Small Business: The Lilly Ledbetter Fair Pay Act
December 12, 2009
By Philip I. Frankel, Small-Biz Focus, November/December 2009
As his first legislative act, President Obama signed the Lilly Ledbetter Fair Pay Act. This law affects small business employers' compensation decisions tremendously. In fact, failure to reform compensation practices could lead to costly litigation. Understanding the scope of the Ledbetter Act and how it relates to state law can help small businesses avoid potential problems.
The federal government enacted the Ledbetter Act to reverse the Supreme Court's decision in Ledbetter v. Goodyear Tire. In Ledbetter, the Court addressed what qualified as a discriminatory act under then existing federal law. The Court determined that an employer's compensation decision, not an employee's last paycheck, qualified as the discriminatory act that triggers the time limit for filing an EEOC complaint. The Ledbetter Act reversed the Court's determination. Now each paycheck based on a discriminatory compensation decision restarts the time limit for filing a claim under federal law.
The shifting standards under federal law had the potential to affect discrimination claims brought under state law. New York had always considered each paycheck to qualify as a discriminatory act. However, after the Ledbetter decision, uncertainty existed regarding whether underlying employment decisions would be used to impose a shorter filing deadline under New York law. The Ledbetter Act eliminated that uncertainty. For discrimination claims under state law, each paycheck will continue to be the standard.
Currently, an employee has to file a complaint with the EEOC or the New York Division of Human Rights within 300 days of a discriminatory act. Under the Ledbetter Act, a recent paycheck qualifies as a discriminatory act if a compensation decision made years ago affected the level of pay in that recent pay check. In fact, retirement and pension benefits also qualify as discriminatory acts. Therefore, retired employees may bring discrimination claims based on compensation decisions made long ago. Finally, the law permits anyone "affected by" the alleged discrimination to bring a claim. This language potentially permits an employee's family member to file a discrimination claim.
Despite these changes, an employer's potential liability is limited, for claims based on the Ledbetter Act's new deadlines, the law imposes a two-year back pay limitation. Employees will not be able to recover any back pay from before May 28,2007. Additionally, because New York has always treated the last paycheck as the qualifying discriminatory act, employers will not be subject to any new claims for compensation decisions made years ago under state law.
Understanding the Laws
Understanding which of these federal and state laws apply to different small business decisions and taking steps to reform compensation practices will help reduce the risk of costly litigation. For example, small businesses should accurately and adequately document compensation decisions. Precise recordkeeping protects employers in situations where the individual who made the compensation decision can no longer remember the details or that individual no longer works for the business. Additionally, small business should consider using bonuses instead of pay raises. With bonuses, employees may only bring claims within 300 days of the paycheck that contained the bonus. For pay raises, any paycheck made after that compensation decision would restart the time period for employees to bring claims. These two suggestions are just a couple of the many ways small businesses can reduce risk.