On Thursday, January 29, 2009 President Obama is expected to sign into law the Lilly Ledbetter Fair Pay Act of 2009, which passed the House of Representatives yesterday. The Act will expand significantly the ability of employees to sue for discriminatory compensation practices and will subject employers to potentially decades-old wage claims. The new law provides that, with every paycheck that an employee receives that reflects an earlier, allegedly discriminatory decision, a new statute of limitations period begins to run, thus effectively permitting employees to challenge pay decisions made years earlier on the ground that those decisions affect the current pay rate.

The Ledbetter Fair Pay Act reverses the Supreme Court's May 2007 decision in Ledbetter v. Goodyear Tire & Rubber Co., 550 U.S. 618 (2007). In the Ledbetter decision, the Court held that the time limit for filing a discrimination charge with the Equal Employment Opportunity Commission or state fair employment practices agency begins when an employer makes a discriminatory decision about an employee's compensation, not each time the employee receives a paycheck affected by an allegedly discriminatory pay practice or decision. The Ledbetter Fair Pay Act directly overrules the Ledbetter decision and amends the charge-filing period for Title VII of the Civil Rights Act, the Age Discrimination in Employment Act, the Americans with Disabilities Act, and the Rehabilitation Act to provide that an unlawful employment practice occurs when:

  1. a discriminatory pay practice is adopted;
  1. an employee becomes subject to a discriminatory compensation decision or practice; or
  1. an employee is affected by application of a discriminatory compensation decision or practice, including each time wages, benefits or other compensation are paid.

Thus, the Act adopts the so-called "paycheck rule," which provides that the statute of limitations begins anew with every paycheck, regardless of when the allegedly discriminatory pay decision was made. Under the Act, a prevailing employee may recover back pay for up to two years preceding the filing of the charge. The Act applies to all claims of discrimination in compensation pending on or after May 28, 2007, the date the Supreme Court issued the Ledbetter decision.

This Act will likely subject employers to more wage discrimination claims than ever before, including claims based on compensation decisions made years earlier. Defending against stale claims that challenge decisions made long ago will likely prove difficult in many cases, requiring employers to deal with the challenges of lost evidence, unreliable memories and missing or deceased witnesses. To defend effectively against such claims, employers should carefully review record-keeping policies and practices to ensure that compensation decisions are properly documented, and that employees responsible for making compensation decisions understand that they will be under greater scrutiny than ever to demonstrate that only relevant, business-related factors are considered in the process.