Outside Insights | By Bennett Pine
Fulfilling a campaign promise, the first bill President Obama signed into law, the Lilly Ledbetter Fair Pay Act of 2009, extends the time for employees to file federal claims alleging unlawful pay discrimination and creates substantial potential liability and headaches for employers.
The Ledbetter Act is named after a former female employee who sued Goodyear after learning that male employees in similar positions were paid substantially more than she was over her 19 year career with the company. The legislation effectively overturns a Supreme Court decision and significantly extends the time employees can sue their employers for pay discrimination.
The issue began with the Supreme Court ruling in Ledbetter v. Goodyear Tire & Rubber Co., 550 U.S. 618 (2007). The court ruled that the statute of limitations for asserting a wage difference–discrimination claim began to run from the initial decision to pay a female worker less money than her male counterpart, even if the pay disparity continued for years.
Federal anti-discrimination laws require employees to file an administrative charge of discrimination within 180 days of the alleged discrimination (300 days in states with their own antidiscrimination machinery) as a prerequisite to filing a federal lawsuit. Since Ledbetter did not file her discriminatory pay claim until after leaving her Goodyear employment, the Supreme Court ruled that her claim was time barred.
The Ledbetter decision was met with strong opposition by employee groups and many members of Congress, who argued that employees often do not learn of pay inequality until after the passage of substantial periods of time. In turn, that placed employees outside the statute of limitations to claim discriminatory pay practices.
To address this, the Ledbetter Act effectively restarts the 180-day (or 300-day) statute of limitations clock each time a worker receives a paycheck that has a pay disparity. As a result, each paycheck could become the basis of a potential violation, greatly extending the time a worker may bring a claim against the employer.
The Ledbetter Act may likely have a significant impact in the restaurant and hospitality industries because of the commonly held perception that white males are often placed in charge and earn fatter paychecks than their female or minority peers. Under the Ledbetter Act, each arguably discriminatory paycheck received by a female or minority employee would provide the basis of a pay claim.
It is worth noting that, although the Ledbetter case dealt only with sex-based pay disparity, the new law is not limited to pay discrimination based on gender. It also includes claims based on protected characteristics such as race, age, religion, and disability as well. Arguably, each pension payment also may provide the basis for an actionable claim if the pension amount was determined by a discriminatory pay practice.
Successful claimants can recover up to two years of back pay from the date the discrimination charge is filed.
The practical effect of the Ledbetter Fair Pay Act is that employers will face a significant increase in potential liability. Each paycheck may provide the basis of liability even where pay differentials are the result of long-forgotten pay decisions.
Employers should review their pay practices to ensure that all compensation decisions are based on or explained by objective factors like quantifiable job performance, seniority, or other legitimate nondiscriminatory business reasons.
Unexplainable pay disparities should be addressed and the reasons for those pay differences should be well articulated and documented.
With the passage of the Ledbetter Fair Pay Act, many more claims of discriminatory pay disparity likely will result. So it is imperative that restaurant-industry employers examine their compensation practices in order to identify and address potentially discriminatory pay disparities and limit their financial exposure.