In an uncertain world, statutes of limitations provide some certainty and security for employers potentially facing employment related claims. However, the Lilly Ledbetter Fair Pay Act of 2009 (the “Fair Pay Act”) extends the statute of limitations for certain claims. Under the Fair Pay Act, the statute of limitations for filing a claim for discrimination in compensation starts anew each time an employee receives a paycheck affected by discrimination. For employment discrimination plaintiffs whose claims otherwise fall outside of the statute of limitations, the Fair Pay Act can be a powerful tool to resuscitate otherwise time-barred claims. On Wednesday, however, the Second Circuit issued a decision limiting the types of claims the Fair Pay Act applies to.

In Davis v. Bombardier Transportation Holdings, Inc., the plaintiff worked for a company that operates AirTrain, a computer driven train that transports passengers between major hubs in New York City and John F. Kennedy International Airport. After returning from disability related leave, the plaintiff failed a physical and eye exam which disqualified her from returning to her former position. Because she could not return to her former position, Bombardier demoted the plaintiff to a different position with lower pay.

The plaintiff sued, alleging that her demotion was the result of disability discrimination in violation of the Americans with Disabilities Act (“ADA”). However, because her claim otherwise fell outside of the statute of limitations, the plaintiff argued that the Fair Pay Act applied to her claim, and therefore her claim was timely because each time she was paid less than she would have been but for the demotion, the statute of limitations reset.

The Second Circuit disagreed, holding that the Fair Pay Act did not apply to the plaintiff’s claim. The court stated that the Fair Pay Act applies to only discriminatory “compensation decisions” and not other discrete employment decisions. For example, the Fair Pay Act would apply to a claim that Bombardier paid disabled employees less than similarly situated non-disabled employees, but it would not apply to a claim by a disabled employee that he or she was discriminatorily transferred to a different position with a lower rate of pay. The Fair Pay Act was enacted by Congress in recognition of the fact that discrimination in pay is often concealed by employers and employees, and therefore it may take longer to discover the discrimination. With discrete acts on the other hand, the employee is put on notice of the hiring, firing, promotion, demotion, or transfer decision by the employer. Thus, if an employee is demoted and receives a reduction in pay as a result, the employee can immediately seek out an explanation for the demotion and evaluate whether it was discriminatory.

In Davis, the plaintiff was told that she would be receiving a reduction in pay when she was demoted. While the reduction in pay was, in part, a “compensation decision,” the decision was tied directly to the demotion. Therefore, the statute of limitations began to run when the plaintiff received the demotion, not each time she received a paycheck reflecting her reduction in pay.

This decision is important for employers in that it places limits on the scope of an otherwise very large opening for employment discrimination plaintiffs to circumvent the statute of limitations.