Employers Urged to Save Pay Documents

The Lilly Ledbetter Fair Pay Act of 2009 has led many employers to re-examine their document retention policies so they’ll be prepared if they are sued under its provisions, but some experts say more work needs to be done.

The act provides that every paycheck resulting from a previous discriminatory pay decision constitutes a violation of several federal laws, meaning employers may have to go back decades to provide documentation to defend against such claims.

A survey released in August 2009 by Hewitt Associates of 1,156 organizations found that 88 percent were aware of the law. It found that 38 percent had conducted a pay-equity analysis, but 36 percent had taken no action in response to the law.

“Now that litigation over compensation decisions can potentially reach back 20 years or more, it’s become important for employers to hold on to records of when and why certain compensation decisions were made,” says Jeffrey D. Polsky, a partner with law firm Fox Rothschild in San Francisco.

Philip K. Miles III, an associate with McQuaide Blasko in State College, Pennsylvania, says: “Employers should be looking at how they document their compensation decisions, with an eye toward building a record that can be used many years down the line.

“Today’s compensation decision could result under the Fair Pay Act in a claim several years down the road, and long after the people involved in the compensation decision have moved on,” Miles says. “It may be the only thing they have.”

Liz Snyder, a senior consultant with Hewitt Associates, says that employers “are a little bit confused about what they need to keep indefinitely, but what we’re seeing and what we’re telling them is, anything related to their pay decisions—which is not only their payroll files and their compensation programs but also performance reviews and any of the decisions and guidelines around starting pay, promotional pay, merit increases”—should be retained.

“Some employers also are looking more seriously at conducting pay-equity analyses,” Snyder says.

However, Mark W. Batten, a partner with Proskauer Rose in Boston, says, “In my experience, most employers are still not doing what they need to do in that area.”

Richard D. Tuschman, an attorney with Epstein Becker & Green in Miami, says his impression is that “most employers don’t have real good records on why pay decisions are made at any stage of the game, much less retaining records that go back several years or more.”

However, Snyder says, “I think they’re moving in the right direction” in re-evaluating their record retention policies.

“I think that employers have become a lot more aware that they need to make sure that their procedures and decisions are objectively verifiable and objectively reasonable, because things can live on,” says Martha J. Zackin, of counsel with law firm Mintz Levin Cohn Ferris Glovsky & Popeo in Boston.

Observers note, however, that while employers might have the right policies in place, they might not have adequately trained their managers and supervisors in their policies’ implementation.

“Individual managers and supervisors can have the biggest impact” on a company’s potential risk in this area, says Fred Crandall, a senior consultant with Towers Watson in Chicago.

“Employers really need to firm up their structure, firm up their training of managers, have specific criteria for compensation decision-making, and then monitor it so the criteria are being followed,” Snyder says.

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