On January 29, 2009, President Obama signed the Lilly Ledbetter Fair Pay Act of 2009 (the LFPA) into law (to view full text, click here), which allows a plaintiff to sue his or her employer under federal law if he or she files a formal complaint with a federal agency within the applicable statutory time limit after receiving any paycheck affected by a discriminatory compensation decision or practice. This change in law significantly expands employers’ exposure to potential liability for discriminatory compensation practices.
The LFPA overturns the Supreme Court’s decision in Ledbetter v. Goodyear Tire & Rubber Co., Inc., a 5-4 decision in which the court held that employees could not sue for discriminatory compensation decisions or practices under federal anti-discrimination laws unless they file a formal complaint with a federal agency within 180 or 300 days (depending on state law) after the date upon which their pay was established. 550 U.S. 618 (2007).
Clarification of the Term “Unlawful Employment Practice”
The LFPA clarifies when the statute of limitations begins to run for pay discrimination claims under Title VII of the Civil Rights Act of 1964, the Age Discrimination in Employment Act (ADEA), the Americans with Disabilities Act (ADA), and the Rehabilitation Act of 1973. Depending on the state, an employee typically must file a charge within either 180 or 300 days after the occurrence of an allegedly “unlawful employment practice.” The LFPA provides that an “unlawful employment practice” occurs whenever “a discriminatory compensation decision or other practice is adopted, when an individual becomes subject to a discriminatory compensation decision or other practice, or when an individual is affected by application of a discriminatory compensation decision or other practice, including each time wages, benefits, or other compensation is paid, resulting in whole or in part from such a decision or other practice.” The effect of this language is that the 180- or 300-day statute of limitations for filing a charge of discrimination begins to run again each time a plaintiff receives a paycheck.
Limited Retroactive Effect
The LFPA will take effect as if enacted on May 28, 2007, and will apply to all claims pending on or after that date (May 28, 2007 is the day before the Supreme Court published its decision in Ledbetter).
Significance for Employers
Under the LFPA, the statute of limitations governing when employees must assert discrimination claims starts over with each paycheck received by an employee. As a result, employers may potentially be subject to liability for discriminatory pay decisions made many years ago if those decisions continue to affect an employee’s pay. Employees who sue their employers and are able to prove that unlawful discrimination affected their compensation may be entitled to up to two years of back pay in compensatory damages for the period preceding the filing of the charge, in addition to other compensatory and punitive damages and equitable relief.
According to a recent article published by Reuters, women in the U.S. are generally paid 23 percent less than men on average, while minority women receive even less. Consequently, the potential exposure to liability as a result of the LFPA is significant. As a result, employers should review their compensation practices, policies, and procedures to ensure that protected classifications—such as sex, race, national origin, color, religion, age, or disability—do not influence employee compensation. To best insulate against liability, compensation policies, practices and decisions should be uniformly applied and well documented. If pay differentials exist, they should be justified based on objective, non-discriminatory criteria.