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On January 27, 2009, the House passed the Lilly Ledbetter
Fair Pay Act of 2009 (which was passed in the Senate as S. 181 on
January 22, 2009), clearing the way for President Obama to sign
the legislation into law, which is expected to occur today or tomorrow.
This new law will eliminate many statute of limitations defenses
to pay discrimination claims, including defenses that have proven
effective in defeating class certification of pattern or practice
pay discrimination claims. In light of this legislative development,
plaintiffs’ lawyers are likely to have renewed optimism about pay
discrimination claims, leading to more frequent filings and class
actions. The new law will allow plaintiffs to revive previously
time-barred claims and the publicity around the legislation likely
will encourage some employees who had not previously considered
bringing pay discrimination claims to do so.
Passage of the Lilly Ledbetter Fair Pay Act of 2009
is but one of a series of legislative and regulatory actions expected
from the Obama administration as it delivers on its campaign promises
of vigorous efforts to eliminate pay discrimination. The Senate
is also considering the Paycheck Fairness Act, which was voted out
of the House (H.R. 11). That legislation would amend the Equal Pay
Act to reduce employer defenses, add uncapped compensatory and punitive
damages, and permit mandatory or opt-out class actions under Federal
Rule of Civil Procedure 23 (as opposed to the current Equal Pay
Act enforcement regime, which requires absent class members to affirmatively
opt in to participate in the action). In addition, the Obama administration
is expected to step up enforcement against pay discrimination through
the EEOC and the OFCCP.
The Current Statute of Limitations for Pay Discrimination
Claims Under Title VII
In Ledbetter v. Goodyear Tire & Rubber Co.,
550 U.S. 618, 127 S. Ct. 2162 (2007), the Supreme Court ruled that
pay decisions constitute discrete employment actions and that disparate
treatment claims challenging pay disparities caused by such decisions
are timely only if the plaintiff files a charge within the normal
180/300-day charge-filing period beginning with notice of the pay
decision. 127 S. Ct. at 2165. The Court expressly rejected the so-called
“paycheck accrual rule” under which each new paycheck could be the
basis for a new claim of pay discrimination, even if the adverse
pay differential was caused by actions well outside of the charge-filing
period. 127 S. Ct. at 2167.
Revised Statute of Limitations Under the Lilly
Ledbetter Fair Pay Act of 2009
The Lilly Ledbetter Fair Pay Act of 2009 will legislatively
overturn the Supreme Court’s Ledbetter decision by amending Title
VII to provide that “an unlawful employment practice occurs, with
respect to discrimination in compensation . . . when a discriminatory
compensation decision or other practice is adopted, when an individual
becomes subject to a discriminatory compensation decision or other
practice, or when an individual is affected by application of a
discriminatory compensation decision or other practice, including
each time wages, benefits, or other compensation is paid, resulting
in whole or in part from such a decision or other practice.” The
critical change is that an unlawful employment practice occurs each
time an employer issues a paycheck that has been impacted by a prior
discriminatory pay decision, regardless of when that initial alleged
discriminatory pay decision was made.
By its terms, the new law will apply to “compensation
decisions or other practice,” which clearly includes decisions such
as starting pay, merit pay determinations, or performance reviews
under a performance-based pay system. Although the statutory term
“other practice” is undefined in the legislation, Senator Mikulski—the
floor manager for the legislation in the Senate—provided assurances
for the legislative record during the floor debates that the term
“other practice” was intended to apply to direct inputs into compensation
outcomes, such as performance ratings under a performance-based
pay system, job classification decisions, and work assignment decisions
under a geographic pay structure. However, the term “other practice”
is not designed to reach promotion, hiring, or termination decisions
that impact compensation levels only indirectly by affecting the
position an employee holds. Despite this legislative history, it
is likely that plaintiffs will attempt to argue that the term “other
practice” includes promotion or initial job placement decisions
and that this issue will be the subject of litigation. Plaintiffs
may also assert that “other practice” covers allegations that employers’
actions, such as failure to provide mentoring or training opportunities,
impacted their ability to earn more under production-based pay systems.
Senator Mikulski also made clear for the legislative
record that the new law was not intended to expand beyond the affected
employee, the EEOC, or DOJ—the class of individuals with standing
to sue for alleged pay discrimination. Finally, Senator Mikulski
clarified that there was no intent to displace existing equitable
defenses to stale claims such as the laches or waiver doctrines.
These equitable defenses will become critical under the new law
and may provide employers with arguments against class certification
of Title VII pay discrimination claims based on the individualized
proof necessary to resolve such defenses.
The new law will allow plaintiffs to recover back
pay and damages for unlawful wage disparities occurring up to two
years preceding the filing of the charge, “where the unlawful employment
practices that have occurred during the charge filing period are
similar or related to unlawful employment practices with regard
to discrimination in compensation that occurred outside the time
for filing a charge.” Thus, employers may be able to assert statute
of limitations defenses to back pay for some prior pay differences
premised on the fact that those prior pay differences were not caused
by unlawful employment practices that are “similar or related to”
the practices that caused pay differences during the charge period.
The terms “similar or related to” are not defined in the legislation
and litigation regarding the appropriate application of these terms
is likely.
The law also will apply to claims of pay discrimination
on the basis of age under the Age Discrimination in Employment Act
and on the basis of disability under the Americans with Disabilities
Act and the Rehabilitation Act.
Impact of the New Law
The law will apply retroactively to all claims pending
on or after May 28, 2007—one day before the Supreme Court issued
the Ledbetter decision. This means that the law will change the
rule of decision for any case in which a final judgment has not
yet been entered, including cases currently on appeal. However,
the law could not authorize the reopening of final judgments. Plaut
v. Spendthrift Farm, Inc., 514 U.S. 211, 225 (1995) (holding that
Congress lacks constitutional authority to retroactively alter the
final judgments of Article III courts).
The new law will be a major victory for plaintiffs’
lawyers. They will no longer have to contend with most statute of
limitations defenses, including defenses that were effective in
defeating class certification of pattern or practice pay discrimination
claims. Because the new legislation exposes employers to potential
liability for accumulated pay differences that emerged over an extended
timeframe—during which a variety of legitimate factors may have
accounted for each incremental pay difference—determining whether
significant pay disparities exist now becomes more complicated.
Employers should consider conducting a compensation risk assessment
to evaluate their potential exposure and to identify measures that
will reduce the risk of pay discrimination claims. Morgan Lewis
regularly assists clients with these privileged, internal audits,
relying on sophisticated statistical analyses of pay and personnel
data.
Examples of risk mitigation steps that may be recommended
as a result of a compensation risk assessment include (1) collecting
data on factors, such as prior work experience, that may be critical
in explaining the historical development of current pay differences;
and (2) revising pay systems, as permitted by business considerations,
to emphasize incentive or bonus payments instead of large base pay
increases and thereby avoid accumulation of pay differences over
time.
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