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First law Obama signs opens door to more pay discrimination claims

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in Compensation and Benefits,Discrimination and Harassment,Employment Law,Human Resources

by Dean A. Ledoux, Esq.

The first bill signed into law by President Obama is one that significantly expands employers’ exposure for possible claims of discriminatory pay. That law, the Lilly Ledbetter Fair Pay Act of 2009 (FPA), was signed on Jan. 29.

It’s too soon to tell whether this new law represents the beginning of a new wave of pro-employee legislation by the new Congress. But in and of itself, the FPA represents a significant development of which careful employers need be aware.

More time to file for pay bias

The FPA expands the period of time when an employee may file a lawsuit against an employer for pay discrimination. Employees may begin such a lawsuit within 180 days of receiving a paycheck reflecting a discriminatory pay level—regardless of when the underlying compensation decision was made. (That time period is extended to 300 days if a claim is additionally based on a state or local law prohibiting discrimination.)

What this new law does, in essence, is to treat discriminatory pay claims as ongoing claims. It considers the issuance of each new paycheck as a perpetration of the initial discriminatory pay-level decision.

The FPA allows employees to recover back pay for up to two years if they successfully prove that the pay-level decision was discriminatory. Although the specific issue raised in the 2007 U.S. Supreme Court decision that prompted the new law was gender discrimination, the FPA applies to all forms of discriminatory pay regarding employees with protected-class status.

The law became effective immediately upon its signing.

The FPA first made significant headway in Congress in 2008, but that legislation ultimately fell short of enactment. Once the new Congress convened this year, it quickly took action to revive the legislation. The bill passed easily in the House, by a vote of 247-171. The Senate then passed a very similar version on Jan. 15, by a vote of 72-23.

Next: Paycheck Fairness Act

Congress also enacted a companion piece of legislation, the Paycheck Fairness Act, which amends the Equal Pay Act of 1963.

Significant provisions in the Paycheck Fairness Act include:

  • Harsher penalties against employers that violate the Equal Pay Act
  • Prohibition of employer retaliation against employees who share salary information with other employees

What employers should do

The enactment of these two laws makes it even more important for employers to make thoughtful decisions when setting compensation for employees.

You must be able to explain your thought process if the decision is later questioned—perhaps even years after the decision was made.

Document your compensation process. Be prepared to explain any significant deviation in pay for employees who appear to hold comparable positions. Those two steps will help you defend against possible claims of pay discrimination.

You should consider indefinitely retaining documents concerning compensation decisions. After all, the FPA will allow pay discrimination claims to be raised many years after the fact, and certainly beyond the typical seven-year document retention period.


Author: Dean A. Ledoux is a principal with Gray Plant Mooty in Minneapolis. Dean’s employment and labor practice involves litigation and advising for unionized and nonunionized employers. He focuses heavily on noncompete issues. Contact him at (612) 632-3233 or dean.ledoux@gpmlaw.com.

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