New US law increases employer risk for compensation-based discrimination claims

New US legislation signed into law by President Barack Obama on 29 January 2009 effectively eliminates the statute of limitations for individuals to file claims of pay-discrimination based on race, color, religion, sex, national origin, age or disability. The Lilly Ledbetter Fair Pay Act of 2009 will have a profound effect on employers because it will enable individuals to file pay-discrimination claims for events that occurred years earlier, exposing employers to additional risks and making it potentially more difficult to defend claims.

Past actions cannot be undone. But employers can take immediate steps to reduce their present-day risk of exposure to pay-discrimination claims – identifying potential inequities and targeting pay changes to “level the field.” The risks of pay inequities are substantial. Damages, particularly in class-action lawsuits, can total tens or hundreds of millions of dollars. Organizations’ reputations as employers are on the line – and so is their brand equity, as claims of unfair pay practices can influence customer behaviors.

Prior to the Ledbetter Act, federal agencies had already raised the bar with regard to pay evaluation standards. The Office of Federal Contract Compliance Programs (OFCCP) implemented new standards for federal contractors in 2006 calling for statistical analysis of compensation to assess liability. In the same year, both the OFCCP and the Equal Employment Opportunity Commission (EEOC) prioritized assessments of systemic discrimination – assessments involving significant numbers of workers – with the effect of considerably raising potential liabilities. With its new focus, the OFCCP generated record financial remedies in 2008.

The Ledbetter Act is likely to be followed by other federal legislation and/or action that would further increase employment practices risk. Further, in the current economic downturn, workforce changes that might be considered (such as layoffs, pay freezes and increased pay-at-risk) can create additional challenges. It is more important than ever that employers be informed about potential vulnerabilities and that they act proactively to address issues.

How Mercer can help

Mercer’s human capital business is uniquely qualified to help employers:

• Identify the risks. Through our analytical consulting strength and proprietary technology, we measure and quantify the risks associated with current reward (and, as appropriate, other potentially discriminatory) practices.
  
  
• Develop plans to mitigate them. We are experts in designing short- and long-term plans of action to manage and mitigate risks over time – from determining pay-out strategies for targeted compensation adjustments to re-designing compensation plans. While risk should be minimized, the integrity of compensation programs that serve organizations’ ultimate business objectives need not be compromised.
  
  
• Measure and monitor progress over time. We not only remedy current problems – we help employers put processes in place for ongoing monitoring and measurement to stay on track and mitigate future risks.