majorities in both the House and Senate.