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  • FLSA Coverage: How FLSA regulations apply to all employers and any specific exemptions from the overtime requirements
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February 16, 2009
Fair Pay Act Impacts Compensation Recordkeeping
Back in 1998 when she accepted an early retirement package from Goodyear Tire & Rubber Co., Lilly Ledbetter had no idea her name would one day appear on the first piece of legislation signed by the first African-American President of the United States. But on January 29, 2009, that’s just what happened.

The Lilly Ledbetter Fair Pay Act of 2009 is a result of legal action brought by Ledbetter, who worked as a manager for Goodyear starting in 1979. Company performance review records show that her performance ratings warranted smaller salary increases than those earned by other managers—who happened to be male.

By the time she retired in 1998, her smaller-than-average salary increases left her with lower pay than that of her male co-workers. In July 1998, Ledbetter sought help form the Equal Employment Opportunity Commission, charging that her salary had been based more on her gender than her work performance, in violation of federal law. In November 1999, Ledbetter filed a lawsuit and a jury found in her favor.

The company appealed, and the 11th Circuit Court of Appeals reversed the decision of the lower court. Ledbetter’s subsequent appeal of that decision made its way to the U.S. Supreme Court, which found that, in effect, the discrimination had happened too long ago to be the basis for a claim.

In the dissenting opinion, though, the Court issued a challenge to the U.S. Congress to rectify the wording of Title VII of the Civil Rights Act of 1964, strict interpretation of which bound the court. Because their finding was based on a 180-day time limit after the discrimination occurred, members of the court asked Congress to reconsider which events could trigger the time limit.

The Ledbetter Act solidifies the position that discrimination actually recurs with each discriminatory paycheck. The period of time during which an employee or other affected person can file a lawsuit, then, begins when the discriminatory practice is adopted; when the individual becomes subject to the decision or practice; or when the individual is affected by the application of the decision or practice. The issuance of each paycheck falls within the new definition, so the statute of limitations begins anew with each subsequent discriminatory paycheck.

A Wake-Up Call

That’s a nice history and civics lesson, but how does the Ledbetter Act affect you? We spoke with Garen E. Dodge, a partner in the DC office of Jackson Lewis LLP, one of the largest employment and labor law firms in the country. In an article for his firm’s clients, Dodge recently outlined the employer issues involved with the Ledbetter Act and agreed to summarize the highlights for BLR.

“This new legislation is probably a wakeup call for companies, to say to them that decisions they make could be reviewed well into the future,” he said. “Even when the people who are making policy and reviewing decisions are gone, the company is going to need to defend how decisions are made and compensation levels are set.”

Step 1: Audit Your Procedures

Dodge emphasizes the importance of doing a careful, considered job when making decisions about pay. Companies must make sure they leave an easy-to-follow trail behind them, documenting those decisions. “The audit should help you figure out if you are doing things correctly. Is there enough documentation supporting how people are paid? If someone is a poor performer, are you maintaining the documentation reflecting that, so that 15 years in the future someone representing the company can defend your decisions?”

Step 2: Keep Your Records

Dodge suggests thinking long term about retention of your compensation records. “Companies ought to consider keeping records for as long as that employee is working for the company,” he says. “The legislation is causing a lot of people to really look closely at that concept.” You are correct if you’re thinking that holding onto compensation records for decades could mean you no longer have room in your office for the people who work there. However, technology can be the answer. “One of the recommendations we have made is to consider electronic archiving because so many of these records would simply overwhelm your ability to keep them.”

Step 3: Review Past Decisions

“One thing employers should consider is to review how compensation decisions have been made in the past,” Dodge explains. “If just one manager or one supervisor is making decisions on pay, companies should consider whether or not that’s defensible. Think about adopting a compensation review system, so these decisions can be reviewed with the same kind of scrutiny you might use when somebody is being terminated or disciplined. If one boss is making compensation decisions for a group of employees in the company, those decisions probably ought to be treated with the same level of care that is used for a termination decision now. You probably need somebody looking over your shoulder, reviewing the decision.”

Step 4: Train Supervisors

One important way to prevent future problems with compensation decisions is to make certain those employees who make pay decisions understand the implications of their actions. Dodge says, “Everyone needs to bear in mind that their decisions could be challenged 15 years from now, so they need to make appropriate decisions and keep records to document them that will be sufficient for a future management team to defend them. Make sure managers and supervisors are trained on this.

“You could include it as part of your ongoing training for managers and supervisors, just to make sure they understand that compensation decisions can be reviewed for whether or not discrimination plays any part. They are going to need to somehow objectively support the decisions they make in setting compensation levels.”

Dodge points to the federal government and the system they use to determine if contractors bidding on government projects are using discriminatory pay practices. “If you are a federal contractor, they take a look at compensation levels and pay grades within your organization and run a statistical comparison across gender lines and race lines to try and determine if any unintentional discrimination has crept into your pay grades.

“Federal contractors have to do that as part of their affirmative action plan. It’s another layer of review to make sure their compensation system is defensible form a legal point of view. I’m suggesting that what Ledbetter may cause companies to do is to consider using that kind of idea in the private sector, where affirmative action is not required.”

In short, adopting a defensive posture when creating policies and making decisions about compensation can save the company a lot of trouble in the future. When creating or enforcing policies and recording your actions, think about how you might defend your decisions later.

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