On January 29, 2009, President Obama signed into law the Lilly Ledbetter Fair Pay Act, effectively overturning a controversial 2007 Supreme Court decision dealing with discrimination in employee compensation. The Act, named for the plaintiff in the 2007 Supreme Court case, eases the path for employees suing their employers for pay discrimination by relaxing certain statutory deadlines for filing a claim.
The New Legislation
The Lilly Ledbetter Fair Pay Act of 2009 (the “Act”) was enacted in direct response to the Supreme Court’s decision in Ledbetter v. Goodyear Tire & Rubber Co. In that case, the Supreme Court ruled that the statute of limitations for challenging pay discrimination under Title VII of the Civil Rights Act of 1964 begins to run at the time the discriminatory pay decision is made, even if the adversely affected employees are not immediately aware that they are being paid less than similarly situated employees. Because the statute of limitations for commencing a discrimination claim under Title VII is 180 days (extended to 300 days in certain states when the claim is first filed with a state antidiscrimination agency), the Supreme Court’s ruling effectively barred remedies for pay discrimination for employees who do not become aware of the discriminatory pay practices until many months or even years after the discriminatory pay decision was made. That was precisely the situation faced by Lilly Ledbetter, the individual whose claim was rejected by the Supreme Court. After nearly twenty years of employment at Goodyear Tire & Rubber Co., Mrs. Ledbetter initiated her Title VII claim against the company upon receiving an anonymous tip disclosing that she had been earning significantly less than her male co-workers for years. Because the discriminatory pay decisions affecting Mrs. Ledbetter occurred more than 180 days before she filed her legal claim, the Supreme Court ruled that her claim was untimely, rejecting her argument that each paycheck reflecting the discriminatory pay rate started a new time period for filing a discrimination charge.
The new Act effectively overrules the Ledbetter decision by amending Title VII, the Age Discrimination in Employment Act, the Americans with Disabilities Act, and the Rehabilitation Act to provide that an unlawful discriminatory compensation practice occurs when (1) a discriminatory compensation decision or practice is adopted; (2) an employee becomes subject to a discriminatory compensation decision or practice; or (3) an employee is affected by the application of a discriminatory compensation decision or practice, including each time compensation resulting, in whole or in part, from the discriminatory decision or practice is paid. Thus, each paycheck incorporating discriminatory pay will start the running of a new statute of limitations for challenging discriminatory compensation. Though most of the publicity regarding the Act has centered on equal pay for women, the Act extends the claim-filing rights of workers who may have received discriminatory pay as a result of their race, color, religion, national origin, age, disability, or sex. The Act will be retroactive in its effect, dating back to May 28, 2007, the date of the Supreme Court’s Ledbetter decision.
Employers will no doubt see an increase in discriminatory pay litigation as a result of the new Act. Importantly, though the Act does increase the period of time during which employees can file claims, any potential recovery is still limited by the statutory maximums set forth in each original antidiscrimination statute the Act amends. Under Title VII and the Americans with Disabilities Act, for example, employers will be responsible for a maximum back pay award encompassing the period of litigation and the two years prior to the lawsuit’s filing date. In addition to addressing discriminatory wages and salary, the Act also addresses claims relating to discrimination in “benefits,” without defining the term. It is presently unclear whether courts will extend the Act’s use of the term “benefits” to include pension and retirement benefits. Litigation over this issue appears inevitable, however.
Given the Act’s loosening of time restraints on pay discrimination claims, employers should consider adjusting their personnel practices to embrace long-term preservation of documentation related to pay decisions. Claims for pay inequity may very well occur tens of years after the original pay decision, when key decision-makers are not only no longer with the company, but may have no memory of the bases for their compensation determinations. As a result, employers should consider documenting and incorporating the rationale for decisions involving pay in separate files and/or databases that can be maintained long after state and federal requirements for the maintenance of employment and payroll records have been met. Additionally, companies should consider having all compensation decisions reviewed by the next higher level of management to increase the likelihood that problematic decisions will be identified and resolved prior to creating liability and to lessen the effect any individual bad actor may have on the pay structure of an organization. Employers may also wish to consider the possibility of pay-differential audits to ensure that liability for previous unsubstantiated pay determinations is not renewed with each passing paycheck. In making current pay decisions, employers should avoid basing the decision in whole or in part on past pay rates (for example, basing the new pay rate on a percentage increase over the existing pay rate), but should instead strive to make an independent decision about the appropriate new pay rate for each individual. In this way, employers may avoid perpetuating past discrimination in pay.