Whitepaper — Compensation News: Minimum Wage And Stale Wage Discrimination Action

While we were enjoying our Memorial Day holidays and least expecting it, several significant HR events occurred. Legislation increasing the minimum wage was passed and a major Supreme Court decision regarding pay discrimination came down.

Minimum Wage

After much wrangling, the first minimum wage increase in 10 years was signed into law on May 25. Congressional Democrats pushed the increase through by tying it to a military spending bill. Earlier attempts this year to pass it had failed, as the House and Senate tried to attach different business tax breaks to proposed bills.

The federal minimum wage, currently at $5.15/hour, will rise in 3 phases to $5.85 on July 24, 2007, $6.55 on July 24, 2008, and $7.25 on July 24, 2009. Obviously these increases impact employers with minimum wage employees who will have to raise pay levels. The raises may also have a ripple effect because as companies adjust salary ranges, there could be wage compression problems. Pressure may be placed on entire salary structures. Other employees may be expected raises as well.

There could be other ramifications. Wage and hour lawsuits have exploded over the last few years. Employees have become increasingly sensitized to wage issues and regulations. Minimum wage raises will only heighten those discussions. Now is a good time to review your pay practices, including your overtime policies, to ensure that you are in compliance.

Don’t forget your state law either. Many states provide even greater wage and hour protections than what federal law requires, including higher minimum wage requirements.

Stale Pay Discrimination Claims

The U.S. Supreme Court’s May 29th decision in Ledbetter v. Goodyear also made the news. The narrow 5-4 decision basically says that the general deadlines under Title VII of the Civil Rights Act for filing discrimination cases apply to pay discrimination cases. Title VII provides a short (180 day) deadline for bringing claims after an act of discrimination occurs, or if the EEOC has a work agreement with a state EEO agency, 300 days.

Ledbetter was a supervisor at a Goodyear plant, a position generally held by men. She claimed that while initially she was paid comparably to similarly situated men, that over time, because of discriminatory performance evaluations and pay practices, her pay got further and further behind the males. She contended that her claim was still “fresh” as each paycheck was a new discriminatory act and so the Title VII 180 day clock had not expired. A jury found in her favor.

The U.S. Supreme Court disagreed, finding that forcing companies to defend decisions made years ago would put an unfair burden on business. In essence there might be no statute of limitations for pay discrimination cases. According to the Court, Ledbetter should have filed a claim after each allegedly discriminatory wage action. The decision will certainly limit the number of pay discrimination cases, as in many instances an employee may not even be aware of a problem until years have passed. Employers typically don’t disclose salary information so an employee may not realize what a coworker makes.

Additionally, a disparity in salary may be fairly small initially, but can greatly increase over time. While this case involved sex discrimination it will apply as well to other Title VII pay cases (e.g., those based on race, national origin, etc.) Since the American with Disabilities Act (ADA) and Age Discrimination In Employment Act of 1967 (ADEA) are similarly structured it will likely apply to age and disability as well. However plaintiffs may utilize the Equal Pay Act to a greater degree to pursue pay claims. That Act prohibits unequal wage payment for equal work on the basis of sex and has different requirements than Title VII.

While the Court decision is good news for employers, organizations must still ensure that wage decisions are based on nondiscriminatory, business related factors. Pay discrimination claims are prevented by implementing strong HR practices, including implementing a solid base pay structure, an objective performance appraisal system, and training your managers well. Automated systems, such as HRN’s Performance Pro and Compease, make salary administration and merit increases manageable, fair, and equitable. Such systems are the building blocks of a compliant and effective HR department.

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