Imagine that you have just acquired a company that comes complete with equipment, employees and a profitable operation. Sweet. The inherited paperwork is spotty, but many of the employees are long-timers who have filled you in on the goings on. Things are running smoothly, a virtual turnkey operation. You have implemented written policies, treat your employees fairly, and direct managers to compensate employees on legitimate, non-discriminatory bases, such as prior salary, title, seniority, grade level, and performance evaluations. A few employees have grumbled about their jobs or their pay, but eventually the grumbling has stopped. Better still, the statutes of limitation have run on those who left the company. So you no longer bear the risk of being sued and having to mount defenses based on facts no one remembers and for which you no longer have witnesses or documents to aid in your defense. Right?

Not necessarily. Imagine being sued by a former employee who is complaining about actions that occurred 19 years ago.

Now imagine being held liable.

Employment acts that predate current management's tenure or recollection can come back to haunt. Take the case of Lilly Ledbetter. By now we're all somewhat familiar with her story. Nearing retirement after 19+ years at Goodyear Tires as a shift supervisor, Ms. Ledbetter sued the company for sex discrimination after receiving an anonymous tip that she had been paid 25% to 40% less than all of her 15 male counterparts. The jury in the district court found in her favor and awarded Ms. Ledbetter $223,776 in back pay and over $3 million in punitive damages. Id. at 644 (quoting from the record below). The award went up on appeal, and the Eleventh Circuit reversed it. (See Goodyear v. Ledbetter, 421 F. 3d 1169 (11th Cir. 2005).) On May 27, 2007, the Supreme Court denied Ms. Ledbetter's claim as untimely because she had not filed suit within 180 days of receiving her first discriminatory paycheck almost 20 years before. Ledbetter v. Goodyear Tire & Rubber, Co., 550 U.S. 618, 633-643 (2007); see also 42 U.S.C. § 2000e-5(e)(1) (an employee must file a discrimination charge within 180 days, or 300 days in deferral states, from the date the claim arises).

The Ledbetter Court reasoned that Goodyear's decision to pay Ms. Ledbetter less than her male counterparts was a "discrete" discriminatory act that occurred when she was hired. As with employees subjected to other acts typically held to be discrete – such as termination, failure to promote, denial of transfer, refusal to hire, and wrongful suspension, to name only a few – Ms. Ledbetter was presumed to know when the discriminatory act had occurred. Ledbetter v. Goodyear, 550 U.S. at 621. Citing the unfairness of penalizing employees for not readily detecting disparities that "are often hidden from sight," Justice Ruth Bader Ginsburg concluded her impassioned dissent by suggesting that Congress "act to correct this Court's parsimonious reading of Title VII." Id. at 645, 649 (Ginsburg, J., dissenting). Congress passed the Lilly Ledbetter Fair Pay Act ("Ledbetter Act"), which President Obama signed into law on January 29, 2009 and made retroactive to May 28, 2007.

What the Ledbetter Act Says

The Ledbetter Act amended Title VII of the Civil Rights Act of 1964 ("Title VII"), the Age Discrimination in Employment Act of 1967 ("ADEA"), the Rehabilitation Act of 1973 (which applies to federal employees), and the Americans with Disabilities Act of 1990 ("ADA"), by expanding the definition of "unlawful employment practices" under those statutes to include instances when:

  • an employer "adopts",
  • an employee is "subjected to," or
  • an individual (an employee or, arguably, even another individual) is "affected by"
  • "a discriminatory compensation decision or other practice . . . ."

42 U.S.C. § 2000e - 5(e)(3)(A) (emphases added).

Pursuant to the Ledbetter Act a discriminatory compensation decision or other practice is perpetuated "each time wages, benefits, or other compensation is paid, resulting in whole or in part from such a decision or other practice." 42 U.S.C. § 2000e-5(e)(3)(A). Accordingly, an employer may be held liable for the present-day compensation effects of a long-past discriminatory act, even though the discrimination predates its management and the employer has since implemented a nondiscriminatory pay policy. Additionally, the Ledbetter Act provides for recovery of up to two years' back pay preceding the filing of the EEOC charge for similar discriminatory compensation, as long as some part of the employee's claim falls within the statutory filing period. 42 U.S.C. § 2000e-5(e)(3)(B). Every current employer assumes the ongoing risk that she will be called to answer for some alleged form of discrimination that has impacted an employee's compensation. How long does that risk last? For at least as long as the employer compensates the employee. Consider the financial consequences of a discriminatory compensation structure that affects an entire class of employees.

With the passage of the Ledbetter Act, the entire concept of a statute of limitations for alleged unlawful employment acts takes on a less reassuring tone. As one court noted, the Ledbetter Act "is a game-changer with regard to timing because it retroactively amended Title VII, eliminating any statute of limitations bar against an employee's claim that a paycheck received today is lower than it should be because of a past discriminatory action." Randall v. Rolls-Royce Corporation, 2010 U.S. Dist. LEXIS 23421 (S. D. Ill. March 12, 2010) (emphasis added).

The Ledbetter Act in Action

Many learned of the relatively new law when the EEOC notified former charging parties that the Ledbetter Act might provide a basis to revive discrimination charges which the Agency had dismissed as untimely. While debating the bill in Congress, Senator Arlen Specter (D. Penn.) had proposed omitting the phrase "other practice" from the definition of unlawful employment acts because the ambiguity of the phrase would result in litigation. 155 Cong. Rec. S755 (daily ed. Jan. 22, 2009) (statement of Sen. Specter). He was right. Much of the ensuing litigation has focused on whether certain employer conduct constitutes a discriminatory "other practice" within the meaning of the Ledbetter Act.

Case law is starting to add contour to the Ledbetter Act. Two cases in the Third Circuit illustrate the nuance involved in discerning when an employer's conduct is an "other practice" under the Act. In each case, the plaintiff brought a discrimination claim outside the statutory period after his or her employer denied the plaintiff's request for a title change and a pay increase. The outcomes were very different. In Noel v. The Boeing Company, 622 F.3d 266 (3d Cir. 2010), the plaintiff, an aircraft mechanic, filed a discrimination charge with the EEOC in March 2005, alleging that the company had discriminated against him based on his race and national origin by failing to promote him to lead mechanic in 2003. The district court granted judgment in favor of the company, finding that the plaintiff's claims to be untimely because he had not brought them within 300 days. The plaintiff tried to revive his claims under the Ledbetter Act, by asserting that "Boeing's discrimination in refusing to give him a raise to Labor Grade 11 while giving this grade to similarly situated white workers was perpetuated each time the resulting lower compensation was thereafter paid to him." Noel v. The Boeing Company, 622 F.3d 266, 271 (3d Cir. 2010). The Third Circuit upheld the dismissal on timeliness grounds, finding that the plaintiff's original EEOC charge did not reference compensation discrimination and was, essentially, a discrete failure-topromote claim. Id.

By contrast, in Mikula v. Allegheny County of Pennsylvania, 583 F.3d 181 (3d Cir. 2009), the Third Circuit applied the Ledbetter Act to reverse the lower court's dismissal of the plaintiff's sex discrimination claim as untimely. The plaintiff, a grants coordinator for the Allegheny County police department since 2001, had asked her supervisor in 2004 and 2005 for a pay raise and change in her job title to "Grants and Project Manager." Mikula v. Allegheny County of Pennsylvania, 583 F.3d 181, 182 (3d Cir. 2009). Her supervisor never responded. In March 2006, she filed an internal complaint of sex and age discrimination and claimed, among other things, that she was paid less than a comparable male employee. On August 23, 2006, the County's Human Resources department sent the plaintiff a letter stating that it had investigated her charge and found her title and salary were fair. The plaintiff filed her EEOC charge on April 17, 2007, alleging that since her hire, the County had paid her substantially less than male employees for equal work.

The district court concluded that the plaintiff's 2007 charge was untimely because the alleged unlawful act had occurred at the time of plaintiff's hire in 2001 (precisely as the Supreme Court had found in Ledbetter). Rejecting that analysis, the Third Circuit held that the employer's silence in the face of the plaintiff's 2004 and 2005 requests for pay raises constituted "compensation decisions" within the meaning of the Ledbetter Act and rendered timely the plaintiff's discrimination claim as to all paychecks she received within 300 days before filing her EEOC charge. Id. at 186. As other courts have pointed out, the Mikula decision could have gone even worse for the employer. See, e.g., Haase v. Government of the Virgin Islands, 2009 U.S. Dist. LEXIS 107445, *13 (D. V.I. Nov. 17, 2009) (wherein the court deemed the Mikula court's failure to extend the back pay recovery period to two years "inexplicable"). The "failure to promote" claim fails as untimely, but the disparate pay claim survives under the Ledbetter Act.

There is a cautionary tale here. Listen closely to your employees' complaints. As the Noel and Mikula cases demonstrate, a court's revival of an untimely discrimination claim may turn upon how the employee characterizes his complaint. What may first sound like a request for a promotion to a higher title may actually be an employee's claim that he is being paid less for equal work. Cf. Gertskis v. New York City Department of Health and Mental Hygiene, 2009 U.S. Dist. LEXIS 25244, *11 (S.D.N.Y. Mar. 26, 2009) (court found that what plaintiff termed, in part, to be a failureto- promote claim was essentially a pay disparity claim).

Other "Other Practices"

Now we know not responding to a raise request is an actionable compensation decision. What other "other practices" are implicated by the Ledbetter Act? These issues are fact-specific, but courts have either held or opined in passing that the Ledbetter Act applies to the following employer acts:

  • Denial of raises: E.g., Mikula v. Allegheny County of Pennsylvania, 583 F.3d 181 (3d Cir. 2009).
  • Denial of severance: E.g., Brozenec v. First Industrial Realty Trust, Inc., 2010 U.S. Dist. LEXIS 129742 (N.D. Ill. Dec. 8, 2010).
  • Failure to pay overtime: E.g., Boaz v. Federal Express Corporation, 2010 U.S. Dist. LEXIS 102006 (W.D. Tenn. Sept. 24, 2010).
  • Performance evaluations: E.g., Ledbetter v. Goodyear Tire & Rubber Co., 550 U.S. 618, 622 (2007); Schuler v. PricewaterhouseCoopers, LLP, 595 F.3d 370, 375 (D.C. Cir. 2010); Gertskis v. New York City Department of Health and Mental Hygiene, 2009 U.S. Dist. LEXIS 25244 (S.D.N.Y. Mar. 26, 2009).
  • Misclassification: E.g., Harris v. City of Fresno, 625 F. Supp.2d 983 (E.D. Cal. 2009).
  • Assignment of Out-of-Title Duties: E.g., Boaz v. Federal Express Corporation, 2010 U.S. Dist. LEXIS 102006 (W.D. Tenn. Sept. 24, 2010).
  • Work-related benefits (e.g., car lease subsidies, pension contributions): E.g., Kent v. The City of Chicago, 2010 U.S. Dist. LEXIS 35923 (N.D. Ill. Apr. 8, 2010).  Demotion: E.g., Logan v. Town of Gilbert, U.S. Dist. LEXIS 69172 (D. Ariz. July 29, 2009).
  • Denial of long-range assignments (i.e., assignments which impact more than one paycheck): E.g., Logan v. Town of Gilbert, U.S. Dist. LEXIS 69172 (D. Ariz. July 29, 2009).
  • Failure to promote: E.g., Logan v. Town of Gilbert, U.S. Dist. 69172 (D. Ariz. July 29, 2009); Gertskis v. New York City Department of Health and Mental Hygiene, 2009 U.S. Dist. LEXIS 25244 (S.D.N.Y. Mar. 26, 2009).
  • Acts or policies which impact benefits accrual: E.g., Tomlinson v. El Paso Corporation, 2009 U.S. Dist. LEXIS 77341; 107 Fair Empl. Prac. Cas. (BNA) 194 (D. Colo. Aug. 28, 2009).

What's Next?

Here is a preview of other significant developments that may arise:

  • Cases that tackle whether non-employees can sue under the Ledbetter Act if they are "affected by" the employer's discriminatory compensation. See U.S. Republican Policy Committee, Legislative Notice No. 1, S-181-- Lilly Ledbetter Fair Pay Act of 2009 (January 14, 2009, Calendar No. 14) (wherein the Committee opined that "[a] plausible reading of this language means a spouse or heir who receives pension checks and was not a victim of discrimination would have standing to file a lawsuit").
  • More "Mini-Ledbetter" statutes, such as those recently enacted in Maryland (S.B. 368, which amended Maryland Code §§20-607 and 20-1009(b)(5), effective October 1, 2009) and under consideration in Texas (Texas Senate Bill, S.B. 280, enrolled for consideration in the 82nd Legislative Session). These state statutes may result in higher damage awards to employees since Title VII's statutory caps don't apply.

Helpful Tips

What can employers do to mitigate the risks posed by the Ledbetter Act since employers are not quite sure which acts will subject them to liability, when, or for how long? Here are some recommendations:

  • Document, audit, and regularly review your compensation policies and any other policies in place since May 28, 2007 that affect compensation – such as performance evaluation policies, classification policies, benefits accrual policies, seniority policies, and vacation and bonus accrual policies.
  • Render as transparent as possible the factors on which you base performance evaluation and compensation decisions. Although this is not always possible (or appropriate) to do in detail, greater transparency may help to manage employees' expectations and reduce related complaints.
  • Ensure your employment policies are structured and administered in a manner that is clear, objective, non-discriminatory, and consistent.
  • Routinely ask managers for the bases and documentation to explain differences in compensation among their subordinates.
  • Document, investigate and follow-up on all compensation-related complaints.
  • And as we learned from Mikula, always respond to employees' requests for raises.

Simply put, to manage the risks associated with the Ledbetter Act, employers must implement and adhere to best employment practices, such as those outlined above. In the event of a lawsuit 19+ years from now, clear policies and good recordkeeping will refresh memories, help establish credibility, consistency and continuity, and promote succession planning.

Andrée Peart Laney is Counsel at Bressler, Amery & Ross, P.C., in Florham Park, New Jersey.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.