On Jan. 9, 2009, the U.S. House of Representatives passed two bills intended to reduce pay discrimination in the workplace: the Lilly Ledbetter Fair Pay Act and the Paycheck Fairness Act, which passed by votes of 247-171 and 256-163, respectively. If enacted, this legislation would virtually eliminate the statute of limitations for pay discrimination claims, increase potential damages for employees, limit employer defenses, and expand class actions alleging unequal pay claims.

The Ledbetter bill is Congress' response to the U.S. Supreme Court's 2007 decision in Ledbetter v. Goodyear Tire & Rubber Co., which held pay discrimination claims under Title VII are time-barred when plaintiffs fail to file charges with the Equal Employment Opportunity Commission within 180 days (or 300 days in deferral states) of the discriminatory pay decision. The plaintiff, Lilly Ledbetter, filed an EEOC charge in July of 1998, as well as a federal lawsuit that November, alleging discriminatory pay practices from 1992 until her retirement. The case proceeded to trial, after which the jury awarded Ledbetter a total amount in excess of $3.5 million (including $3.285 million in punitive damages), which the judge subsequently reduced to $360,000, plus costs and attorneys' fees.

The case wound its way to the U.S. Supreme Court, where the Court rejected Ledbetter's argument that each new paycheck restarts the statute of limitations. Rather, the Court held that when an employer issues paychecks pursuant to a pay system that is facially nondiscriminatory and neutrally applied, the mere fact that such paychecks may give present effect to past discrimination occurring outside the charging period is insufficient to restart the statute of limitations.

The Lilly Ledbetter Fair Pay Act expressly overturns this decision and provides that every paycheck continues a distinct discriminatory practice. Such a rule virtually eliminates the statute of limitations on some pay discrimination claims. Indeed, current employees – and even retirees who still receive pay or benefits – could conceivably file lawsuits based on discriminatory practices that occurred decades earlier, provided such plaintiffs could link their claims to compensation received within the statute of limitations. The Ledbetter Fair Pay Act would apply to pay discrimination claims brought under Title VII, the Age Discrimination in Employment Act, the Americans with Disabilities Act and the Rehabilitation Act.

The Paycheck Fairness Act, which amends the Equal Pay Act, also targets unequal pay practices through a number of provisions.

  • The bill increases the potential damages for EPA claims by allowing the recovery of unlimited compensatory and punitive damages.
  • It eliminates a key affirmative defense. Employers currently can defend EPA claims by proving they based their compensation decisions on "any factor other than sex." The Paycheck Fairness Act replaces this defense with the "bona fide factor other than sex" defense, which only applies if the employer demonstrates the decision-making factor: (a) is not based upon or derived from a sex-based differential in compensation; (b) is job-related with respect to the position in question; and (c) is consistent with business necessity. But, this defense would not apply if the employee establishes the employer refused to adopt an alternative employment practice serving the same business purpose that would not create a pay differential.
  • The bill prohibits employers from retaliating against employees who discuss their compensation with co-workers.
  • It expressly permits class actions wherein similarly situated employees who do not wish to participate in the action would have to "opt out" of the action. This is an expansion because employees must presently "opt in" to collective actions under the EPA.

If these bills pass the Senate and are signed into law by President-elect Barack Obama, employers can expect their compensation structures to come under increased scrutiny. Prudent employers will begin preparing for this by auditing their pay practices. To obtain more information on this legislation or any other labor and employment issue, please contact the Barnes & Thornburg Labor and Employment attorney with whom you work, or a leader of the firm's Labor and Employment Law.

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