On Thursday, January 29th, President Obama fulfilled another campaign promise and signed to law the Ledbetter Fair Pay Restoration Act of 2009. This Act reverses the U.S. Supreme Court's 2007 decision in the case of Ledbetter v. Goodyear Tire & Rubber Co. and effectively extends the statute of limitations for discrimination claims where pay differences are included as a factor in the alleged discrimination. There are other aspects of this new law that will likely cause employers to take a fresh look at their pay policies and records retention practices.
In that 2007 Supreme Court case, Ledbetter, a longtime Goodyear employee, sued the Company for gender discrimination and gender-based pay discrimination. The Supreme Court upheld an Appeals Court decision which barred Ms. Ledbetter's claims because they were filed well beyond the 6-month deadline for filing discrimination claims of this type. The Act now permits claims for pay discrimination to be based on the employee's most recent paycheck as opposed to when the discrimination allegedly first arose. This means that employees can now make claims that may relate to pay practices reaching back years.
Ledbetter's claims against Goodyear
While most aspects of the new law are fairly straight-forward, it is important to review the underlying case that prompted Congress to act as an illustration of how the new law will change the way employers respond to such matters going forward.
Lilly Ledbetter, the plaintiff in that case, worked as a manager in Goodyear's Gadsden, Alabama plant from 1979 until she accepted an early-retirement package in 1998. During most of that time, her salary was determined annually and it was based , in large part, on her supervisor's ranking of her job performance. Ledbetter's annual performance reviews typically placed her near the bottom of rankings with her co-workers, and, as a result, she received small annual salary increases. During 1997 and 1998, the last two years of employment with the Company, Ms. Ledbetter was in a job slated by the Company for layoff. According to Company policy and practice, she didn't receive any raises during that period. By the time of her early retirement, Ms. Ledbetter's marginal annual raises resulted in a large pay gap between her compensation and that of her male peers at the plant. She claimed gender bias as the reason for the differences. She cited a historical disparity going back years. In July 1998, Ms. Ledbetter filed a Charge of Discrimination with the U.S. Equal Employment Opportunity Commission (EEOC), alleging, among other things, that she was unlawfully discriminated against on basis of her gender. Ms. Ledbetter claimed she received lower pay from Goodyear than male coworkers. She claimed this was in violation of Title VII of the Civil Rights Act of 1964. She later filed suit in federal court. Ms. Ledbetter's disparate pay claim was tried before a jury in Federal District Court in Alabama. At the close of the case, the jury returned a verdict in her favor and awarded her $223,776 in back pay, $4,662 for mental anguish and $3,285,979 in punitive damages. Goodyear challenged the verdict and the jury award.
The Company argued that Ledbetter's claim was time barred by Title VII's 180-day statute of limitations which starts to run from the last event of alleged discrimination. They pointed to the date when the pay differential allegedly first occurred and said the statute of limitations should have started to run at that point. They also argued that no reasonable fact-finder could have concluded that Ms. Ledbetter's gender was a motivating factor in denying her a salary increase in the 6 months before she filed her Charge. Finally, they argued that the evidence established that her impending layoff was the reason she did not receive a raise at that time, not her gender. The court denied the Company's motion, but reduced the award within statutory limits for such cases. The reduced judgment against Goodyear was still for $360,000 in damages, plus attorneys' fees and costs. Goodyear appealed. The 11th Circuit Court of Appeals reversed the District Court's denial of Goodyear's motion for judgment as a matter of law. The Appeals Court also ruled in Goodyear's favor and found that Ms. Ledbetter's pay, at the time she filed her EEOC charge, was the result of long-past decisions that she could not challenge because they were outside of Title VII's charge-filing statute of limitations. Ms. Ledbetter appealed that decision to the U.S. Supreme Court.
In May 2007, U.S. Supreme Court affirmed the Appeals Court's decision and held that a pay-setting decision, like a termination or demotion, is "a discrete act" forming the basis of a Title VII claim and thus triggering the 180-day period to file a charge. The Court rejected Ms. Ledbetter's argument that the issuance of each paycheck based on an allegedly discriminatory pay decision made outside of the statutory charging period resulted in a continuing violation of Title VII. The Dissent argued that the unlawful practice under Title VII was the "current payment of salaries infected by gender-based (or race-based) discrimination," even if the "infection" occurred long before the plaintiff filed a Charge. The Dissent called upon Congress to correct the Court's "parsimonious reading of Title VII." Congress took up the issue last year. President Obama co-sponsored similar legislation when he was in the Senate. The First Lady, Michelle Obama, said, at a press conference following the signing of the Act into law, that this legislation was a priority for the Administration in its first 100 days.
Act Covers More Than Just Title VII Claims
The new law amends Title VII of the Civil Rights Act of 1964. The changes, however, don't stop there. It also amends the Americans with Disabilities Act of 1990 (which was already amended significantly as of January 1, 2009), the Rehabilitation Act of 1973, and the Age Discrimination in Employment Act of 1967 to provide that the charge-filing periods (300 days in most states and 180 days in states that do not have a fair employment agency) would commence when: (1) a discriminatory compensation decision or other practice is adopted; (2) an individual becomes subject to the decision or practice; or (3) an individual is affected by an application of a discriminatory compensation decision or practice (including each time wages, benefits, or other compensation is paid). In other words, with regard to the third option, the statute of limitations restarts each time an employee receives a paycheck based on an alleged discriminatory compensation decision. The claimant in these cases still has to prove his/her discrimination claim but claims that were once time barred will now be permitted to proceed.
Who Can File a Claim? May Not be Limited to Just Employees
In addition, to those changes, the Act provides that an unlawful employment practice occurs when "a person" is affected by a discriminatory pay decision or practice. This broad language could open to door to pay discrimination charges filed by non-employees, such as the spouses or other family members, so long as those individuals claim they have been affected by the employer's discriminatory practice. The House of Representatives rejected an amendment that would have restricted the law's application only to employees. It remains to be seen how the EEOC and the courts interpret this language. Employer groups are puzzled with how to reduce the likelihood of claims from non-employees. Approaches will surely be developed and refined in the months ahead.
Law is Retroactive and Will Impact Pending Claims
If these changes weren't challenging enough, the new law is retroactive to May 28, 2007, the day before the Ledbetter decision was issued by the Supreme Court. The Act applies to all pay discrimination claims pending on or after that date. This type of retroactive application is not commonplace and it presents many additional challenges for employers. Attempts in the Senate to amend the bill to change the effective date so that the law would apply only to claims arising after its enactment were debated extensively, but they failed. This could cause individuals who had refrained from filing compensation discrimination claims in the 20-month period since Ledbetter to proceed with litigation. It could increase potential liability for damages and pending claims may now be amended. Finally, claimants whose cases were dismissed on statute of limitations grounds after the Supreme Court's decision in Ledbetter may now reassert their claims. While there is a fair amount of uncertainty with the scope and implications of this Act, one thing is clear, there will be more litigation in this area of law.
How Employers Should Respond to These Changes
Given these changes to the law and the many challenges ahead for employers, rather than wait for and respond to a wage or discrimination claims under this new law, employers should consider some proactive steps including, but not limited to:
Check Documentation Supporting Pay Decisions: Employers should consider auditing their pay practices to ensure there is sufficient documentation supporting compensation decisions. Business related reasons (e.g. performance based criteria or policies, disciplinary records and performance assessments) underlying such decisions will be more important than ever as they will be needed to defend against a wage disparity claim.
Expand Record Retention Systems: Most employers currently maintain pay records and supporting documents for four (4) years (a year beyond state and federal wage law statutes of limitation). Given that claims could conceivably reach back several years, employers need to develop a system for the long-term record retention of pay and related records.
Train and Monitor Supervisors and Managers: Problems with workplace harassment, performance evaluations and disciplinary documentation usually arise at the supervisory level. Employers need to make managers aware of their role in the performance assessment and compensation process. Their compliance should also be monitored to avoid problems.
Look at General Release Provisions: While the scope of these changes is not yet known, employers should consult with their legal counsel and consider general release agreements that include an employee's family and heirs as parties covered by those release provisions.
Conclusion
This is not the first, nor is it the last, challenge employers will face from this Congress and Administration. The impact of the Ledbetter Act won't be known for some time but employers should seriously consider taking affirmative steps now to identify and clean up any weaknesses or deficiencies in their compensation and related policies and systems.
Stay tuned!
This article is intended to serve as a summary of the issues outlined herein. While it may include some general guidance, it is not intended as, nor is it a substitute for, legal advice. Your receipt of Good Company or any of its individual articles does not create an attorney-client relationship between you and Sheehan Phinney Bass + Green or the Sheehan Phinney Capitol Group. The opinions expressed in Good Company are those of the authors of the specific articles.
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