On January 27, 2009, the House of Representatives, by a vote of 250-177, approved S. 181, the Lilly Ledbetter Fair Pay Act of 2009 ("the Ledbetter Act") sending the bill to President Obama who has promised to sign the legislation into law. Earlier, on January 22, 2009, the Senate voted 61-36 approving the Ledbetter Act. A signing ceremony is anticipated for later this week signaling the Obama Administration's intention to revamp current labor laws and expand coverage under existing employment laws. Many believe that the selection of the Lilly Ledbetter Fair Pay Act as the first law enacted under the Obama administration is a harbinger of things to come.

The Ledbetter Act reverses a May 2007 Supreme Court decision, Ledbetter v. Goodyear Tire & Rubber, 550 U.S. 618 (2007), that Ledbetter could not recover in a discrimination suit because her claim – alleging her employer paid her less than her male co-workers during most of her 19-year career – had not been filed in a timely manner, notwithstanding the continuing effects of alleged past discrimination. This was so, the Court reasoned, because Ledbetter did not timely complain of discrimination when Goodyear purportedly made its discriminatory decisions about Ledbetter's compensation, years prior to her Charge-filing date. The 5-4 decision was controversial, and the dissent by Justice Ginsberg called upon Congress to reverse the decision. Congressional leaders, including then-Senator Obama, vowed to overturn Ledbetter.

The new law effectively eases the statute of limitations for compensation-implicated personnel actions (including promotion, hiring, evaluation, and employee benefits decisions) under Title VII, as well as under other federal employment discrimination statutes (e.g., ADEA, ADA, and the Rehabilitation Act). It codifies that the time clock for filing a Charge with the EEOC for compensation-related discrimination restarts each time an employee receives a paycheck that manifests the discrimination. In other words, under the Ledbetter Act, so long as workers file a Charge within 180/300 days of receiving a discriminatory paycheck, their Charge is timely, notwithstanding how long ago in time the discriminatory decision was made. Finally, the Ledbetter Act applies retroactively, as if the law was in effect on May 28, 2007, the day before the Supreme Court's landmark ruling.

Background: Ledbetter v. Goodyear Tire & Rubber Co.

On May 29, 2007, the Supreme Court held in Ledbetter, that disparate treatment pay discrimination claims under Title VII of the Civil Rights Act of 1991 must be filed within the Charge-filing period (either 300 days in states with fair employment practices agencies, or 180 days) after the alleged pay decision is made – not within 180 days of receiving the last paycheck.

For nearly 20 years, Lilly Ledbetter worked for Goodyear as a supervisor at its Gadsden, Alabama plant. Just prior to taking early retirement, Ledbetter filed a Charge with the Equal Employment Opportunity Commission ("EEOC") alleging sex discrimination. In her lawsuit, Ledbetter alleged that she received smaller raises than her male counterparts as a result of performance evaluations motivated by discrimination, and by the conclusion of her employment with Goodyear, Ledbetter was earning significantly less than her male counterparts.

The jury found in Ledbetter's favor awarding her backpay and more than three million dollars in punitive damages. On appeal, the U.S. Court of Appeals for the Eleventh Circuit reversed. The court held that a Title VII pay discrimination claim could not be based on pay decisions which were made and implemented prior to the Charge-filing period, and that Ledbetter had not established that Goodyear had acted with discriminatory intent in either of its pay decisions made within 180 days of her Charge. PROSKAUER ROSE In a 5-4 decision, authored by Justice Alito, the Supreme Court affirmed the Eleventh Circuit's decision, holding that Ledbetter's pay discrimination claim was untimely. The Court rejected the "paycheck rule," that each time employees receive a paycheck that evidences prior discriminatory pay practices, it triggers anew the EEOC Charge-filing period, permitting the employee to bring a timely claim. The Court found that, in order to state a viable disparate treatment pay claim, there must be evidence that the discriminatory act occurred during the Charge-filing period. The Court reasoned that a pay-setting decision is a discrete act, independently identifiable and actionable, and that "current effects alone cannot breathe life into prior, uncharged discrimination." Accordingly, the Court ruled, the statute of limitations for Ledbetter's pay discrimination claim ran after each alleged discriminatory decision was made and communicated to her.

In the wake of Ledbetter, employees could not pursue a backpay claim under Title VII for sex-based pay discrimination based on pay decisions made and communicated prior to the applicable limitations period for filing a Charge, even when the employee was, arguably, unaware of the disparity. As a result, employees who claimed compensation-related discrimination, pointing to decisions made beyond the 180/300 day limitations period, were out of luck, absent evidence that discriminatory animus permeated pay decisions during the Charge-filing period. As the Supreme Court, long ago, remarked in United Airlines v. Evans, 431 U.S. 553, 558 (1977), "the continuing effects of the precharging period discrimination did not make out a present violation."

Justice Ruth Bader Ginsberg, in dissent, argued that the Court's opinion was contrary to Congressional intent and ignored common characteristics of pay discrimination and the realities of the workplace. The dissent urged Congress to correct the Court's "cramped interpretation" and "parsimonious reading of Title VII." Justice Ginsberg opined that "[o]nce again, the ball is in Congress's court," referring to the 1991 Civil Rights Act, which superseded a series of Supreme Court decisions on civil rights.

Congress Takes Action

On June 22, 2007, just one month after the Supreme Court's ruling in Ledbetter, Rep. George Miller (D-CA.) introduced H.R. 2831, the Lily Ledbetter Fair Pay Act of 2007, to overturn the Court's decision. As proposed, an unlawful employment practice occurs when: (1) a discriminatory compensation decision or other practice is adopted; (2) an individual becomes subject to the decision or other practice; or (3) an individual is affected by application of the decision or practice, including each time the compensation is paid.

Opponents of the bill argued that the Supreme Court's ruling in Ledbetter, was entirely consistent with its prior decisions and that the proposed legislation would effectively eliminate the uniform statute of limitations on many discrimination claims forcing employers to have to defend against alleged discriminatory actions that may have occurred years prior.

The Ledbetter Fair Pay Act of 2007 moved swiftly through the House of the Representatives where it passed in July 2007, before stalling in the Senate. In April 2008, then-Senator Obama flew back to Washington, D.C., in the middle of his presidential campaign, to cast his vote in favor of the Lilly Ledbetter Fair Pay Act, but the bill fell 4 votes shy of stopping the Senate debate and was tabled for the remainder of the 110th Congress.

Before the 111th Congress had convened, House leadership announced its intention to take up the Ledbetter bill along with another pay discrimination bill as its first order of business. In the first week of the 111th Congress, The Lilly Ledbetter Fair Pay Act of 2009 (H.R. 11) was introduced and moved directly to the floor of the House, where it was considered under a special rule and passed without the possibility of an amendment. The House followed the same course of action with The Paycheck Fairness Act (H.R. 12), a sweeping bill that would transform the Equal Pay Act by, among other things, limiting employer defenses and adding uncapped punitive and compensatory damages. The House linked the two bills and sent them on to Senate for consideration as one.

Senate leadership, recognizing that the Paycheck Fairness Act would be a more protracted fight, decided to take up the Ledbetter bill (S. 181) on its own. On January 22, 2009, the Senate voted by a margin of 61 to 36 to pass the Ledbetter legislation and on January 27, 2009, the House voted overwhelmingly to approve the Ledbetter Act. (S. 181).

Key Provisions of The Lilly Ledbetter Fair Pay Act

  • Adopts the "Paycheck Rule." The time period for filing a pay discrimination charge with the EEOC begins to run each time an employee receives a paycheck that manifests discrimination. The new rule effectively eliminates the statute of limitations for compensationimplicated personnel actions because each new paycheck gives rise to a new Charge-filing period. We say "compensation-implicated personnel actions" because, in Ledbetter, she claimed that the pay discrimination arose from performance evaluations that reflected discriminatory animus resulting in smaller wage increases than to similarly situated male counterparts.
  • Applies to claims of pay discrimination under Title VII, as well as the ADEA, the ADA, and the Rehab. Act. Although the Ledbetter decision involved sex-based compensation discrimination under Title VII, the new legislation amends all of Title VII, as well as the ADEA, the ADA, and the Rehabilitation Act. Thus, the Ledbetter Act now applies to claims alleging compensation-implicated discrimination based on sex, age, race, color, religion, national origin, and disability.
  • Applies to Retirees. The new law applies to retirement payments such that it will restart the time period for filing a Charge to the first time a retiree receives an annuity check or other retirement benefit that s/he claims was based on wage decisions permeated with discrimination because his/her pension benefits are depressed. The Ledbetter Act is less clear as to whether the paycheck rule will apply to each new pension payment.
  • Any employment action affecting compensation could be considered timely. The new law extends the paycheck rule beyond pay raises to include any decision or "other practice" affecting compensation "in whole or in part" that may have influenced compensation received. Therefore, the paycheck rule could be applied to any employment action – including decisions on employee benefits, hiring, employment transfers and/or evaluations – that impacts compensation in any way.
  • Two-year recovery cap remains. While employees and retirees may now reach back to their first day of employment for evidence of a discriminatory pay decision, they can only recover back-pay for up to the two years preceding the filing of their EEOC Charge.
  • Applies to intentional discrimination and disparate impact claims. The Act applies to both intentional discrimination and disparate impact claims alike.
  • Retroactive application. The Act takes effect retroactively as if it was enacted on May 28, 2007, the day before the Supreme Court issued the Ledbetter decision and expressly applies to all claims of compensation discrimination pending on or after that date.

What Employers Should Look Out For

  • Exposure to the Paycheck Rule. The law effectively ends the statute of limitations for compensationimplicated personnel actions. Each paycheck provides employees with all the documentation they will need to bring a timely action for wage discrimination – even in situations where the alleged discrimination occurred years earlier.
  • Undefined terms will result in additional litigation. The new Act includes a number of terms and phrases that are undefined or could have far broader application, e.g. "when an individual is affected by application of a discriminatory compensation decision or other practice." Employers should anticipate litigation over who is protected and what employer conduct/practices may trigger liability.

Conclusions: What Employers Should Do

This new law could have broad implications for all employers but should be of particular concern for those who have not been vigilant in documenting the rationale for pay and promotion decisions, as well as merit pay increases based on performance evaluations. In our view, executives, officers, managers, and/or supervisors would do well by considering the following:

  • Ensure that your workplace has systems in place for setting and reviewing all pay decisions – including merit-based decisions arising from performance evaluations;
  • Document the reasons for pay decisions, particularly the rationale for why certain employees may receive higher or lower pay, benefits, or evaluations than similarly situated co-workers;
  • Recognize that documentation is key to defending against a pay discrimination claim which, as a result of this legislation, can be based on almost every personnel action;
  • Retain complete personnel files ... forever;
  • Train managers, supervisors, and executives on how to conduct an appropriate performance evaluation. Consider having a committee review all personnel evaluations that impact merit-based pay decisions;
  • Train managers, supervisors, and executives in document retention and maintenance to ensure consistent employment records, and

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