Employers Face Increased Litigation Risks Due to Ledbetter Fair Pay Act
February 10, 2009
Last week, President Barack Obama signed his first piece of legislation, the “Lilly Ledbetter Fair Pay Restoration Act of 2009.” The new law is intended to overturn the U.S. Supreme Court’s 2007 decision in Ledbetter v. Goodyear Tire & Rubber Co., which significantly shortened the amount of time employees have to sue for pay discrimination. The Ledbetter Fair Pay Act greatly expands the time employees may sue for pay discrimination based on race, gender, religion, national origin, disability and age under the major federal employment discrimination laws and may allow suits based on pay decisions made years or decades ago.
Background – The Ledbetter Decision
Lilly Ledbetter worked as a manager for Goodyear from 1979 until she accepted an early-retirement package in 1998. During most of that time, Ledbetter’s salary was determined annually and was based on her supervisor’s ranking of her performance. Ledbetter was the only female supervisor at Goodyear’s Alabama tire plant. Ledbetter’s supervisor typically ranked her lower than most of her male coworkers, and, consequently, Ledbetter received smaller salary increases than her coworkers. By the time she retired, Ledbetter’s small annual raises resulted in a large disparity between her pay and that of her comparable male coworkers.
Shortly before her 1998 retirement, Ledbetter filed a charge with the Equal Employment Opportunity Commission (EEOC) and later a federal lawsuit, alleging that Goodyear had for years unlawfully given her lower performance ratings and raises than comparable male employees because of her gender. She did not claim that Goodyear made any pay decision based on her gender within the 180-day limitations period before she filed her EEOC charge. Instead, she argued that each paycheck she received that was lower than the paycheck received by a comparable male, because of the alleged past pay discrimination, was a new discriminatory act, and that as long as she sued within 180 days of any such paycheck, she should be able to sue for the whole course of pay discrimination going back nearly 20 years.
The Supreme Court rejected Ledbetter’s argument and ruled that Ledbetter’s pay discrimination claim was barred by the 180-day charge filing limitations period in Title VII of the Civil Rights Act of 1964 (Title VII). The Supreme Court ruled that to challenge an allegedly discriminatory pay decision, the employee must file an EEOC charge alleging pay discrimination within 180 days (300 days in states that have fair employment agencies) of the allegedly discriminatory pay decision. The Court rejected Ledbetter’s argument that each paycheck that is lower because of a past allegedly discriminatory pay decision is a new discriminatory act that allows the employee to challenge all past discriminatory pay decisions. Justice Alito explained that the time to challenge pay decisions must run from the initial discriminatory pay decision because Congress had stated its intention to require the prompt resolution of employment discrimination claims and protect employers from having to defend stale claims.
In dissent, Justice Ginsburg argued that the unlawful practice under Title VII was the “current payment of salaries infected by gender-based (or race-based) discrimination,” even if the “infection” occurred long before the plaintiff filed an EEOC charge. The dissent invited Congress to correct the Court’s “parsimonious reading of Title VII.” In the Ledbetter Fair Pay Act, Congress accepted the invitation.
The Ledbetter Legislation
The Ledbetter Fair Pay Act amends Title VII, the Americans with Disabilities Act of 1990 (ADA), the Rehabilitation Act of 1973 (Rehab Act) and the Age Discrimination in Employment Act of 1967 (ADEA) to provide that an employee must file an EEOC charge alleging pay discrimination within 300 days (180 days in states that do not have a fair employment agency) after the latest of the following: (1) a discriminatory compensation decision or other practice is made or adopted; (2) an individual becomes subject to the decision or practice; or (3) an individual is affected by the application of a discriminatory compensation decision or practice (including each time wages, benefits or other compensation is paid). Thus, the charge filing period restarts each time an employee receives a paycheck that is based upon or is lower because of a past discriminatory compensation decision. In practice, this means an employee can challenge pay decisions made many years ago.
In addition, the Ledbetter Fair Pay Act states that an unlawful employment practice occurs when “a person” (not just an employee) is affected by a discriminatory pay decision or practice. Concerns have been raised that this broad language could allow a non-employee, such as the spouse of a deceased worker, to file a pay discrimination charge or lawsuit so long as that individual claims he or she has been affected by an allegedly discriminatory practice. The House of Representatives rejected an amendment that clearly would have restricted the law’s application only to employees. It remains to be seen how the EEOC and the courts will interpret this language.
The Ledbetter Fair Pay Act is retroactive to May 28, 2007, the day before the Ledbetter decision, and applies to all pay discrimination claims pending on or after that date.
What the Ledbetter Fair Pay Act Means to Employers
It is important to understand what the Ledbetter Fair Pay Act does and does not do. It does not create any new basis for discrimination liability. If your pay decisions were non-discriminatory when made, you will not be subject to additional pay discrimination liability because of the Ledbetter Fair Pay Act.
The law does, however, significantly expand the length of time during which your pay decisions – including past decisions – may be subject to challenge and litigation. As long as an employee (or perhaps a non-employee) files an EEOC charge within 300 (or 180) days after receiving a paycheck that he or she claims reflects past discrimination, that individual will be able to challenge any allegedly discriminatory pay decision affecting that paycheck – even if that decision was made decades ago and records and witnesses are long gone. There is one silver lining: the Ledbetter Fair Pay Act limits the recovery of back pay under Title VII, the ADA and the Rehab Act (but not the ADEA) to a period of two years and preserves Title VII’s damages caps with respect to compensatory and punitive damages.
The Ledbetter Fair Pay Act also appears to allow individuals to file claims after they have retired and begun receiving “discriminatory” pension checks. As a result, not only will plaintiffs be able to seek back pay, but they will also be able to request a recalculation of their pension benefits, which are not capped by the statute.
The implications of the retroactive effective date are uncertain. The law may permit plaintiffs whose cases were dismissed on statute of limitations grounds after the Supreme Court’s Ledbetter decision to reassert their claims. It also could allow individuals who refrained from filing compensation discrimination claims in the 20-month period since the Ledbetter decision because they thought those claims were time barred to sue based upon a recently-received paycheck that allegedly reflects past discrimination.
What Employers Should Do Now
Employers can expect the Ledbetter Fair Pay Act’s lengthened statute of limitations for wage disparity claims to prompt increased pay discrimination litigation. The bottom line is that employers will now more than ever need to be able to prove, with documentation, that their pay decisions are based on legitimate non-discriminatory criteria. Employers wishing to minimize the risks of liability should consider the following steps:
- Develop objective, measurable guidelines for compensation decisions that can be applied consistently to all similarly-situated employees.
- Audit your compensation practices to determine whether you have sufficient documentation to support compensation decisions and implement new documentation requirements if necessary. Documentation of the reasons for pay decisions will be essential to defending a wage disparity claim.
- Train all supervisors and managers regarding the requirements of the Ledbetter Fair Pay Act, your revised policies, and the need to objectively support and document all compensation decisions.
- Create a process to ensure that supervisors and managers do not have unbounded discretion to make compensation decisions and that compensation decisions are subject to review by other managers or human resources personnel to ensure that they are non-discriminatory and objectively supported.
- Review current document retention policies with respect to documents concerning compensation decisions. Under the Ledbetter Fair Pay Act, employers will likely need to retain information regarding compensation decisions for substantially longer than they did in the past.
- Periodically analyze your compensation data to determine if any statistical disparities exist across gender, race, ethnic, disability or age lines, and make appropriate adjustments to eliminate any unexplained disparities.
- Consider placing a legend on payroll stubs or notices that might help bar stale claims: “If you have any questions or concerns about the amount of your pay, please notify the payroll department before you receive your next payroll check.”
For more information, contact:
Kelly DeWitt
312.578.6609
kelly.dewitt@hklaw.com
Frank Nardulli
312.578.6570
francesco.nardulli@hklaw.com
toll free: 1.888.688.8500
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