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Regulation and Compliance > Legislation

Lawmakers Cautioned On Pay Discrimination Bill

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Legislation passed by a House panel recently that would reverse a spring Supreme Court decision narrowing the time period employees have to file suit claiming discrimination based on their wages has “serious implications for employers and insurers,” according to a Philadelphia labor and employment lawyer.

And, it also has implications for pension plans, the American Benefits Council said in a letter to the Committee a day before the bill passed.

The legislation, H.R. 2831, the Lilly Ledbetter Fair Pay Act, would reverse a 5-4 Supreme Court’s decision, May 29th in Ledbetter, and establish a paycheck rule for filing wage discrimination cases under the Civil Rights Act.

The legislation would consider each paycheck to be a separate discriminatory act if the paycheck is less than it otherwise would have been due to the employee’s sex, race, color, religion, or national origin, according to Debra Friedman, a lawyer in the Philadelphia office of Cozen & O’Connor.

The bill was passed, 27-20, by the House Education and Labor Committee June 27th. It is unclear when it will be considered by the full House. But, a committee official said Sen. Edward Kennedy, D-Mass., chairman of the Senate Health, Education, Labor and Pensions Committee, plans to introduce similar legislation soon.

Ms. Friedman said the bill, if enacted, would establish a rule that considers each paycheck to be a separate discriminatory act if the paycheck is less than it otherwise would have been due to the employee’s sex, race, color, religion or national origin.

Accordingly, she said, employees could file a pay discrimination claim many years after a discriminatory pay decision was made.

Ms. Friedman also said the bill would extend this protection to employees filing pay discrimination claims under federal law on the basis of age or disability. She said that proponents of the legislation claim that it addresses the realities of pay discrimination by broadening the time period for filing a claim.

“If passed, the potential implications for employers and insurers are serious,” Ms. Friedman said. “The legislation essentially eliminates the statute of limitations for pay discrimination claims in many circumstances, thereby increasing the pool of potential claims that can be made.”

She explained that when those claims are filed, employers must defend stale claims. “Witnesses may be hard to locate in our mobile workforce, and given the passage of time, may have died,” Ms. Friedman said. “Likewise, employer records that may shed light on the reasons for old pay decisions may have been destroyed or lost.

“As a result, passage of this legislation may create a great boon for plaintiff’s attorneys, but most certainly would present challenges for employers and insurers,” Ms. Friedman added.

The American Benefits Council, Washington, sent a letter to the House panel a day before the vote asking for a delay while the implications and potential unintended consequences for pension plans were studied, raising concerns that Ms. Friedman also voiced.

The letter, signed by James Klein, ABC president, made clear that the trade group neither supports nor opposes the bill.

But, the letter did say that it “could possibly raise very serious retirement plan issues.”

Specifically, Mr. Klein said, assuming that the actual act of discrimination occurred 30 years ago, the individuals who allegedly discriminated are all deceased, and the claim of discrimination is based purely on oral statements, the defendant company “may have no effective way to defend the case, which hardly seems fair.”

Mr. Klein said, “Our question is: How would a judgment in favor of the plaintiff affect the company’s retirement plan?

“If the company maintains a defined benefit plan that calculates benefits based on an employee’s final average pay, would the plan need to recalculate the plaintiff’s benefit based on the revised pay, which could be substantially higher?”

Mr. Klein also asked, “What if the lawsuit is a class action, so that large numbers of plan participants could be making the same claim for much higher benefits?”

In that case, Mr. Klein said, “the plan could become woefully underfunded, undermining the retirement security of thousands of other plan participants.”The ABC letter also said, under the proposed legislation, a claim could arguably be made by an individual who retired many years ago and is now claiming an increased pension based on a plan benefit formula that has not been in effect for a long time. “The burdens of recreating both old data and old benefit formulas in order to recalculate that individual’s benefits would be immense, yet would arguably be required by the legislation,” he said.

The letter continued, “We have other questions regarding the possible effect of the legislation on 401(k) plans, 403(b) plans (generally maintained by schools and charities), and 457 plans maintained by state and local governments. To what extent would such plans have to recalculate benefits payable to the plaintiffs? If the employer needs to fund enormous additional benefits for the plaintiffs, would the employer be effectively forced to reduce or eliminate contributions for others?

“We are writing to ask you not to act until the possible ramifications of the bill are fully understood. We understand the concerns that led to the drafting of this proposed legislation. On the other hand, we are also very mindful of the severe practical problems created by the legislation in its current form. We strongly urge you to fully explore the practical, technical and policy issues before moving forward on legislation that could have far-reaching and unintended consequences.”


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