Fair pay act potentially dangerous to employers

February 6, 2009
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President Barack Obama recently signed the Lilly Ledbetter Fair Pay Act of 2009 into law. The question is, what will the new legislation mean for employers?

“It’s not good news for employers, and it’s a fairly dangerous piece of legislation,” said Peter Kok, a member of Miller Johnson and chair of its Labor and Employment group practice.

Opponents of the legislation argued that the bill would encourage more lawsuits against businesses, while supporters argued the bill would help women by reducing the 23 percent differential in pay that still exists between women and men.

The Lilly Ledbetter Act overturned a 2007 U.S. Supreme Court decision that limited the time frame for bringing pay discrimination claims to 180 days from when the first “discriminatory paycheck” is identified by a worker. Charge filing periods are 300 days in most states and 180 days in the few states that don’t have a state fair employment agency. The Ledbetter Act has a retroactive effective date of May 28, 2007 — the day before the U.S. Supreme Court issued its Ledbetter decision — so it includes all pay discrimination claims pending on or after that date. 

Ledbetter was a supervisor at a Goodyear Tire & Rubber Co. plant for 19 years; she sued the company over pay discrimination when she learned, just before retiring, that she had earned less than any male supervisor. The high court ruled against her because of the 180-day rule. Her lawyers argued that built into each paycheck  was a “renewal” of the discriminatory treatment she received years earlier. That’s basically the stance of the new law, Kok said: Cases can now be litigated on the theory that, in effect, each paycheck a person receives today contains the discriminatory behavior that occurred long ago.

“Each paycheck becomes a separate act of discrimination,” said Don Lawless, a labor and employment attorney with Barnes & Thornburg. “Even if an employee suspects she’s a victim of a discriminatory pay practice, a new opportunity to file a claim recalibrates with every paycheck, so it virtually gets rid of the statute of limitations. The limiting factor is that you can only get back-pay awards to a maximum of two years prior to the date a charge is filed.”

Historically, the Western legal system has always had statutes of limitations for most every type of legal claim. Generally, under Michigan law, a person has three years to bring a state civil rights claim, and under Title VII has 300 days to bring a claim, and if he doesn’t do it within those timeframes, he waives his right to bring legal action, Kok explained

“In every area of the law there are statutes of limitations: At some point, bygones are bygones,” Kok pointed out. “You bring a claim in a timely manner so witnesses are still around, documents are still there and a person can defend himself.”

Since the Ledbetter Act essentially eliminates the limitations periods on claims, some experts believe it will pave the way for pay discrimination lawsuits to get on the court docket even years after the alleged discrimination occurred.

Dave Smith, president of The Employers’ Association, thinks there is “more bad than good” in the new law. Doing away with a statute of limitations on pay discrimination claims is the most significant concern, he said. As he sees it, the intent of the statute of limitations was to give employees a timeframe within which to bring complaint of a discriminatory act and get the company to respond to it, correct it and stop it from being repeated in the future. What the new law does is open the door for employees to bring pay discrimination claims stemming from pay practices 10 or more years ago.

“I can see it potentially creating a lot of class action lawsuits,” Smith said. “It’s good to have fair workplaces but you’ve got to give employers an opportunity to correct the workplace as it exists — not how it may have existed 10 or 15 years ago. If you apply today’s standards to the standards of something 10 to 15 years ago, yes, there will probably be problems.”

As Kok pointed out, not only can the person who was allegedly discriminated against bring a claim, but family members affected by it could also bring a claim, Kok observed. A child, for instance, could claim he was cheated out of a college education because his mother was a victim of pay discrimination years earlier. 

“We really don’t know where this is going to go,” Kok said, “but we do know that a whole flock of cases are going to come down now where people are going to look way back in the past and attempt to assert that whatever happened — perhaps a failure to promote or mistreatment on a merit case system long ago — is still built into my paycheck today, so therefore I get to bring these old, otherwise stale claims into court and litigate them on my own behalf, or on behalf of people in my family who were affected by this.”

Kok said there are a number of measures employers can take to try to keep themselves out of court. Employers could have employees “sign off,” acknowledging that they’ve been paid and treated fairly.

“Short of that, I think you’re always going to be left with somebody who looks way back to some perceived wrong, and with the passage of time, this wrong becomes magnified in his mind,” Kok added. “The real problem is going to be their memory, such as it might be, and everybody else’s memory about what actually happened back then; they may not even have people working for the company that were there whenever the perceived wrong took place.”

Kok said the best of companies evaluate their pay and promotion practices to assure there is no pattern of discrimination and have done their due diligence with respect to making sure sex, race and ethnicity are not part of the decision-making process. Too, those businesses have policies that provide for complaint procedures that give employees an opportunity to speak up if they believe they have been treated unfairly. 

“It’s all of those kinds of things that go to diffusing pay discrimination claims going forward,” Kok said.

Mary Ann Cartwright, a partner at Rhoades McKee and chair of its labor and employment practice group, said where there are women who hold comparable jobs with men, employers have to look closely at possible pay discrepancies. 

“Employers will have to look at their pay practices to make sure that people of equal skill, equal educational background and equal experience are being paid equally — that there is parity. And if not, why not?” Cartwright said. “In Michigan, employers are not allowed to prohibit their employees from discussing their wages, so I think you’re going to start seeing people compare to see if they’re being treated fairly.”  

Lawless noted that for the last five years, the big area of litigation has been in relation to the Fair Labor Standards Act and whether or not employees are properly classified as exempt or non-exempt from overtime. He foresees the area of compensation discrimination as being the next big thing in employment litigation. Barnes & Thornburg advises employers to prepare for what might be ahead by undertaking a review of their pay practices and compensation structures.

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