Ledbetter Makes Class Action Wage Discrimination Claims Easier to Prove

In January, President Obama made signing the Lilly Ledbetter Fair Pay Act one of his first actions as Chief Executive.  The increased risk of discrimination claims based on pay practices is prompting many employers to react to Ledbetter by conducting thorough analyses of their compensation structures.

Ledbetter legislatively reversed a 2007 Supreme Court decision that imposed a restrictive statute of limitations on pay discrimination claims.  Under that opinion, if the decision that resulted in the pay discrepancy occurred more than 180 days ago (or 300 days in states with their own EEO enforcement programs), the employee could not claim discrimination, even if her pay was currently being affected by the previous action.

Ledbetter reversed this decision by making each subsequent paycheck that reflects old discriminatory acts a fresh violation of Title VII.  Employers can no longer rely on historical reasons as the rationale for pay differences.  While the new law was perhaps intended to allow individuals such as Lilly Ledbetter to address the current effects of old pay discrepancies, its real impact will involve plaintiffs attorneys filing class action claims against employers, challenging the basis for pay differences based on gender, race, and other protected categories.

Federal contractors are already familiar with these compensation reviews as conducted by the Office of Federal Contract Compliance Programs.  OFCCP uses statistical analysis to determine if there are structural differences in pay based on gender.  Pre-Ledbetter, employers could defend a similar attempt to prove statistical pay differences under Title VII by showing that the actions resulting in the pay differential took place more than 180 days ago.

Proactive Audits Can Uncover and Correct Ledbetter Vulnerabilities

Many employers are responding to Ledbetter by conducting internal audits of pay and pay classifications to determine if there are unexplainable differences based on gender or other protected employee classifications.  Employers that conduct such reviews must do so under the direction of in house or outside legal counsel.  Otherwise, the review and related work product may be discoverable by plaintiffs in a subsequent lawsuit.

A Ledbetter pay review can have two parts.  First, employers can look at individual salaries to determine if there are discrepancies that do not appear readily explainable.  The second review involves statistical analysis to determine if there are significant salary differences among employees in the same pay grades based upon gender, race, etc.

If a statistical disparity more than two standard deviations from the mean is discovered, the employer can then use regression analysis to control for factors such as education, experience, skills sets, and other legitimate business factors that explain the pay differences.

If no convincing explanations for individual or group pay disparities can be determined, the employer must be willing to address these disparities by adjusting the pay of women or minorities upwards.  In many cases, these adjustments can be folded into the next scheduled merit or market salary adjustment.  Once the changes are made, the employer must be willing to conduct follow-up reviews to make certain that over time, salaries are not again shifting based on protected categories.

Plaintiffs attorneys with class action experience under the FLSA or Title VII are already using Ledbetter’s relaxed statute of limitations to threaten employers with class action pay discrimination claims.  A Ledbetter pay audit and the resulting data can be used to correct problems in advance and to deter plaintiffs from pursuing discrimination claims.