Preparing for Fair Pay Legislation - Part 6

I have expressed my doubts as to whether or not the Lilly Ledbetter Fair Pay Act of 2009 is going to bring about a rush of new compensation discrimination litigation. (Ironically, despite the jokes, many lawyers have a serious problem understanding money calculations, even those which don't require much more than simple addition and multiplication.)

But I said I would offer some guidance on how employers can better protect themselves from compensation discrimination so I should follow though on this promise. It will come in handy if Congress ever passes the Paycheck Fairness legislation.

Establish and Follow a Written Compensation Policy

No law or court case says an employer must have a written policy on any subject, including compensation. In fact, courts have held the absence of a written policy is not itself evidence of discrimination. Brownlow v. Edgecomb Metals Co., 867 F.2d 960, 964 (6th Cir. 1989). The same court, in the same context (a reduction in force) also held the lack of an "objective plan" along with evidence of slipshod practices can be evidence that the employer's motive is not free from bias. So, on the belief that a written plan is better than no plan, the first step in avoiding compensation discrimination liability is to have a written compensation plan. Blair v. Henry Filters. One of the principal reasons every employer should have a written compensation policy that accurately reflect its practices is because under the Equal Pay Act, the employer must prove that pay differences among employees performing "equal" work are legitimate. Employer don't need to needlessly complicate litigation by causes doubts about the factors that play a role in setting or increasing pay.

Honestly, any employer that sets or increase pay has a compensation “policy” or “practice.” Some employers believe putting a policy about compensation in writing too “restrictive” and eliminates “flexibility.” Not surprisingly, as I mentioned above, courts tend to regard this explanation as an excuse for concealing discrimination. In reality, the problem is not caused by the purported “lack of flexibility” of a written policy but in the fact that many employers have compensation policies that simply do not reflect their actual compensation practices.

There is no “sample” or “one size fits all” compensation policy. Every employer’s compensation goals are different. Nevertheless, there are several “musts” that should be included in every compensation policy:

• Carefully incorporate every factor you will use in making a compensation decision.
• Evaluate every word in the policy to ensure it correctly and fully states your compensation policy. Beck-Wilson v. Principi, 441 F.3d 353, 367 (6th Cir. 2006) (holding a jury had to decide an Equal Pay Act claim because Agency's own handbook refuted its explanation of why it had two different pay scales).
• Have only one document that states your compensation policy; that helps you be consistent.
• The policy should distinguish between factors that “will” affect compensation decisions (e.g. performance, for one) and those that may play a role under certain conditions (e.g. bonuses or extra compensation due to company business performance).
• Do do not restate the same compensation concepts or factors in different ways. Again, consistency.
  
• Include a non-discrimination statement.
• Allow for exceptions, e.g., red-circling. 29 C.F.R. § 1620.26 (“red-circle rate” can be a valid “factor other than sex.”).
• Allow for pay decreases, the possibility of no pay increase, or deductions from compensation under certain circumstances “except where prohibited by law” (i.e., you may not lower a male’s pay to pay a female “equal” pay and you may not withhold from an employee’s compensation if it would take the hourly pay rate below the minimum wage).
• As a result of Ledbetter, employers should permanently retain any records that affect or play any role in setting compensation.
• Include the following type of language: “Neither this nor any other policy constitutes a contract of employment for a definite term. This policy may be modified at any time by [Employer].” (Note that this last point is written for Tennessee employers. Employers in other states should use language relevant to their at will rules.)

These are, of course, merely consideration for the policy. I hestiate to say much more than the categories of topics that should be in a policy because every employer should tailor the practices to their needs and legal obligations. What matters for some employers won't matter a whit for others.

The next post will focus on the importance of consistency and neutrality in setting or increasing salaries.