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Congress Passes Controversial Lilly Ledbetter Fair Pay Act

February 2, 2009

On January 27, 2009, the U.S. House of Representatives, on a mostly party-line vote, passed the Lilly Ledbetter Fair Pay Act of 2009, making it easier for employees to sue for pay discrimination under Title VII of the Civil Rights Act of 1964 and various other employment laws. The bill, which passed the Senate earlier that day by a vote of 61-36, overturns a controversial 2007 U.S. Supreme Court decision. As the first bill signed into law by President Obama, its passage presages the likelihood of more, similarly dramatic, pro-employee changes in federal employment law in the coming year.

The decision that was eviscerated by the new Fair Pay Act, Ledbetter v. Goodyear Tire & Rubber Co., Inc., concerned the issue of when Title VII’s statute of limitations begins to run in a pay discrimination case. As a general rule, an employee must file a Title VII charge within 180 or 300 days (depending on the state where the charge is filed) of the disputed employment decision. Untimely charges normally are barred by this statutory time limit. Ledbetter claimed that although she had worked for the company for almost two decades, she did not become aware of Goodyear’s alleged discriminatory treatment of her until she was about to retire. Thus, she did not (and according to her, could not) file her charge until long after the 180/300-day statute of limitations had run. She therefore argued that the Court should treat each paycheck she received after the initial allegedly discriminatory pay decision as a separate act of discrimination. Under her argument, then, the most recent decision of denying her a raise would be unlawful because it accumulated intentionally discriminatory disparities from prior years.

In a contentious 5-4 decision, the Supreme Court rejected Ledbetter’s argument, holding that Title VII’s statute of limitations begins to run when the “allegedly discriminatory pay decision was made and communicated to her.” In other words, the Court required an employee to file a Title VII discriminatory pay charge within 180/300 days after she receives her first paycheck based on the allegedly discriminatory pay decision. 

As we discussed in our original report on the Ledbetter decision, Justice Ruth Bader Ginsburg, in a sharply worded dissenting opinion, chastised the majority for its “cramped” interpretation of Title VII, and for ignoring “the realities of the workplace,” including the fact that “compensation disparities are often hidden from sight,” and therefore employees often do not know what their colleagues are being paid. Moreover, Ginsburg reasoned, differences in pay raises among employees may initially be inconsequential and may only become significant over many years. Ginsburg noted that Ledbetter had been hired at the same salary as her male counterparts, but over the years received smaller raises. Thus, by the time she filed her lawsuit, Ledbetter was earning roughly 40 percent less than some of her male counterparts.  In light of these “realities,” Justice Ginsburg urged Congress to pass legislation nullifying the majority’s “parsimonious reading of Title VII.”

Democrats in Congress quickly heeded Ginsburg’s call to action and introduced the Lilly Ledbetter Fair Pay Act. Though it eventually was passed by the House, it was blocked by Republicans in the Senate on April 23, 2008. Then-President Bush had said he would veto the measure if it passed.

The proposed legislation gained notoriety again during the 2008 presidential election. Then-Senator Obama, a co-sponsor of the bill, and Congressional Democrats promised to get it passed, while Senator McCain declared his opposition to the measure.

True to their word, House Democrats made passage of the Fair Pay Act a priority when the 111th Congress convened earlier this month. Specifically, the new law amends Title VII, and amends or modifies the Age Discrimination in Employment Act (ADEA), the Americans with Disabilities Act (ADA) and the Rehabilitation Act, to “clarify” that a discriminatory compensation decision or other practice that is unlawful under these statutes occurs when:

  • A discriminatory compensation decision or other practice is adopted;
  • An individual becomes subject to a discriminatory compensation decision or other practice; or
  • 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.”

Thus, the Fair Pay Act allows pay discrimination claims to be filed within 180/300 days of the issuance of a discriminatory paycheck, regardless of how long ago the actual compensation decision was made. Moreover, the law applies to all Title VII pay claims, including those alleging discrimination on account of race and national origin, as well as to those alleging age and disability bias under the ADEA and ADA, respectively.

Notably, the version of the Lily Ledbetter Fair Pay Act originally sent to the Senate  included another measure both President Obama and the Congressional Democrats are eager to enact – The Paycheck Fairness Act (PFA). More sweeping in scope than the Ledbetter law, the PFA would amend the Fair Labor Standards Act (FLSA) to provide greater remedies for pay discrimination under the Equal Pay Act (EPA) (which itself is an amendment to the FLSA). Specifically, the PFA would, among other things:

  • Expand potential damages for EPA claims by permitting recovery of unlimited compensatory and punitive damages, as well as expert witness fees;
  • Make it more difficult for employers to defend an equal pay claim by requiring them to justify a pay disparity on the basis of a “bona fide factor other than sex” (as opposed to the current “any other factor other than sex”), such as education training or experience. The employer would have the burden of showing that the factor relied on (1) is not derived from a sex-based differential in compensation; (2) is job-related with respect to the position in question; and (3) furthers “a legitimate business necessity.” A plaintiff, however, would be able to overcome this defense by demonstrating that an alternative employment practice exists that would serve the same business purpose without producing the disputed differential and that the employer has refused to adopt such alternative practice;
  • With limited exceptions, prohibit retaliation against employees who discuss their compensation with co-workers;
  • Permit class actions under the more employee-friendly rule used in Title VII cases, which automatically includes all putative class members in the class action unless they affirmatively opt out of the lawsuit. Currently, EPA actions are subject to the FLSA’s “collective action” rule, under which individuals who want to be part of a class action must affirmatively consent to join the lawsuit. Not surprisingly, “opt-out” class actions tend to consist of larger numbers of class members than do “opt-in” collective actions;
  • Direct the EEOC and the OFCCP to implement training programs on employees’ rights under the Act and direct the Secretary of Labor to develop a grant program for “negotiation skills training programs for girls and women;” 
  • Direct the Secretary of Labor to develop employer guidelines on how to evaluate job categories based on “objective criteria;”
  • Direct the EEOC to conduct a survey of currently available pay data and issue regulations to provide for the collection of pay information data from employers as described by the sex, race, and national origin of employees; and
  • Reinstate the Equal Opportunity Survey and other pay equity programs.

Though the House version containing the Paycheck Fairness Act was sent to the Senate, the Ledbetter bill voted on and passed by that body omitted the PFA provisions. The Senate version was then immediately returned to the House where it easily passed. Employers, however, should expect House Democrats to act on the PFA in the coming months, if not weeks. A delay in House action on the bill would likely mean that Senate Democrats do not believe that they have sufficient votes to get the legislation passed in its current form.

The Lilly Ledbetter Fair Pay Act is available at http://www.govtrack.us/congress/bill.xpd?bill=s111-181. The original House version, containing the Paycheck Fairness Act is available at http://www.govtrack.us/congress/billtext.xpd?bill=h111-11.

Bottom Line

The Lilly Ledbetter Fair Pay Act is effective “as if enacted on May 28, 2007,” the date of the Supreme Court’s decision in the Ledbetter case, and applies to all claims of discrimination in compensation under Title VII, the ADEA, the ADA and the Rehabilitation Act that were pending on or after that date. Thus, employers who may have relied on the Ledbetter ruling in developing policies or making compensation decisions should carefully review those policies or decisions to ensure that they comply with the new law, and all employers should review any compensation policies or practices that may be affected by the Fair Pay Act.

Finally, in anticipation that the Paycheck Fairness Act may, in some form, soon become law, all employers should ensure that their compensation decisions and practices, particularly any policies concerning employee communications involving salary matters, are consistent with that proposed legislation as well.