On January 29, 2009, President Barack Obama signed the “Lilly Ledbetter Fair Pay Act” (the “Act”) into law. The Act was drafted and enacted in response to a 2007 United States Supreme Court decision that drastically reduced the damages awarded to the Act’s namesake, Lilly Ledbetter. While the Act is laudable in its objective, its effect may impose a significant record keeping burden upon employers.

Under the Act’s terms, discrimination occurs each time the effects of an initial discriminatory compensation decision are felt. Moreover, though Lilly Ledbetter was discriminated upon because of her sex, the Act applies to compensation discrimination based upon an employee’s protected status, ie. race, age, national origin, religion, or disability. Additionally, the Act applies retroactively to claims accruing at any time since May 28, 2007. Therefore, the limitations period for an initial compensation decision re-commences each time wages, benefits, or other compensation is paid in furtherance of an original discriminatory act.

Because the Act does not have a repose period, an employer may be required to defend a compensation decision made many years ago. For this reason, employers must use compensation systems that document salary changes as well as the basis for salary levels. Moreover, employers may be required to retain employments records indefinitely, since exposure for compensation decisions extends throughout the tenure of retained employees.

Some steps that employers can take to protect themselves include: 1) documenting the basis for all decisions relating to setting and changing employee compensation; 2) installing and regularly auditing a specially designed compensation system; 3) designing and installing a meaningful compensation grievance procedure; and 4) maintaining an archive summary of historical compensation levels and the reasons for variances.