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What the Lilly Ledbetter Fair Pay Act Means for Your Business and Your Insurance

On January 29, 2009, President Barack Obama signed into law the Lilly Ledbetter Fair Pay Act of 2009. Congress approved this law to make it easier for workers to win wage discrimination lawsuits against their employers. What does the law say, and what does it mean for employers? Will a business’s employment practices liability insurance (EPLI) policy cover the suits that this law will allow to go forward?

Lilly Ledbetter was a production supervisor at a Goodyear tire plant in Alabama. Shortly before her retirement, she learned that for years the company had paid her substantially less than it had paid male employees for the same job. Because the company calculated her pension benefits based on her earnings while employed, the lower wage affected both her past and future income. Six months before her retirement in 1998, she sued the company for equal pay under the federal Civil Rights Act of 1964. This law imposes a 180-day statute of limitations for filing a discrimination lawsuit, meaning that the worker must file the suit within 180 days of when the discrimination occurred. Ledbetter argued that the company unfairly discriminated against her due to her gender, while Goodyear claimed that it based evaluations only on competence.

The trial court ruled in Ledbetter’s favor. Goodyear appealed on the grounds that the law barred all claims for discrimination occurring more than 180 days before she first inquired into it; the appellate court agreed. She appealed to the U.S. Supreme Court, but in 2007 a divided court ruled in favor of the company. Soon after, Democrats in Congress introduced a bill to overturn the ruling. It passed the House of Representatives but was unable to overcome procedural obstacles in the Senate, and the 110th Congress adjourned without further action. The new Congress quickly enacted the bill in January 2009, and it became the first law President Obama signed. It amended the Civil Rights Act to provide that the statute of limitations resets with every payment of unfairly discriminatory wages. This allows employees to file suits at the time they learn of alleged discrimination, even if the discrimination began years or decades earlier.

An EPLI policy covers an employer for a variety of acts, including discrimination, wrongful termination, harassment, retaliation, and other types of inappropriate conduct. Most policies define discrimination as including violations of federal, state and local laws that give protected status to certain individuals. Because of these provisions, EPLI policies should cover employers for damages they must pay as the result of violations of the Civil Rights Act. In addition, the policy will pay the costs of defending the organization against the claim, even if the claim is groundless.

EPLI policies cover claims made during the policy period, but only if the alleged wrongful act occurred on or after a specific date, known as the “retroactive date.” For example, a policy written for the period January 1, 2009 to January 1, 2010 and with a retroactive date of January 1, 2005 will cover a claim made on November 1, 2008 for an act that happened on July 1, 2008. It will not cover a claim made on the same date for an act that happened on July 1, 2001. There is no standard EPLI policy, so the policies will vary by company. An insurance agent can explain the differences among different policies to an employer.

The Lilly Ledbetter Equal Pay Act makes employers more vulnerable to successful wage discrimination suits. To avoid financial loss from this, employers should be certain that their wage practices comply with the Civil Rights Act, and they should obtain a comprehensive EPLI policy from a reputable insurance company.