Lilly Ledbetter's Big Day and What it Means For Those You Pay

President Barack Obama called it a "wonderful" day, and it is certainly a day that will change the course of equal pay claims for employers nationwide. On Thursday, January 29, 2009, President Obama signed the first significant bill of his White House tenure, the Lilly Ledbetter Fair Pay Act ("FPA"). The FPA will significantly expand the time limits for employees filing claims alleging discriminatory pay.

The Law

The FPA amends four federal laws to declare that an unlawful employment practice related to discriminatory compensation occurs not only upon adoption of a discriminatory compensation decision or practice, but also when the individual becomes subject to the decision or practice, as well as each additional application of the decision or practice. The 180-day statute of limitations will now be extended on every occurrence of a discriminatory pay practice, including every issuance of a discriminatory paycheck. In other words, employees bringing equal pay claims under Title VII of the Civil Rights Act of 1964, the Age Discrimination in Employment Act (ADEA), the Americans with Disabilities Act (ADA), and sections 501 and 504 of the Rehabilitation Act of 1973, will have a new limitations period that begins with each paycheck. Interestingly, the FPA does not amend the federal Equal Pay Act which has been in effect since June 1963.

More importantly, the FPA takes effect as if enacted May 28, 2007 and applies to all compensation discrimination claims pending on or after that date.

The History

The FPA is a direct response to the United States Supreme Court’s ruling in Ledbetter v. Goodyear Tire & Rubber Company, 550 U.S. 618 (2007). In 1979, Ms. Lilly Ledbetter began working for Goodyear. When she retired in 1998, she claimed she was earning less than her male co-workers. In November 1999, Ms. Ledbetter sued for gender discrimination in violation of Title VII and the Equal Pay Act alleging that her employer had given her a lower salary because of her gender. An Alabama jury found for Ms. Ledbetter and awarded her $223,776 in backpay and $3.3 million in punitive damages, which the district judge later reduced to $360,000. The employer appealed and the case eventually landed before the Supreme Court. In its 5-4 decision authored by Justice Alito, the Supreme Court held that employees cannot challenge on-going pay discrimination if the employer’s original discriminatory pay decision occurred outside of the 180-day limitations period, even when the employee continues to receive paychecks that have been discriminatorily reduced.

There was a wide negative reaction to the Supreme Court’s decision. Ms. Ledbetter presented her story to the American public as a speaker at the Democratic National Convention in August 2008. Although the Ledbetter FPA stalled in Congress in 2008, it overwhelmingly passed in the opening sessions of 2009, with 61-36 vote in the Senate. Nearly ten years after her case was first filed, the 70-year-old Ms. Ledbetter looked on as President Obama signed the FPA into law.

The Reality

While the FPA retains some limits on employer liability by restricting back-pay awards to two years, it will nonetheless raise numerous concerns for employers. The FPA removes employers’ ability to argue that employees cannot complain about allegedly discriminatory pay scales that have been in place for lengthy amounts of time without any prior complaint. Employers should expect that disgruntled employees may suddenly complain about unequal pay, thereby creating a discrimination claim and a potential retaliation claim if adverse action occurs after the complaint. Accordingly, employers should look closely at their pay scales and pay increases to compare what is being paid to similarly-situated employees. Employers must be able to justify discrepancies in pay between older vs. younger, female vs. male, and other categories of protected classes on non-discriminatory factors. Such justification will require detailed and consistent documentation which is retained indefinitely. Finally, it is imperative that employers have policies in place that prohibit discriminatory pay and an open door policy for addressing such complaints.