True to his promise to Lilly Ledbetter, who spoke at the Democratic National Convention in August 2008, President Barack Obama is expected to sign a bill today that overturns the U.S. Supreme Court’s decision in Ledbetter v. Goodyear Tire & Rubber Co., 550 U.S. 618 (2007). In that case, the Supreme Court ruled that Ms. Ledbetter’s wage discrimination claims were untimely because she did not file her Equal Employment Opportunity Commission (EEOC) charge within 180 days of the company’s alleged decisions establishing her wage rate, which she claimed was lower than her male coworkers. The Supreme Court rejected the argument that a new violation occurred each time she received a payroll check.

Senate Bill 181, which passed on January 22, 2009, amends Title VII of the Civil Rights Act of 1964 (Title VII), the Age Discrimination in Employment Act of 1967 (ADEA), the Americans With Disabilities Act of 1990 (ADA) and the Rehabilitation Act of 1973 to provide that a new claim for compensation discrimination occurs each time compensation is paid. The amendment states:

An unlawful employment practice occurs, with respect to discrimination in compensation… (1) when a discriminatory compensation decision or other practice is adopted, (2) when an individual becomes subject to a discriminatory compensation decision or other practice, or (3) when an individual is affected by application of a compensation decision or other practice, including each time wages, benefits or compensation is paid, resulting in whole or in part from such a decision or other practice.

The Senate Bill is identical to the version already passed by the House (Title I of H.R.11). President Obama is expected to sign the bill today at a ceremony.

What is meant by “compensation decision” or “other practices”?

The amendment is not limited to isolated compensation decisions. It also applies to “other practices” related to compensation. Based on the overall legislative history and Act’s specific intent to reverse Ledbetter’s confining approach to subjective pay decisions which cumulated over time, a reasonable interpretation is that “other practices” include any employer practice that determines, affects or continues to determine or affect an employee’s compensation. Examples include criteria used to set initial pay upon hiring, annual performance reviews to the extent they affect compensation and any other factor used to determine employee salaries.

The bill’s legislative history supports a liberal interpretation of the term “other practices.” During the House Conference debate discussing the bill’s predecessor (H.R. 2831), Chairman George Miller, in denouncing a proposal by Representative Ric Keller to strike the term “other practices” from the bill, expressed the broad reach of the amendment:

Representative Keller offered an amendment in the nature of a substitute which would have struck “other practices” from the Act. H.R. 2831 refers to “decisions or other practices” related to compensation in order to capture the wide gamut of compensation practices, from single, discrete decisions about pay to arrangements, schemes, systems, or other practices related to pay. Eliminating “other practice” would have resulted in a bill that fails to reverse Ledbetter, particularly with any hairsplitting definition of “compensation decision.” “Other practices” captures the fact pattern in Ledbetter, where sex-based performance evaluations were used in conjunction with a performancebased pay system to effectuate the discriminatory pay.

Additionally, the following summarizes the Congressional intent, per the majority view in the Committee Report on H.R. 2831:

The Committee cannot envision every fact pattern in which charges might be brought within 180/300 days of an act that effectuates a past decision to discriminate. Application of the seniority system in Lorance was one; paycheck issuance in Ledbetter was another. By rejecting the Court’s holdings in these cases, the Congress rejects the Court’s underlying idea that the statute of limitations starts to run upon the mere decision to discriminate and not also upon the employer’s effectuation of that discriminatory decision. An employer who decides to discriminate based on pay should be subject to challenge with every repeated instance of the employer effectuating that decision. Present and future instances of discrimination must not be immunized by a cramped reading of when an unlawful employment practice occurs for purposes of the statute of limitations. Pay discrimination occurs both when an employer decides to discriminate and then when the employer actually discriminates. Victims of pay discrimination are entitled to justice with each paycheck.

Republican minority criticism that the “other practices” language in the legislation was unnecessary if the intent was merely to overturn the holding in Ledbetter was dismissed by the Democratic majority as failing to appreciate the broad and subjective nature of the practices at issue in Ledbetter. Ms. Ledbetter, who was employed by the company for 21 years, alleged that her low pay was the result of a series of subjective, discriminatory, performance-based annual reviews resulting in her being paid less than her male counterparts over an extended period of time.

The legislative record also refers to Justice Ginsburg’s dissent in Ledbetter. In her dissent, Justice Ginsburg emphasized that pay disparities are not always the result of a discrete act or decision, but rather occur over a period of time based on the cumulative effect of many individual decisions. Justice Ginsburg wrote, “pay disparities have a closer kinship to hostile work environment claims than to charges of a single episode of discrimination. Though the component acts fell outside the charge-filing period, with each new paycheck, [the employer] contributed incrementally to the accumulating harm” (p.2181). It is likely that the new law will be interpreted in the spirit of Ginsburg’s dissent.

Facially neutral pay practices that have a disparate impact are within the defi nition of “other practices.”

In addition to episodic, subjective pay decisions, facially neutral pay practices, policies and procedures that have a disparate impact on the compensation paid to females, minorities or older workers will be obvious targets. For example, suppose that an employer uses “recency of engineering degrees” as a factor in setting initial salaries; the more recent the applicant’s degree, the more money the applicant receives. Assume further, two employees are hired in 2004, one is 38 years old, the other is 25 years old with a more recent degree. The 25-year-old receives a higher salary. Thereafter, the two employees receive the same annual percentage increase of three percent. Five years later, the lower paid employee, now 43, can show that workers over 40 years old disproportionately suffered from the use of the recency of the degree in setting initial salaries. This previously time-barred claim would be timely under the new law each time the older engineer receives a paycheck. A similar scenario could be imagined in which an employer pays a higher initial salary for those with college degrees if the practice results in a disparate impact on minorities and the employer is unable to establish an affirmative defense based on business necessity.

Does the law cover promotions, transfers or other decisions that aff ect compensation?

The language of the Act refers specifically to “discrimination in compensation” and would therefore appear to be limited to compensation decisions and compensation practices. There is nothing in the Act or its legislative history to suggest that the Act’s references to “other practices” were intended to cover promotion, transfer or other decisions that indirectly affect compensation. If the Act was intended to cover “indirect” compensation decisions such as promotions, then one could argue that termination decisions would be covered as well since these decisions also affect compensation. Nonetheless, the courts may confront this issue in the near future since the argument could be made that, had Congress intended to limit the reach of the Act to compensation practices, it could have inserted the word “compensation” in the middle of the phrase “or other practice.”

When does the law take effect?

By its term, the law will take effect immediately and will apply retroactively to May 28, 2007 (the day before the Supreme Court’s decision in Ledbetter).

How far back can an employee seek damages for wage discrimination?

To bring a claim under Title VII, an employee must file a charge of discrimination within 180 days (in a non-deferral jurisdiction) or 300 days (in a deferral jurisdiction) of the discriminatory decisions or practices. The amendment provides that an employee can seek back pay and other available relief for up to two years prior to the filing of the charge for any decisions or practices that are similar or relevant to those at issue in the charge. For example, if an employee files a charge of wage discrimination based on a practice adopted two years earlier, he or she can seek back pay for the entire two-year period.

The Paycheck Fairness Act

The House version of the Lilly Ledbetter Fair Pay Act was contained in a bill (H.R. 11) that is also contained in Title II of the Paycheck Fairness Act, which was not adopted by the Senate. This proposal is worth discussing because it is possible that it also will pass Congress sometime this year. This proposed legislation intends to “correct” the Equal Pay Act of 1963 (EPA), which prohibits pay disparities based on sex. Most significantly, this legislation amends the EPA’s language which currently provides that an employer will not be liable for any wage practice or disparity that can be shown to be based on “any other factor other than sex.” Historically, this defense (incorporated into Title VII as well) has been applied vigorously to defeat a variety of gender-based wage claims. The proposal narrows the defense to “a bona fide factor other than sex such as education, training or experience.” Under the proposal, the employer would have to show that the wage determining criteria is job related, consistent with business necessity and not based upon or derived from a sex-based differential in compensation. Even if such a showing is made by the employer, the employee can still win if she can show that alternative employment practices exist that would have less impact on women and would still serve the same business purposes.

There are two other noteworthy aspects of this proposal. First, the proposal would expand the definition of “same establishment” within which an equal-pay comparison must be made from a single facility to all of an employer’s “workplaces located in the same county or similar political subdivision of a State.” Second, the proposal would provide for unlimited compensatory and punitive damages (as contrasted to the current caps under Title VII).

Other proposed legislation

This portends to be a busy year in Congress, and we will keep you apprised of legislative developments affecting your workplace, including:

  • Paid Sick Leave (H.R. 1542, S. 1681) (eight weeks pay for sick leaves of absence).
  • Employee Free Choice Act (EFCA) (H.R. 800) (permits union organization based on card check, and establishes mandatory arbitration process for first contracts).
  • Employment Non-Discrimination Act (ENDA) (H.R. 3685) (extends Title VII’s protections to sexual orientation).
  • WARN Act Amendments (S. 1792) (provides for earlier notice of plant closings and mass layoffs).
  • Independent Contractors (S. 2044, H.R. 5804) (protects independent contractors that seek clarification of employment status).