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March 11, 2009
11 Tips for Avoiding Ledbetter Problems

By Bob Brady
BLR Founder and CEO

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Documenting the reasons for pay decisions is the key to avoiding liability under the Lilly Ledbetter Fair Pay Act, which extends the deadline for filing a pay-bias complaint under Title VII of the Civil Rights Act of 1964, says Leslie E. Silverman, a partner with the labor law firm Proskauer Rose, LLP.

The Lilly Ledbetter Fair Pay Act addresses the events that trigger the running of the time limit for filing a pay-bias complaint with the EEOC. Under the law, the time limit for filing a pay-bias complaint with the EEOC restarts each time an employee receives a paycheck that reflects a past discriminatory pay decision or practice.

Speaking at SHRM's annual Employment Law & Legislative Conference this week, Silverman advised employers to conduct an audit of their compensation-setting processes and their record-retention practices.

“You probably should be keeping complete copies of all personel files, particularly those relating to compensation--forever,” she said. Silverman is a former Commissioner of the Equal Employment Opportunity Commission.

Since the Lilly Ledbetter Fair Pay Act allows employees to sue for pay discrimination years after discriminatory decisions were made, it will be difficult for employers to defend cases if records are not kept.

“And you may need the records of all individuals, not just someone who sues you,” Silverman cautioned. In Ledbetter's case, she alleged that discrimination that took place decades ago had caused her to be paid much less than male employees. Her plight made her a very sympathetic plaintiff, but even if she had not been, it would have been very difficult for the employer to put forth a defense, given the long length of time involved.

Process

Silverman said that the law does not require “equality,” but it does require “equity.” Equity can be encouraged and audited much more effectively if a uniform process is followed. The steps she advises include the following:

  • Review document retention policies to ensure that all records relating to compensation decisions will be kept long enough.
  • Ensure that your workplace has systems in place for setting and reviewing all pay decisions.
  • Provide written guidance to managers on how to set employee salaries at hire, and to grant promotional and merit increases.
  • Ensure that all pay decisions are well documented. Supervisors should document the rationale for why certain employees receive higher or lower pay, benefits, or evaluations.
  • Have a system in place to review compensation decisions for consistency and compliance with your compensation policies.
  • Consider having a committee review all compensation decisions. (She admitted that this is cumbersome, “but,” she cautioned, “people act differently in groups, and it reduces bias.”)
  • When setting “hire” compensation, capture and document all relevant factors:
    • Initial salary demands and negotiations
    • Education and relevant work experience
    • Salaries of similarly situated employees
    • Economic relevant labor market at time of hire
  • Conduct regular, periodic performance appraisals
  • Train managers, supervisors, and executives on how to conduct performance appraisals
  • Require that each evaluator provide a narrative explanation of why specific ratings where given
  • Ensure that merit pay increases are linked to a manager's evaluation of an employee's performance

Consider a Compensation Audit

Employers who are concerned about liability should consider an audit, Silverman advised. However, it should only be done under the supervision of counsel, to ensure confidentiality, and should only be done if you are prepared to do something about the results.

An audit would include statistical analysis to see if past pay decisions suggest pay differentials between similarly situated employees. It would look at pay at hire, merit raises, and raises resulting from promotions or job changes.

Ledbetter Effect?

How much will the new law affect employers? It gives employees and their lawyers additional weapons when they sue, and that is bound to create problems for employers, but the tone of the presentation conveyed the impression that it is not going to be an employment law game changer. Silverman advised employers to take the steps outlined above because the potential liabilities are large.

Obama Effect

On the other hand, the “Obama effect,” is likely to have a substantial effect on the employment litigation scene. In her talk, Silverman said both the EEOC and OFCCP are beginning to flex their regulatory and litigation muscles. The new, Democratic leadership is much more inclined to side with employees, and they can count on support from the White House and the Congress.

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