President Obama has signed his first law, and it creates uncertainty and potential significant additional liability for employers at a difficult economic time. On January 29 President Obama signed the Lilly Ledbetter Fair Pay Act of 2009, which extends the time for employees to file federal claims for unlawful pay discrimination, potentially for years after the original unlawful decision.
This new law is named after Lilly Ledbetter, a former Goodyear supervisor who, in 2007, lost her pay discrimination case in a 5-4 Supreme Court decision, Ledbetter v. Goodyear Tire & Rubber Co., 550 U.S. 618 (2007). The United States Supreme Court held that the statute of limitations for an unlawful pay discrimination claim began to run from the initial decision to pay a worker less money, even if the effects continued for years thereafter. Ledbetter did not claim that Goodyear had intentionally discriminated against her during the last years of her employment; rather, she contended that her lower pay rate was a legacy of discriminatory pay decisions made 19 years earlier. Ledbetter did not file a claim with the Equal Employment Opportunity Commission (EEOC) until after she left Goodyear. Federal anti-discrimination laws generally require that an employee file a discrimination charge with the EEOC within 180 days (300 days in states with their own anti-discrimination agencies) of the alleged unlawful employment practice occurred. The Ledbetter court held that, because the unlawful pay decision had occurred outside this statute of limitations, her claim was time-barred.
The 111th Congress acted quickly to reverse the Ledbetter decision. The Lilly Ledbetter Fair Pay Act passed the Senate 61-36 and the House of Representatives 250-177, both votes being largely along party lines. In signing the Act, President Obama said, “It is fitting that, with the very first bill I sign …. we are upholding one of this nation’s first principles—that we are all created equal and each deserves a chance to pursue our own version of happiness.” Ledbetter and First Lady Michelle Obama both attended and spoke at the signing ceremony.
The act fixes three alternate triggers for a pay-discrimination claim under Title VII of the 1964 Civil Rights Act, Americans with Disabilities Act, Age Discrimination in Employment Act, and Rehabilitation Act:
- When a discriminatory compensation decision or “other practice” is adopted;
- When a person becomes subject to the decision or practice; or
- When a person is affected by the decision or practice, including each time wages or benefits are paid.
Thus, the act adopts the so-called “paycheck rule,” under which a discriminatory pay claim is renewed with each payroll or monthly pension check that is less than it would have been but for past pay discrimination. An aggrieved person may recover damages going back two years before the filing of the pay-discrimination charge if the discrimination persisted during that period.
Moreover, the act confirms that a court may admit evidence of any unlawful employment practice—not just pay discrimination—that occurred outside the statute of limitations, if that evidence is relevant to establishing a violation within the time allowed for filing a charge.
In a slap at the Supreme Court, the act is effective “as if enacted on May 28, 2007,” the day before the Supreme Court’s decision in Ledbetter. Thus, except for cases that have already ended with a final judgment, the Ledbetter decision is not, and never was, the “law of the land.”
The Lilly Ledbetter Fair Pay Act of 2009 exposes employers to liability for current pay differentials resulting from unlawful pay decisions made years or even decades ago, unless that pay differential was corrected before the statutory limitations period. It is therefore imperative that employers identify any residual pay disparities from past discriminatory pay decisions.
Prudent employers should:
- Base compensation decisions strictly on performance and other objective criteria, such as seniority in a position.
- Administer regular, periodic performance evaluations—that are fair and accurate—and tie compensation decisions to those evaluations.
- Document all reasons for compensation decisions.
- Audit for pay differentials between similarly situated employees and test any pay differentials for recent and historical discrimination based on gender, race, etc.
- Maintain personnel files and all documentation of compensation decisions throughout a person’s employment and for at least three years thereafter, to ensure evidence is available to refute pay-discrimination claims that could now be based on acts or omissions throughout the entire employment cycle.