A federal court in California, while rejecting an employee’s claim for damages, provided a good reminder of what all is at stake in wage discrimination litigation. Obviously, employees can recover back wages, compensatory damages, and, on occasion, things like punitive damages in employment discrimination cases. But employers also face another potentially large issue: retirement plan contributions.
If employers are forced to pay back wages to make up for discriminatory compensation in the past, they may also have to make equivalent contributions to the employees’ retirement plans.
For example, an employer may make a 3% employer contribution on behalf of an employee with artificially low compensation due to discrimination. If the employee recovers those wages, the plan sponsor then has a fiduciary duty to make up the differential. This could prove costly in large class actions or cases in which alleged discrimination has continued for years.