This paper examines how a merit-pay award may lead to employer liability under the following types of laws: constitutional (federal and state); federal and state statutory law; and the common or case law handed down by the federal and state court judges. First, several court decisions are presented to indicate the status of the law as it is likely to apply to merit-pay situations. They involve applications of the federal Equal Pay Act, the federal Civil Rights Act of 1964, the federal Age Discrimination in Employment Act, and the common law. Second, new trends in the law are discussed, including comments on the Civil Rights Act of 1991 and the treatment of subjective criteria in evaluations of employees. Finally, suggestions are made with regard to designing a legally sound merit-pay system, which should entail specific, communicated, and job-related criteria for merit pay; an equitable, monitored, and timely process; and definition of subjective criteria. (LMI)