On January 29, 2009, President Barack Obama signed the Lilly Ledbetter Fair Pay Act of 2009, which was the first bill signed into law by the new administration. Supporters of the Lilly Ledbetter Fair Pay Act took quick action in Congress upon the inauguration of President Obama: The Senate approved the bill on January 22, followed five days later by approval by the House of Representatives. The Lilly Ledbetter Fair Pay Act overturned the Supreme Court’s 2007 decision in Ledbetter v. Goodyear Tire & Rubber Co. and provides that each paycheck that reflects a discriminatory pay decision restarts the time period for filing an EEOC charge.

The Lilly Ledbetter Fair Pay Act’s stated purpose is to overturn the Supreme Court’s decision in Ledbetter v. Goodyear Tire & Rubber Co. In Ledbetter, the Supreme Court held that the time period for filing an EEOC charge begins when the allegedly discriminatory pay decision occurs. Lilly Ledbetter worked at a Goodyear plant from 1979 until her retirement in 1998. Ms. Ledbetter introduced evidence that during her employment, several supervisors gave her poor performance evaluations because of her gender, which in turn lessened her pay increases. These specific acts occurred in the early 1980s and mid-1990s, well before Ms. Ledbetter filed her EEOC charge in 1998. Ms. Ledbetter argued that these pay decisions affected the amount of her pay throughout her employment and resulted in significantly less payment compared to her male co-workers. The Supreme Court found that Ms. Ledbetter’s EEOC charge was untimely, because she should have filed it within 180 days after each allegedly discriminatory pay decision was made and communicated to her.

The Ledbetter Act amends Title VII, the ADEA, the ADA, and the Rehabilitation Act to clarify that a discriminatory pay decision occurs each time compensation is paid pursuant to the discriminatory pay decision. Thus, the Ledbetter Act recognizes that an unlawful employment practice occurs when (1) a discriminatory pay decision is adopted, (2) when a person becomes subject to a discriminatory pay decision, or (3) when a person is affected by application of a discriminatory pay decision, including each time wages, benefits, or other compensation is paid, resulting in whole or in part from such a decision or other practice. In effect, the Act restarts the 180-day (or 300-day depending on the state) time period for filing an EEOC charge with each paycheck that reflects any past discriminatory pay decision. The Act is retroactively effective May 28, 2007, when the Supreme Court decided the Ledbetter case. The Act applies to all claims of discrimination in compensation on the basis of race, color, religion, sex, national origin, disability, or age.

Opponents to the Ledbetter Act anticipate an increase in wage discrimination litigation, as employees may seek to bring years-old claims to court. To illustrate this concern, consider this hypothetical situation: An employee alleges that ten years ago, a supervisor discriminated against him on the basis of race by giving him a “meets expectations” rating on his performance evaluation (rather than the “exceeds expectations” rating the employee believes he earned). The company provides a 1% merit increase for employees who receive a “meets expectations” rating and a 2% merit increase for employees who receive an “exceeds expectations” rating. The supervisor quits his employment the following year. The employee does not allege any additional discriminatory acts for the remainder of his employment. During the subsequent years, the employee’s merit increases are calculated using that employee’s base pay, which is lower due to the sole alleged discriminatory evaluation. Under the Ledbetter Act, that employee can file an EEOC charge today, provided that he has received a paycheck within the last 180 days (or 300 days depending on the state). Now, the company must defend against this claim, which may be difficult due to the ten-year old performance evaluation and the fact that the decisionmaker has not been employed by the company in the last nine years.

In light of the passage of the Lilly Ledbetter Fair Pay Act, employers should evaluate their ability to defend against a claim of past pay discrimination: Are there divergent pay rates within the same job position, and if so, are these divergences supported by sufficient explanation and/or objective factors? Do payroll records and performance evaluations adequately document and support individual pay decisions? Are records being maintained for an appropriate amount of time? Can annual merit increases be replaced by bonuses that do not affect an employee’s base pay rate from year to year? Do supervisors need refresher training on the anti-discrimination laws and the best practices for conducting performance evaluations? By approaching the passage of the Lilly Ledbetter Fair Pay Act in a proactive manner, employers may be able to limit their potential liability.

A pending piece of legislation to watch is the Paycheck Fairness Act, which was introduced in both the House and the Senate in early January 2009. Among its provisions, the Paycheck Fairness Act alters employers’ “factor other than sex” defense to the Equal Pay Act by requiring employers now to show a “bona fide factor other than sex.” If passed, the Paycheck Fairness Act would require employers utilizing this defense to show that the factor (i) is not based upon a sex-based differential in compensation, (ii) is job-related and (iii) is consistent with business necessity. An employer would be barred from using this defense if an employee could demonstrate that an alternative employment practice exists that would serve the same business purpose without producing such a differential in compensation and that the employer has refused to adopt such an alternative practice. The Paycheck Fairness Act also allows plaintiffs to seek compensatory and punitive damages. If passed, the Paycheck Fairness Act would supplement the Lilly Ledbetter Fair Pay Act to facilitate employees’ ability to file and pursue a broader scope of pay discrimination claims.