On November 23, 2010, the Supreme Court of New Jersey issued a decision that affects claims of discriminatory wages brought under state law. The news for employers is mixed. First the bad news. The Court ruled that an employee can sue based on a discriminatory decision made long ago—even well beyond the statute of limitations—if it still impacts wages. What is the upside? The Court placed a two-year limit on recovery of back pay.

In Alexander v. Seton Hall University, et al., the three Plaintiffs were females, over age 60, and tenured professors at Seton Hall University, who each had at least 20 years of service with Seton Hall. In 2005, the Plaintiffs received a copy of the university’s annual report, which detailed the compensation of its faculty by college, gender and rank. According to the report, younger, more recently hired faculty members were paid higher salaries than older faculty members with more years of service. Additionally, the report revealed a general disparity between the pay of male and female faculty members.

The Plaintiffs filed a complaint in state court alleging that the inequality of their pay, as compared to that of younger male colleagues, was the result of wage discrimination prohibited by the New Jersey Law Against Discrimination ("NJLAD"). The Plaintiffs sought damages in the form of back wages retroactive to their respective dates of hire. Seton Hall moved to dismiss the complaint on the grounds that the discriminatory pay decisions, if any, were made well outside of the two-year statute of limitations period. Plaintiffs argued that they should be entitled to recover damages back to their dates of hire because the discriminatory pay decision, though occurring outside of the limitations period, impacted their pay within the limitations period and constituted a continuing pattern of discriminatory conduct.

The trial court’s decision, and the decisions in the appeals that followed, hinged on recent developments in federal law regarding wage discrimination claims. Employers have likely heard the name “Ledbetter” many times in recent years, with reference to both the U.S. Supreme Court case of Ledbetter v. Goodyear Tire & Rubber Company, and the Lilly Ledbetter Fair Pay Act of 2009 (the “Ledbetter Act”). The Alexander case is significant because, in its recent decision, the Supreme Court of New Jersey decided whether to adopt – in wage claims brought under state law – the reasoning of the Ledbetter case or to follow Congress’s intent in passing the Ledbetter Act. Although neither is binding on New Jersey courts’ interpretation of NJLAD, state courts traditionally look to federal precedent for guidance.

In the 2007 Ledbetter case, the Supreme Court held that an employee is not entitled to back pay if the allegedly discriminatory pay decision took place outside of the statute of limitations period. In response, Congress passed the Ledbetter Act to expressly supplant the Supreme Court’s decision. The Ledbetter Act states that an “unlawful employment practice occurs . . . each time wages, benefits or other compensation is paid, resulting in whole or in part from [a discriminatory] decision or other practice.” The Ledbetter Act thus exposes employers to liability under federal law for discriminatory decisions made long ago, if that decision still affects pay. (The Ledbetter Act also limits recovery of back wages to a period of two years before the action was commenced.)

New Jersey employers were left to wonder whether our courts would treat wage discrimination cases brought under NJLAD in line with either the Ledbetter case or the Ledbetter Act. The distinction is important. A court following the Ledbetter case would dismiss a wage discrimination case in its entirety if the allegedly discriminatory decision leading to disparate wages was made more than two years before the lawsuit was filed, even if the plaintiff is still receiving disparate wages. A court following the Ledbetter Act would permit such a claim, but limit recovery of back wages to a two-year period. The Alexander case put these competing theories to the test. The trial judge had adopted the reasoning of the Ledbetter case. Finding that no discriminatory decision had been made during the statute of limitations period, he dismissed the majority of the Plaintiffs’ claims. The Appellate Division affirmed that decision and the Plaintiffs then appealed to the Supreme Court of New Jersey.

In an opinion issued last week, the New Jersey Supreme Court reversed the lower courts’ decisions. It held that it is “the public policy of this state to treat each issuance of a pay check that reflects discriminatory treatment toward a protected group as an actionable wrong under the LAD…. To those discrete, serial and actionable wrongs under the LAD, we apply a two-year statute of limitations.” Thus, the Court adopted the approach of the Ledbetter Act, i.e., that a discriminatory decision made outside of the statute of limitations is actionable if it continues to result in discriminatory pay, but recovery of back wages is limited to two years. In so doing, the Court expressly rejected the Plaintiffs’ argument that they should be able to recover back wages retroactive to the initial discriminatory decision under a “continuing violation” theory.

The Alexander decision is both good news and bad news for employers. While it confirms that employers are exposed to continuing liability for wage decisions made many years – or even decades – ago, it also significantly limits the potential recovery of a successful plaintiff. In light of this decision, employers should consider reviewing their current pay structure for any anomaly between or among protected classes that may need to be corrected. Taking appropriate action now to address any pay disparities might mitigate or even eliminate potential damages, depending on the timing of a future wage claim. Now is also a good time to re-educate managers and others involved in compensation decisions on how to avoid wage discrimination claims.