Obama signs Ledbetter Act: What it means to HR
February 13, 2009 by Jim Giuliano

President Barack Obama signed the Lilly Ledbetter Fair Pay Act into law. Here’s what it means to HR.
The law is retroactive to May 28, 2007, the date of the Ledbetter decision, which means that it will apply to all claims of pay discrimination pending on or after that date.

Summary of the law
The Fair Pay Act, S. 181, alters statute of limitations for pay discrimination claims. It also overrules the U. S. Supreme Court’s decision in Ledbetter v. Goodyear Tire & Rubber Company, Inc. Congress believed the High Court, in Ledbetter, unduly restricted the time period for bringing pay discrimination claims. The new law will extend the shelf life of claims employees make against their employers.

Under the new law, an unlawful employment practice occurs when:
• the discriminatory pay decision is made
• an individual becomes subject to the discriminatory pay decision, or
• “an individual” (see below) is affected by the discriminatory compensation decision or other practice — meaning that the deadline for filing a claim starts anew each time an employee receives wages, benefits, or other compensation tainted by the discriminatory pay decision, and may go back as far as two years from the date a charge was filed with the Equal Employment Opportunity Commission.

Broad application of ‘individual’ and ‘payment’
The language of the law also could be interpreted expansively to permit pay discrimination charges to be filed by individuals other than employees, so long as those individuals claim they have been affected by the discriminatory decision. The House rejected proposed amendments that would have clarified that the law applies only to employees.

Additionally, the new law is not limited to discriminatory wage or salary payments; it also applies to payments made under benefit plans, such as pension plans. That means, for instance, retired employees who receive pension payments may bring claims years after their pension plan went into effect.

How is pay measured under the Equal Pay Act?
The federal Equal Pay Act (EPA) requires employers to pay male and female employees fair and equal salaries for the same work. It’s intended to prevent sex-based discrimination in pay (29 U.S.C. §201, et seq.). Almost every employer is covered by the Equal Pay Act. According to the Equal Pay Act, all employers engaged in interstate commerce (those that produce goods sold outside their own state), as well as those that handle, sell, or work on goods sold in interstate commerce, are covered.

The Equal Pay Act measures job similarity and pay inequity based upon the following factors:

Required skills: This factor involves the level of education and training necessary to properly perform the duties of the position. The skill level required to perform the position, rather than the actual training, determines whether two positions are considered equal under the Equal Pay Act. For example, two payroll officers whose jobs require the same skills are considered equal under the Equal Pay Act, even though one holds an advanced degree.

Required effort: This factor measures the physical or mental capacity necessary to properly perform the position. For example, if two medical technicians have jobs that involve different physical demands (e.g., different amounts of lifting and carrying), their positions might not be considered equivalent under the Equal Pay Act, even though they work in the same department of the hospital.

Personal responsibility: This factor measures the amount of responsibility the employee has within the company (e.g., is the employee a supervisor, vice president, how much decision making authority does the person have, etc.). Here, the Equal Pay Act compares the amount of authority each employee has within the company to determine whether one position has significantly more responsibility than the other.

Workplace conditions: This factor measures the physical surroundings and possible dangers of the workplace. For example, the different risks between a mechanic in a boiler room and a mechanic that maintains office equipment will be considered.

Under certain circumstances, the Equal Pay Act allows employers to pay different salaries to employees holding similar positions. These include the following situations:
Where the position involves a seniority system.
Where the position involves a merit system.
Where the salary is determined by a production or quantity system.
Where the employer designed a pay schedule that’s not based upon the sex of the employees.
Should you self-audit to protect against ‘Ledbetter’ complaints?
Should you do a self-audit? If so, how should you go about doing it? And what records should be examined and retained? And for how long should they be retained?

Record Retention
Because the law is new, and there haven’t been any court cases or rulings, there is no definite answer on how long you should keep pay records. Most law firms that have done a preliminary analysis of the law say you should retain pertinent records “indefinitely.”

Outside of IRS regulations on record retention, the only real guidance you have comes out of federal contracting regulations, which require retention of all employment records for a minimum of two years for larger contractors and one year for on smaller contractors — those with fewer than 150 employees. But no one is saying those limits will apply to Ledbetter complaints.

Self-audit
The first question anyone might ask are: Why should we do a self-audit? What’s the upside? Are there downsides?

Why to do one. First, realize that there are no provisions under Ledbetter where an employer avoids penalties because of “accidental,” “unintentional” or “uncovered” violations. A violation is a violation. And if one is discovered as a result of a complaint, the employer will pay for it. So a self-audit would serve the purpose of uncovering violations that you didn’t even know existed, simply because no one ever analyzed the pay data for your employer.

How to do one. The typical self-audit would involve examining written policies relating to pay decisions in (a) starting pay, (b) promotional pay increases and (c) merit pay increases.

Let’s say you don’t have a formal pay structure, with grades and merit increases, and that your managers have wide discretion in setting pay. That could be particularly dangerous in a Ledbetter complaint, and as a result you may want to come out of the audit with some written policies to ensure that managers’ decisions aren’t based on discriminatory factors.

How far back to go. Courts usually recognize the practical limitations on companies. Some law firms say if you do an examination of your records for the last two years, that’s considered a valid audit and proof of best intentions.

The downside. Let’s say you do a self-audit and discover a problem in the way you’ve set pay scales. You’re just about obligated to go back and make things right — by, for instance, offering back pay or backdated promotions to employees who were victimized by the problem.
Why are you obligated? Because about the worst scenario you’ll ever face in court, in case there’s a complaint, is that that you uncovered an instance of a failure to follow the law and did nothing about it. On the flip side, if you went back and did your best to fix the problem and make amends, that’s a plus for an employer facing a complaint.

And remember, except as part of consultation with legal counsel, self-audit records usually are fair game as evidence in a court fight — for either side. That’s another reason you’ll want to right any wrongs revealed during a self-audit.

Randall Barker is the VP Human Resources for A Plus Benefits, Inc.