On January 29, 2009, President Barack Obama signed the Lilly Ledbetter Fair Pay Act of 2009 (S. 181) into law, making it the first piece of legislation approved during his administration. The Act was approved by the House and Senate largely along party lines.  If the predictions are accurate, the new law could lead to a flood of litigation alleging discrimination, or at the very least, the substantial curtailment of the statute of limitations defense in many cases.

Summary of the Act

The Act amends Title VII of the Civil Rights Act and the Age Discrimination in Employment Act, and modifies the operation of the Americans with Disabilities Act and the Rehabilitation Act, to clarify that a discriminatory compensation decision or other practice that is unlawful under those laws occurs each time compensation is paid pursuant to the decision or other practice. Specifically, the Act states an unlawful employment practice occurs, and the statute of limitations begins to run (1) when a discriminatory compensation decision or other practice is adopted; (2) when an individual becomes subject to a discriminatory compensation decision or other practice; or (3) 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.

Plaintiffs generally have 300 days to file a charge of discrimination (180 days in those few states that do not have a fair employment agency equivalent to the EEOC). These time limits ostensibly are unchanged.  However, the Act states that liability may accrue and an aggrieved person may obtain relief, including recovery of back pay, where the unlawful employment practices that have occurred during the charge filing period are similar or related to unlawful employment practices with regard to discrimination in compensation that occurred outside the time for filing a charge. Nevertheless, the Act does not change current law, which states that back pay liability under these laws “shall not accrue from a date more than two years prior to the filing of a charge . . .”

The Supreme Court’s Ledbetter Decision

On May 29, 2007, the US Supreme Court ruled in Ledbetter v. Goodyear Tire & Rubber Co., 550 U.S. 618 (2007) that the statute of limitations for filing a discrimination charge with the EEOC begins to run when an employer makes a decision about the employee's compensation that allegedly is discriminatory, not each time the employee receives a paycheck affected by the alleged discrimination. Ledbetter was a former supervisor at a Goodyear tire plant who learned from an anonymous letter that she had been receiving less pay than male counterparts doing the same work for approximately 20 years.

If there was any doubt that the Act was intended to reverse the Supreme Court’s decision and provide relief to Ms. Ledbetter, it was completely erased by Section 6 of the law, which provides that it is effective retroactive to May 28, 2007, one day before the Court’s decision was issued, and that the Act applies to all claims for compensation discrimination “pending on or after that date.”

Reactions, Prognosis and Recommendations

The business community opposed the Act, claiming that worker rights were already adequately protected by current law, that the statute of limitations for pay discrimination claims would be indefinitely extended, and that it would lead to a flood of litigation, the cost of which could cripple employers. Others have raised concerns that because the Act applies broadly to “wages, benefits, or other compensation” retirees whose pensions are based on their earnings may sue for discrimination as well. 

Supporters of the legislation hail it as an important step toward ending “secret sexism” and other discrimination, and have stated somewhat glibly that if employers do not want to be sued, they should not engage in pay discrimination.

Plaintiffs will continue to have the burden to prove that a compensation practice or decision is or was discriminatory, and employers will continue to be able to defeat these claims if there is a legitimate nondiscriminatory reason for the practice or decision.  Whether there will be a flood or simply a trickle of litigation remains to be seen. Given the current state of the economy and the prevalence of layoffs and wage cuts and freezes, it will not be surprising if the plaintiffs’ bar places renewed emphasis on these claims. At the very least, employers will have a much more difficult time prevailing on the statute of limitations defense in these cases.

In the interim, employers should audit their compensation and benefit plans and policies to determine if there is any unnecessary risk of exposure to discrimination claims, and if so, carefully develop a plan to manage the risk. Where differences in compensation and benefits do exist among similarly situated employees, employers should be able to provide legitimate nondiscriminatory reasons why such differences exist.

The Arent Fox Labor & Employment Law Group has substantial experience advising employers on issues of pay and benefits equity, and defending them against claims of discrimination. Please do not hesitate to contact us if you have any questions regarding any of these issues.

Michael L. Stevens
stevens.michael@arentfox.com
202.857.6382