On Thursday, January 29, President Obama signed into law the Lilly Ledbetter Fair Pay Restoration Act (“Ledbetter Equal Pay Act”). The Ledbetter Equal Pay Act, which essentially allows employees to file a claim for pay discrimination regardless of when the initial violation took place, could result in a significant increase in the number of pay discrimination lawsuits filed against employers.  The Ledbetter Equal Pay Act can apply to employers who have as few as fifteen employees.

Until the Ledbetter Equal Pay Act became law, employees alleging pay discrimination were required to bring suit within 180 days of the act of discrimination. The Ledbetter Equal Pay Act was intended to address the 2007 decision in Ledbetter v. Goodyear Tire and Rubber Company, 550 U.S. 618, 127 S. Ct. 2162 (2007).  In that case, the Supreme Court held that the act of discrimination occurred at the time of the first employer’s decision which resulted in the discriminatory pay (i.e. at the time of decision to pay less based on a discriminatory factor).

The employee bringing suit in Ledbetter had argued that each new paycheck should restart the clock with respect to filing a discrimination lawsuit involving events that happened many years prior. Now that the Ledbetter Equal Pay Act is law,  the statutes of limitations under four discrimination statutes—protecting classes such as age, disability, race, color, religion, sex, and national origin—begin anew each time an individual is compensated (if the compensation was affected), essentially eliminating time limits for many claims.

In essence, under this so called “paycheck accrual rule,” each time an employee receives a paycheck, the Ledbetter Equal Pay Act gives that employee an additional 180 days in which to file suit, so long as the amount of the compensation stemmed from an earlier discriminatory decision. For example, if an employee alleged that 15 years before filing a charge she received a raise that was less than male co-workers because of discrimination, each paycheck since that occurrence would be a new unlawful employment practice and reset the statute of limitations under Title VII.  Perhaps an unforeseen result of this rule would be its effect on recently laid off employees. Now having 180 days from the time of their last paycheck in which to file suit, an increase in past-employee claims could result, especially in the current economic downturn.

With the enactment of the Ledbetter Equal Pay Act, employers now face the prospect of defending decades old wage decisions with a potential lack of evidence, long after documents have been destroyed, witnesses have disappeared and memories have faded. Documents that were never prepared or may have been destroyed in the past will now need to be retained for an indefinite period. As a result, some employers may be required to modify their pay practices and employee evaluation procedures by way of preventative law. Such preventative measures might include (1) providing thorough documentation and justification for compensation decisions, (2) reviewing current promotion policies and procedures, (3) developing a robust document retention system that allows for the future defense of employee claims, and (4) using a release of claims on all terminations.

Other provisions of the Ledbetter Equal Pay Act include:

• allowing for the recovery of back pay for up to two years preceding the filing of the charge if the unlawful employment practices during the charging period were similar or related to the practices that occurred outside the time for filing a charge - (note that while compensation damages will be capped at two years’ back pay, an employee may be entitled to significantly more in the way of punitive damages, especially if the alleged discriminatory decision had been ongoing for many years);
• a retroactive effective date of May 28, 2007;
• extending the class of plaintiffs to any individual who is “affected by” unlawful discrimination - (this language might allow individuals who never were victims of discrimination to become plaintiffs on behalf of others - for example, by allowing a widower to sue on behalf of his deceased wife);
• the possibility for aggrieved employees to make claims not just for past wages, but potentially for lost pension benefits as well, which could span in excess of two years - (unlike the two years’ back pay cap, there is currently no cap in place for the recalculation of pension benefits).

If you have questions about this, or any other legal matter, please feel free to contact a member of our firm. Also, we encourage our clients and invite others to consider the use of our helpful preventative law resources, including our recently added Sample Short Form Release for Employee Separations, which we routinely provide to our current clients.

This Message is provided for general information.  However, the law of some jurisdictions treat newsletters as a form of advertisement and obligates up to inform you that this is an advertisement. You have received this Message because you are a client, former client, or friend of the firm.  In as much as the information is general in nature we recommend that you consult with counsel for a more detailed analysis of the Act, in the event you wish to change your personnel policy as a result of the Ledbetter Equal Pay Act.

Prior, Daniel and Wiltshire, LLC is a multi-service law firm with two offices located in Athens and Madison, Georgia. The firm strives to provide cost-efficient and result-oriented legal representation to its individual and corporate clients throughout the region. We pride ourselves in our ability to serve the region with quality and integrity. For more information, visit www.pdwlawfirm.com.