Court Interprets the Law Against Discrimination Consistent with the Federal Lilly Ledbetter Fair Pay Act of 2009

On November 23, the New Jersey Supreme Court issued a much-anticipated decision in Alexander v. Seton Hall University, ___ A.3d ___, 2010 WL 4721311 (N.J. 2010). Departing from U.S. Supreme Court precedent, the New Jersey Supreme Court ruled that each time an employee receives a paycheck that results from a prior discriminatory pay decision, it constitutes an actionable act of discrimination under the New Jersey Law Against Discrimination (LAD). As a result, even if an employer’s decision to pay discriminatory wages occurred outside of the LAD’s two-year statute of limitations period, an employee still may recover back pay for any deficiency in wages that were received within the two-year limitations period.

Background and Decision

The plaintiffs in Alexander were three female tenured professors at Seton Hall University, each more than 60 years old and with at least 19 years of service. After obtaining a copy of a report that allegedly revealed an age-based and sex-based pattern of disparate compensation, they filed a lawsuit claiming that they were paid unequal wages in comparison to younger male employees in violation of the LAD. The trial court applied the U.S. Supreme Court’s decision in Ledbetter v. Goodyear Tire & Rubber Co., 550 U.S. 618 (2007), to hold that because the disparity in wages stemmed from decisions made outside of the two-year limitations period, the entire claim was time-barred even as to deficient pay received within the two-year limitations period. The intermediate appellate court affirmed the decision.

While the New Jersey courts frequently follow federal precedent interpreting the federal statutory parallels to the LAD (e.g., Title VII, the ADA, and the ADEA), the N.J. Supreme Court refused to do so this time. The court noted that the U.S. Supreme Court’s Ledbetter decision, which the trial court and the appellate division relied on in reaching their decisions, has since been legislatively overturned by Congress in the Lilly Ledbetter Fair Pay Act of 2009 (Ledbetter Act). Despite the prior ruling of the U.S. Supreme Court, the N.J. Supreme Court reached the arguable conclusion that the Ledbetter Act “clarifies” that, under Title VII, an unlawful employment practice occurs each time an employer issues a paycheck that reflects a prior discriminatory pay decision, regardless of when that initial alleged discriminatory pay decision was made. Consistent with the federal Ledbetter Act, and even though the New Jersey legislature has not passed a similar act amending the LAD, the court held that the plaintiffs’ LAD complaint was timely with respect to the allegedly discriminatory wages paid during the two years immediately prior to the filing of their complaint, but that they could only recover back pay for wages received within the two years prior to filing their complaint.

Impact of the Alexander Decision

Prior to Alexander, it appeared that New Jersey employees would have to sue under Title VII to recover back pay for disparate pay claims predicated on decisions outside the LAD’s two-year statute of limitations. Now, however, employees may pursue such claims under the LAD as an alternative to litigation under Title VII, which requires exhaustion of the EEOC charge process and provides a basis for federal court jurisdiction. In addition, courts in New Jersey will now need to determine under what circumstances, if ever, an employer’s failure to correct current pay disparities resulting from past discriminatory pay decisions will give rise to the requisite culpability to permit punitive damages. This question is significant because the LAD imposes no cap on punitive damages while Title VII has strict caps depending upon the size of the employer. The bottom line is that employers in New Jersey now face greater potential exposure because plaintiffs can now reach back to challenge essentially any decision that affected any paycheck received in the two years prior to filing suit, even if the allegedly discriminatory pay decision was made outside that two-year period.

Employers with employees who work in New Jersey should consider conducting a compensation risk assessment to evaluate their potential exposure and to identify measures that will reduce the risk of pay discrimination claims. Morgan Lewis regularly assists clients with these privileged, internal audits, relying on sophisticated statistical analyses of pay and personnel data. Examples of risk mitigation steps that may be recommended as a result of a compensation risk assessment include (1) collecting data on factors, such as prior work experience, that may be critical in explaining the historical development of current pay differences; (2) revising pay systems, as permitted by business considerations, to emphasize incentive or bonus payments instead of large base-pay increases and thereby avoid accumulating pay differences over time; (3) reviewing performance management systems to ensure that ratings that drive merit-pay awards are defensible; and (4) reviewing record keeping regarding pay decisions.