Today President Obama signed into law the Lilly Ledbetter Fair Pay Act of 2009. It is the first piece of legislation passed by both houses of Congress under President Obama’s term, and the first law he has signed as President. President Obama’s signing comes as no surprise. The President’s action is consistent with both his election campaign promise to support this legislation, and his prior co-sponsoring of the original 2007 Senate bill.  

This morning, during ceremonies in the East Room of the White House, the legislation’s namesake, Lilly Ledbetter, stood beside President Obama during the historic signing. The Lilly Ledbetter Fair Pay Act is a direct response to the United States Supreme Court’s decision in Ledbetter v Goodyear Tire & Rubber Co, Inc. 550 U.S. 618 (2007). In that case, the Supreme Court, in a 5-4 split decision, held that employees cannot bring Title VII disparate pay claims alleging discrimination occurring outside the 180/300-day statute of limitations period, even when a paycheck is received during that same period. The Supreme Court reversed a trial verdict in Ms. Ledbetter’s favor. The case began in 1998 when Ms. Ledbetter, now 70, filed a discrimination claim with the EEOC alleging that her employer, Goodyear, had unlawfully discriminated against her on the basis of sex in violation of Title VII by paying her less than her male co-workers. She waited years after the alleged discriminatory decisions were made to challenge the Company’s action. The decision was controversial, and in dissent Justice Ginsberg called upon legislators to overturn it.  

The Lilly Ledbetter Fair Pay Act changes the rules for calculating the statute of limitations under Title VII of the Civil Rights Act of 1964, the Age Discrimination in Employment Act of 1967, the Americans With Disabilities Act of 1990, and the Rehabilitation Act of 1973. The Act provides that a statute of limitations clock re-starts each time an employee receives a paycheck: In so doing, the Act appears to relax indefinitely statutes of limitations on employment decisions that impact compensation (including promotions, demotions, performance reviews, and other decisions). A claim of reduced pay as a result of the effects of one of these decisions, years or even decades later, could be kept “alive” by either the receipt of a paycheck with the effects of the decision still present in it, or the first payment of a retiree benefit calculated based on pay that was less as a result of a discriminatory employment decision. For purposes of the Ledbetter Act, an unlawful practice occurs when a discriminatory compensation decision or other practice is adopted, when a person becomes subject to a discriminatory compensation decision or other practice, or when a person is affected by application of a discriminatory compensation decision or other practice, including each time wages is paid, or benefits are calculated and a person receives the first benefit check, resulting in whole or in part from such a decision or other practice.

With the passage of the Ledbetter Act, employers now face greater exposure from lawsuits, including class action lawsuits alleging disparate pay practices. The Act applies to both disparate treatment and disparate impact claims. Also, importantly, the Act contains language that would make the effective date retroactive to May 28, 2007, and would apply to all discrimination claims pending on or after that date.  

Practical effects of the Ledbetter Act include: it allows plaintiffs to sue over employment decisions made long ago—and to characterize them as “continuing violations”—potentially increasing the size and scope of damage recoveries in both singleplaintiff and class action lawsuits. As a result, it is important for employers to review their current recordkeeping practices with respect to employment decisions. It will be more critical than ever to have documentation on current employees that goes back indefinitely throughout their employment documenting the legitimate non-discriminatory reasons for employment decisions that have a lasting impact on their pay. Also, employers will want to consider their current processes for documentation of decisions to ensure that decisions have confirming records that can be used to defend the Company long after a supervisor or manager responsible for the decision is no longer available to provide testimony. Finally, employers should consider undertaking a review to assess whether actual or perceived inequities in pay may exist in their workforce.  

From a litigation perspective, employers should note that: the Ledbetter Act does not extend the period of recovery from the existing two years of back pay from the date the employee files a charge of discrimination; and the expressed retroactive nature of law is expected to draw significant litigation over its constitutionality. There is also likely to be significant litigation over the meaning and application of the Ledbetter Act, which may help to further refine the law’s application. We predict that the Lilly Ledbetter Fair Pay Act is the first of a number of laws that will be considered to expand available remedies, statutes of limitation, and other procedural rules under federal non-discrimination in employment laws.