President Barack Obama and Congress took their first step in fulfilling their promised expansion of federal civil rights laws covering employees by enacting the Lilly Ledbetter Fair Pay Act. Signed into law on January 29, 2009, the Ledbetter Act overrides a 2007 Supreme Court decision holding that the statute of limitations on pay discrimination claims runs from the date of the allegedly discriminatory act resulting in the discriminatory pay. The Ledbetter Act provides that the limitations period runs from the most recent date on which the employee is affected by a discriminatory act, such as the date on which a paycheck tainted by the discriminatory act is received.  

The Ledbetter Decision  

In Ledbetter v. Goodyear Tire & Rubber Co., 550 U.S. 618 (2007), Lilly Ledbetter claimed that unfair poor performance evaluations directed at her because of her gender as many as 19 years before she filed her complaint resulted in her compensation falling far below the salaries of her similarly situated male colleagues. Ms. Ledbetter did not allege any discriminatory decisions during the applicable limitations period, but only that she received paychecks affected by the decisions. In a 5-4 decision, the Supreme Court rejected Ms. Ledbetter’s argument that her claim was timely because her receipt of paychecks during the limitations period that had been affected by those earlier decisions meant the discrimination “carried forward” to the time of her complaint.  

Congressional Response – The Ledbetter Act  

The House of Representatives in the last Congress responded quickly to the Ledbetter decision by passing a bill overturning it, but that bill never became law. The new Congress seated this month made the Ledbetter Act a top priority, and the House of Representatives passed it as one of its very first acts. The Senate quickly followed, and President Obama signed the bill into law in the first public signing ceremony of his administration.  

The Ledbetter Act amends Title VII, the Age Discrimination in Employment Act, the Americans with Disabilities Act, and the Rehabilitation Act of 1973 to provide that an unlawful employment practice occurs (and thus the limitations period begins to run) not only when a discriminatory compensation decision or other practice is made or adopted, but also when an individual is affected by the application of that decision or practice. Thus, employees with pay discrimination claims under these statutes may bring them regardless of when the discriminatory decision was made so long as one paycheck applying the decision is received during the limitations period. Although the Ledbetter Act permits employees to bring claims based on old discriminatory acts, it does not change existing law limiting back pay recovery, which in many cases is a period of two years prior to the filing of the discrimination charge.  

Consequences for Employers and Recommended Actions  

The Ledbetter Act likely will expand significantly the number of pay discrimination claims brought against employers. Moreover, employers against whom such claims are brought will face unique challenges in defending them, in part because the individuals who made the employment decisions complained about, and the documents relating to the decisions, may well be unavailable.  

Employers can take steps now in light of the Ledbetter Act. First, employers might consider a systematic review of their pay practices, including any salary or wage scales and the criteria for pay increases. Employers who do so should focus particularly on any material differences in pay between similarly situated individuals. Second, to the extent the review indicates disparities that cannot be explained by legitimate business factors, employers might consider taking steps to correct any such pay differences to reduce liability going forward. Third, employers should train supervisors and others who make pay determinations, and should be extra diligent when future pay decisions are made to ensure that they are based on legitimate factors. And finally, employers should work with counsel to develop a strategy for responding to pay discrimination claims in light of the new law. Such actions take on heightened priority in light of the expected increased focus on and litigation of pay discrimination claims resulting from the passage of the Ledbetter Act.  

Looking Ahead  

Additional legislation is expected in this area. For example, at the same time as it passed the Ledbetter Act, the House of Representatives passed the Paycheck Fairness Act, which would significantly expand employees’ remedies under the Equal Pay Act. The Senate has not yet acted on this legislation but will likely do so in the coming months.