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Legal Updates

President Obama Signs the Ledbetter Fair Pay Act Reversing The U.S. Supreme Court

On January 29, 2009, President Barack Obama signed into law the Lilly Ledbetter Fair Pay Act of 2009 (S. 181) (the “Fair Pay Act”), the first enacted legislation of the President’s new administration.  The Fair Pay Act expands the time within which employees may file pay discrimination claims against employers, thus creating the potential that employers will see a significant increase in the number of pay discrimination claims filed in the future.  The Fair Pay Act applies to employers retroactively to May 28, 2007, and any pay discrimination claims filed as of that date would be subject to the new statute of limitations parameters set forth in new law.  President Obama openly campaigned in support of this legislation, having co-sponsored the original Senate bill in 2007.  President Bush’s administration had opposed the legislation, but Congress quickly passed the bill at the beginning of the new Congressional term in January.

The Fair Pay Act overturns the United States Supreme Court’s 2007 decision in Ledbetter v. Goodyear Time and & Rubber Co., Inc., 550 U.S. 618 (2007).  In Ledbetter, the plaintiff Lilly Ledbetter, a former employee of Goodyear, alleged that several supervisors in the past had given her poor evaluations based on her gender, that the unfair evaluations caused a decrease in her pay throughout the duration of her employment (nearly twenty years), and that at the end of her employment she was earning significantly less than her male counterparts.

The plaintiff conceded that the discriminatory activity that had initially resulted in the lower pay occurred prior to the 180-day statute of limitations based on the date of her filing of an EEOC questionnaire.   However, the plaintiff’s primary argument was that the discriminatory acts that occurred prior to the statute of limitations period had continuing effects (i.e., lower pay increases) during the statutory period.  As a result, the plaintiff argued, each paycheck issued by the employer during the EEOC charging period constituted a separate act of discrimination.

On May 29, 2007, in a narrow 5-4 decision, the Supreme Court held that the later effects of discriminatory conduct that occurred prior to the EEOC’s statute of limitations period were not sufficient to revive an unequal pay claim under Title VII of the Civil Rights Act of 1964.  This decision spared employers the burden of having to defend against actions for alleged discrimination that were remote in time, but that had resulted in a lasting impact against employees, despite the lack of discriminatory animus.

The Fair Pay Act amends Title VII of the Civil Rights Act of 1964 and the Age Discrimination in Employment Act of 1967, the Americans with Disabilities Act of 1990 and the Rehabilitation Act of 1973 “to clarify that a discriminatory compensation decision or other practice that is unlawful under such Acts occurs each time compensation is paid pursuant to the discriminatory compensation decision or other practice.”  Accordingly, under the Fair Pay Act, the applicable statute of limitations period – either 300 days or 180 days, depending on the state – commences each time the employer issues a paycheck or other benefit payment pursuant to an unlawful discrimination practice or policy.  As a result, actionable pay discrimination claims may survive for many years.

Proponents of the Fair Pay Act assert that the new law will allow employees who have been unknowing victims of discrimination the ability to file claims upon becoming aware of past pay discrimination based upon an individual’s race, color, age, gender, religion or national origin.  Critics of the new law, including business groups, argue that that employers should be protected from stale claims where witnesses and other evidence may not be attainable, and that the new law conflicts with personnel records retention statutes.  Moreover, employers contend that the new law will likely result in a flurry of new individual discrimination charges and class actions that were previously time-barred, and that additional litigation against employers could have dire consequences during a troubled economy.

Employers should carefully audit their payroll and related employment practices, working with experienced counsel, to determine whether there may be any evidence that might suggest past discriminatory elements.  It is important to work with outside counsel, to protect this audit to the greatest extent possible under the attorney-client privilege.

The types of practices to be audited are not limited to pay structures, but may also include performance appraisal processes, promotion policies and incentive programs.  By curing any non-compliant employment practices now, employers can reduce the risk of future claims that a current employment practice is a discrete unlawful act with the intent to discriminate, and thus is actionable under Title VII or other anti-discrimination laws. Notably, the Fair Pay Act leaves intact the legislative restriction on back-pay awards to two (2) years, but system-wide pay discrimination claims can add up quickly.

Should you have any questions regarding the Fair Pay Act or related matters, or need assistance conducting an audit of your company’s pay practices, please do not hesitate to contact us.