SC Lawyer, September 2009, #3. The Lilly Ledbetter Fair Pay Act: What Employers Need to Know.

• Author: By Stephen Dellinger and William K. Brumbach III

South Carolina Lawyer

2009.

SC Lawyer, September 2009, #3.

The Lilly Ledbetter Fair Pay Act: What Employers Need to Know

South Carolina LawyerSeptember 2009The Lilly Ledbetter Fair Pay Act: What Employers Need to KnowBy Stephen Dellinger and William K. Brumbach III After making Lilly Ledbetter a frequent topic during campaign speeches and an honored guest at his inauguration, President Obama demonstrated his commitment to expanding the scope of the federal anti-discrimination laws by signing The Lilly Ledbetter Fair Pay Act in January 2009. Pub. L. No. 111-2, 123 Stat. 5 (2009). It was the first bill that President Obama signed into law. Though the issue that the Act addresses-how strictly courts should enforce the statute of limitations in pay discrimination cases-may appear somewhat arcane, employers must understand and react to this new law that promises to provoke a rash of litigation over pay determinations that employers made long ago. The Act will also render employers liable far into the future for decisions they make today. Thus, employers must take steps to limit their exposure to liability for pay determinations made in the past, and they must implement practices that limit exposure for decisions made today or in the future.

I. Pay Discrimination Law Before and After the Ledbetter Act

The Ledbetter Act changes the way courts administer the statute of limitations applicable to pay discrimination claims based on sex, race, color, religion, national origin, age or disability. The statute of limitations for filing those charges is 300 days in states with state agencies that enforce anti-discrimination laws in conjunction with the Equal Employment Opportunity Commission (EEOC). In states without such agencies, the statute of limitations is 180 days. After the statute of limitations has run, a person who has suffered discrimination may not file a suit, bring an agency charge or challenge the discrimination in any way. In 2007, the U.S. Supreme Court issued a holding in Ledbetter v. Goodyear Tire & Rubber Co., Inc., 550 U.S. 618 127 S.Ct 2162 (2007), that imposed a strict application of that statute of limitations. The Ledbetter Act is Congress's response to Ledbetter and a relaxation of the way in which that statute of limitations is applied.

A. The Supreme Court's holding in Ledbetter v. Goodyear Tire & Rubber Co., Inc.

Lilly Ledbetter worked at Goodyear's plant in Gadsden, Alabama, from 1979 until 1998. Shortly after retiring, Ledbetter filed a charge with the EEOC, alleging that Goodyear paid her less than her male counterparts. The case proceeded to trial where Ledbetter proved that, throughout her tenure at Goodyear, the company had given her unfavorable performance reviews because of her sex and that her wages were reduced as a result of those discriminatory reviews. Unfortunately for Ledbetter, Goodyear had given none of the discriminatory reviews or made any of the discriminatory pay decisions within the 180-day statute of limitations period that commenced on the date of each discriminatory pay decision. Therefore, Goodyear argued that Ledbetter should not be permitted to recover for any of the discriminatory pay decisions even though she continued to be affected by those decisions when she received paychecks within the 180 days preceding her charge.

In a 5-4 decision, the Supreme Court accepted Goodyear's argument and held that Ledbetter's charge was untimely because she failed to file it within 180 days of a discriminatory pay decision. The Court considered and rejected Ledbetter's argument that her charge was timely so long as it was filed within 180 days of the date on which she received a paycheck that was based on a discriminatory decision. Therefore, under Ledbetter, an employee who failed to challenge a discriminatory pay decision within 180 or 300 days (depending upon whether the state has a state enforcement agency) of the date the discriminatory decision was barred from challenging that decision, even if the effects of the decision extended into the applicable statute of limitations period.

Justice Ginsburg, joined by three other Justices, wrote a strong dissent, which she read from the bench when the Court announced its decision. Justice Ginsburg concluded her dissent by stating that "the ball is in Congress' court" and calling upon Congress to amend the anti-discrimination statutes in order "to correct this Court's parsimonious reading of [those laws]."

B. Congress's response: The Lilly Ledbetter Fair Pay Act of 2009

Congress answered Justice Ginsburg's call with the Lilly Ledbetter Fair Pay Act of 2009. Congress accused the Supreme Court of "impair[ing] statutory protections against discrimination in compensation that have been bedrock principles of American law for decades" and "ignor[ing] the reality of wage discrimination." To rectify this perceived error, Congress passed the Ledbetter Act, which states that the statute of limitations on a charge of pay discrimination begins anew whenever one of the three following events occur:

(1) An employer adopts a discriminatory pay decision or other practice;

(2) An individual becomes subject to a discriminatory pay decision or other practice; or

(3) An individual is affected by a discriminatory pay decision or other practice, which includes each time an individual receives pay that is reduced because of a discriminatory pay decision or other practice.

Congress also specified that the Act applies not only to pay discrimination based on sex, but also to pay discrimination based upon race, color, religion, national origin, age or disability. Perhaps the only pro-employer portion of the Act is the provision limiting liability for back pay to a period of two years preceding the date on which the charge was filed.

II. Avoiding and Defeating Pay Discrimination Claims in a Post- Ledbetter World

The Ledbetter Act affects employers in two significant ways. First, it exposes them to liability for long-ago pay determinations that may be supported by documents that no longer exist and made by managers who have long-since left the company. Second, it raises the stakes of the pay determinations that employers make each day because the Act allows liability for those decisions to extend far into the future, thereby rendering a suit over the decisions more likely. Employers should take steps to address each of these two effects of the Ledbetter Act.

A. Avoiding and defeating claims based on long-ago decisions and practices

To address the first effect of the Ledbetter Act-exposure to liability for pay determinations made long ago-employers need to assess their exposure to these claims and take steps to eliminate or reduce that liability. Employers should consider auditing employee wages to determine whether any protected class, or any individual employee, is underpaid compared to similarly situated employees. If the audit reveals potential issues, the employer should investigate the reasons for any pay discrepancies. Keeping in mind that a pay discrimination claim will focus on the underlying pay determination, not the mere presence of a pay discrepancy, the employer should determine whether the pay discrepancy can be explained by a well-documented pay decision that is based upon performance-based criteria. If the investigation fails to uncover a well-documented and valid reason for the pay discrepancy, the employer should consider possible options to minimize exposure for such issues. The employer should consult its counsel to determine the best manner in which to conduct such an audit and minimize potential exposure.

B. Implementing current practices that avoid future claims

To address the second effect-long-term exposure for current and future decisions-employers should re-examine their document retention policies to ensure that they retain adequate documentation of decisions affecting pay and that they retain such documentation for an adequate time period. Employers should retain documentation of every event that could affect an employee's pay, including the decision regarding initial compensation, rationale for pay increases, rationale for promotion decisions and all performance reviews. Further, employers should consider extending the time period for which they retain these documents. Under the Ledbetter Act, any decision affecting an employee's pay could be the subject of litigation for at least two years after the employee stops receiving compensation from the employer, possibly even compensation in the form of retirement benefits. Therefore, employers may be inclined to retain all documents pertaining to compensation decisions in perpetuity. But, employers should also consider that the cost of retaining documents in perpetuity could be exorbitant. These costs may not be justified. Therefore, until the EEOC or the courts provide additional guidance on document retention expectations, each employer should undertake a cost/benefit analysis with the understanding that the Ledbetter Act greatly extends the time period during which employers may be called upon to justify compensation decisions.

Employers also should take steps to make their compensation decisions more easily defensible long into the future, when the decision makers may be unavailable. To that end, employers should institute objective, easily documented criteria for compensation and promotion decisions. If employers do wish to maintain subjectivity, they may wish to centralize these decisions in an attempt to create more consistency. Further, in order to prevent one bad decision from affecting pay for years to come, employers may wish to compensate strong performance with a one-time bonus rather than a pay raise that would be carried over from year to year.

III. Conclusion

The Ledbetter Act will inevitably lead to an increase in the number of pay discrimination claims that employers will be required to defend. By taking steps designed to prevent claims based upon long-ago pay determinations and to facilitate the defense of claims challenging current pay determinations, employers can mitigate the effects of this potentially problematic legislation.

Stephen Dellinger is a shareholder in the Charlotte office and William K. Brumbach III is an associate in the Columbia office of Littler Mendelson, PC.