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On January 29, President Obama signed the Lilly Ledbetter Fair Pay Act. This Act will force employers to make sure that their pay practices are non-discriminatory and to make certain that they keep the records needed to prove the fairness of their pay decisions.

The new law allows individuals to file charges of alleged pay discrimination under Title VII of the 1964 Civil Rights Act, the Age Discrimination in Employment Act, the Americans with Disabilities Act, and the Rehabilitation Act. The law declares that an unlawful employment practice occurs when:

• a discriminatory compensation decision or other practice is adopted
• an individual becomes subject to the decision or practice; or
• an individual is affected by application of a discriminatory compensation decision or other practice, including each time wages, benefits, or other compensation is paid, resulting in whole or in part from such decision or other practice.

By eliminating the normal 180/300-day charge filing period for pay discrimination claims, the statute allows the filing of charges alleging pay discrimination with the issuance of each paycheck tainted by alleged past discrimination. Thus, each new paycheck or post-retirement benefits check serves as a potentially unlawful employment practice for which an employee may timely file a charge, even if the allegedly discriminatory pay decision occurred years, perhaps even decades, before.

Because current and former employees can now challenge pay decisions made in the distant past, employers need to modify their record retention policies and begin retaining records surrounding pay decisions indefinitely. Over time memories fade and witnesses become unavailable, therefore, employers should take extra care to document the reason for decisions that affect employeesâ?? compensation.

For example, a promotion decision made in 2008 may be the subject of litigation in 2023, if in 2023 the employee who was not selected can prove that the decision 15 years earlier was discriminatory and that the employeeâ??s compensation in 2023 would have been higher if the employee had received that promotion and raise in 2008.

Although recovery of back pay is limited to two years, other remedies are also available, including punitive damages, emotional distress damages and injunctive relief. Injunctive relief may include a court order to reinstate or promote an aggrieved employee.

Therefore, employers should also seriously consider conducting an immediate self-audit of their written pay policies and actual practices.  The self-audit should examine the following:

• starting pay
• promotional pay increases; and
• merit pay increases.

Professionally developed compensation systems generally slot every position into some form of a hierarchy, such as pay grades. Employers that do not have formal pay grades should especially note the implications of the absence of a formal pay structure. Without established pay grades, managers have wide discretion in setting pay â?? discretion which may turn out to be a liability in the post-Ledbetter Act era.

Regarding starting pay, most companies have policies that are intended to limit managersâ?? discretion in setting starting pay. Your self-audit should examine the written policies to assure that proper safeguards actually control managersâ?? discretion on setting starting pay and that controls are in place to ensure that the limits are followed. Written policies on starting pay should also provide appropriate guidance to managers on how to set starting pay.

Employers should also review their policies regarding merit and promotional pay increases to ensure that the policies establish decisional guidelines and limits on managersâ?? decision-making and should be prepared to take appropriate remedial action to correct any identified problems.

And finally, the analysis should also measure the extent to which actual pay decisions reflect adherence to your written policies.

Human Resources 4U specializes in developing salary, merit, and promotional structures along with all the appropriate policies linked to your structures to ensure compliance and to help you minimize the risk of pay discrimination claims in the future.

Human Resources 4U is a full service Human Resources consulting company specializing in small and midsize businesses.  Note: This article is presented with the understanding that we are not engaged in rendering legal advice.  If legal advice is required, the services of a competent attorney should be sought.