On January 29, 2009, President Obama signed his very first piece of legislation into law: The Lilly Ledbetter Fair Pay Act of 2009 (the “Ledbetter Act”). Heavily touted as a way to close the wage gap between the sexes, the Ledbetter Act is a legislative “fix” to the Supreme Court’s May 2007 decision in Ledbetter v. Goodyear Tire & Rubber Co., Inc., that threatens to subject many employers to additional litigation.

Factual Background:

Lilly Ledbetter was an area manager at Goodyear Tire & Rubber Company for nearly 20 years. In that position, she was the only female area manager at her store; companywide, the position also was largely held by men. Well into her tenure, Ledbetter received an anonymous tip from a coworker that demonstrated she was being paid significantly less than male supervisors performing substantially similar work. At the point she discovered the pay disparity, the decisions that caused that pay differential were already very dated, and well outside of the charge filing period. Even upon receiving the information that she was being paid significantly less, Ledbetter waited another three years before filing an EEOC charge. A jury ultimately returned a verdict in favor of Ledbetter, awarding her back pay and damages, as well as attorneys’ fees and costs. The Eleventh Circuit reversed the decision because it held Ledbetter’s claim was barred by the statute of limitations. The Supreme Court affirmed.

Title VII’s statute of limitations is 300 days for the majority of states (those, like Minnesota, with a state fair employment agency) and 180 for the rest. Ledbetter did not argue that Goodyear Tire acted with discriminatory intent when it issued her paychecks during this statute of limitations period. Rather, she argued that the paychecks were unlawful because they were based on discriminatory performance evaluations (evaluations that had taken place years – even decades – earlier, well outside of the EEOC charging period) and would have been larger if she had been evaluated in a nondiscriminatory manner. The Supreme Court “reject[ed] the suggestion that an employment practice committed with no improper purpose and no discriminatory intent is rendered unlawful nonetheless because it gives some effect to an intentional discriminatory act that occurred outside the charging period.” The Supreme Court held the action was untimely.

The Ledbetter Act:

The Ledbetter Act adopts what is commonly referred to as the “paycheck rule,” meaning that the statute of limitations restarts every time someone receives a paycheck or other remuneration that has been impacted, in some way, by a prior discriminatory decision. The Ledbetter Act expressly amends Title VII, the Age Discrimination in Employment Act, the Americans with Disabilities Act, and the Rehabilitation Act to provide that:

[A]n unlawful practice occurs…when a discriminatory compensation decision or other practice is adopted, when a person becomes subject to a discriminatory compensation decision or other practice, or when a person is affected by application of a discriminatory compensation decision or other practice, including each time wages, benefits, or other compensation is paid, resulting in whole or in part from such a decision or other practice.

Thus, if compensation was influenced at any point in time by a discriminatory decision, the statute of limitations resets each time wages, benefits, or other compensation is paid as a result of that decision.

Practical Import:

The Ledbetter Act will engender litigation. Indeed, the Ledbetter Act revives an immeasurable number of claims that previously would have been time-barred, but which could now be brought based on decisions made decades ago.

Along these lines, the Ledbetter Act, by its very nature, imposes additional evidentiary and administrative burdens on employers. While the employee retains the burden to prove that discrimination occurred, employers likely will be forced to defend against an employee’s recitation of events with little remaining evidence, as memories fade; as witnesses leave, retire, or die; and long after key documents have been lost or recycled.

Because the Ledbetter Act applies not only to wages, but also to “benefits, or other compensation,” it also may jeopardize the solvency of some employee benefit plans. Benefits calculations based on length of service, periods of leave, and compensation all may be subject to legal challenge if, at any point in time, the underlying calculus was influenced by an alleged act of discrimination. Under the Ledbetter Act, the actual obligations of some plans (once they are retroactively recalculated) may exceed the predicted obligations that were anticipated at the time of funding. Moreover, each time a plaintiff prevails, the plan obligations will need to be recalculated, which will lead to significant additional administrative costs under such plans. And while the Act states that it is not “intended to change current law treatment of when pension distributions are considered paid,” there is no definitive language limiting the application of the Act in relation to pension plans.

Proactive Strategies:

What can employers do – right now – to limit the risks associated with the Ledbetter Act?

  • Review (and potentially modify) document retention policies to lessen the likelihood that you will lose key compensation and benefits-related documents that your company may need far in the future. Records .reflecting compensation policies and key decisions should be maintained, indefinitely for now, until the courts begin to define the parameters of the Ledbetter Act.

    Any revision of your document retention policies should be undertaken in a thorough and considered manner, as this implicates a host of other concerns regarding document storage, maintenance, and retrieval, which is particularly salient with respect to electronically stored documents and information.

  • Where historic records do exist, it may be wise to perform an internal review of past compensation decisions. Moreover, if you are aware of past company policies or practices that may have discriminated against a currently protected class, examine what might be done to address the potential existing effects of such a practice.

    If you determine discrimination may have factored into compensation decisions, you may wish to take corrective action, including (but not limited to) wage increases, back pay, and modifications to seniority systems. Keep in mind that back pay damages under the Ledbetter Act are capped at two years prior to the filing of the charge, which limits employer liability to some degree.

    If an employee complains about a prior practice, take that complaint seriously. Investigate and consider appropriate measures intended to redress prior acts of discrimination (if any), no matter how dated.

Beyond this, be prepared to defend against these cases, as times (at least time limits) are changing.