Ledbetter Act Requires Employer Action Now

By: MARY M. KRAKOW

April 2009

The Lilly Ledbetter Fair Pay Act of 2009 became law when signed by President Barack Obama on January 29, 2009 (Ledbetter Act). While relatively short in length, the Ledbetter Act has broad application for employers and likely will result in significantly more wage discrimination claims going forward. At minimum, and as explained in more detail below, the Ledbetter Act means employers need to conduct a privileged audit of their compensation practices to identify and resolve any potential discriminatory pay issues. Employers also need to review their procedures for setting employee compensation, both upon hire and during employment, to ensure that those decisions are non-discriminatory, and must create and maintain documentation showing that to be the case.

Background

The Ledbetter Act is named after Lilly Ledbetter, a female, former production supervisor at a Goodyear plant in Alabama. Ledbetter worked at Goodyear from 1979 until her retirement in 1998. In March 1998, Ledbetter filed a claim of sex discrimination against Goodyear under Title VII of the Civil Rights Act of 1964 (Title VII) claiming, among other things, that she had been paid less than her male colleagues throughout her employment based on discriminatory decisions going back to nearly the time of hire. At trial, the jury ruled for Ledbetter (Ledbetter’s salary had been up to 40 percent lower than that of the lowest-paid male supervisor) and awarded Ledbetter $3 million in damages, which was reduced by the court to $300,000 in accordance with Title VII’s damages cap (juries are not informed of the mandatory statutory cap during their deliberations).

Goodyear appealed the case to the Eleventh Circuit Court of Appeals, which overturned the jury’s ruling based solely on finding that Ledbetter had filed her discrimination claim too late, leaving Ledbetter with zero in damages. More specifically, the Eleventh Circuit said that Ledbetter’s discrimination claim was time-barred because she had filed her claim more than 180 days after the last discriminatory pay decision. The applicable statute of limitations (SOL) for Title VII cases in Alabama is 180 days. In Minnesota, Wisconsin, and some other so-called deferral states, the applicable SOL is 300 days.

Ledbetter appealed the Eleventh Circuit’s ruling to the U.S. Supreme Court and, in 2007, the Supreme Court upheld the ruling, finding in favor of Goodyear and against Ledbetter.

The decision before the Supreme Court was whether the 180 days SOL ran (1) from the date of the last decision setting a discriminatory wage or (2) from the date of any paycheck that was negatively affected by any prior discriminatory pay decision, meaning each paycheck starts a new 180‑day SOL (the “paycheck accrual” rule). The Supreme Court ruled that the first approach was correct. Since every pay decision that Ledbetter claimed was discriminatory had occurred much more than 180 days before she first filed her claim, her claim was time-barred and dismissed.

The Ledbetter Act

The Ledbetter Act amends the SOL for compensation discrimination claims under four laws: Title VII, which prohibits discrimination based on race, color, national origin, religion, and sex; the Age Discrimination in Employment Act, which prohibits discrimination against employees age 40 and over; and the Americans with Disabilities Act and the Rehabilitation Act, both of which prohibit discrimination based on disability.

Per the Ledbetter Act, discrimination as to compensation occurs at three possible times:

• “[W]hen a discriminatory compensation decision or other practice is adopted”;

• “[W]hen an individual becomes subject to a discriminatory compensation decision or practice”; or

• “[W]hen 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.”

It is the third possibility—when an individual is affected by application of a discriminatory compensation decision or other practice—that will, in effect, reset the 180-day (or 300-day, if applicable) SOL with each paycheck or receipt of benefits.

The Ledbetter Act is retroactively effective to May 28, 2007, the day before the Supreme Court issued its ruling in the Ledbetter case. This means that the law applies to claims of compensation discrimination under all four laws going back to May 28, 2007.

The Ledbetter Act does not alter the two-year limit for potential back pay recovery, but other remedies, such as punitive and emotional distress damages, are also available to successful plaintiffs under all four statutes.

Practical Effects for Employers

The Ledbetter Act makes it possible for employees to file compensation discrimination claims based on a decision regarding pay or benefits that was made years, and possibly even decades, earlier if the employee’s current pay or benefits are still negatively affected by the decision. For example, under the Ledbetter Act a 20‑year employee is allowed to file a claim within 180 days (or 300 days, if applicable) of his or her most recent paycheck alleging that the paycheck is less than it should have been because of race, national origin, color, gender, religion, age, or disability discrimination by the employer in setting the employee’s initial salary when first hired 20 years earlier. To defend against the claim, the employer will want the personnel records from 20 years ago showing the job-related factors on which the employee’s initial pay level was set, presuming such documentation was created.

As a result, the practical effects for employers of the Ledbetter Act are many. Going forward:

1. Employers should, under the direction of an attorney to protect the attorney-client and work product privileges, audit their current compensation and benefits practices and policies—including, for example, how base salary, bonus potential, stock options, and other benefit levels are set upon hire—and, with legal counsel, determine steps to resolve any issues. The attorney-client and work product privileges are needed to the fullest extent available to protect against creating evidence that can be discovered by plaintiffs in a subsequent legal claim.
2. Employers also should, again under the direction of an attorney for the same reasons, audit current compensation and benefits of employees to ensure that any pay or benefits differences among employees in the same or similar jobs are the result of legitimate, job-related reasons such as experience, training, job-related education, ability, shift differentials, job-classification systems, and market factors and that any such reasons are adequately documented.
3. Employers should review their practices and policies regarding documentation of compensation and benefits decisions and, as necessary, implement new documentation requirements and recordkeeping systems to both (a) capture job-related reasons for compensation and benefits decisions and (b) retain that documentation throughout the employee’s employment and at least three years beyond termination (which is the SOL for other wage claims that can be brought under the Fair Labor Standards Act). Lack of such documentation will no doubt significantly hamper an employer’s ability to effectively defend against allegations of compensation discrimination.

Companies with questions about conducting a compensation and benefits audit are encouraged to contact the author or another Fredrikson & Byron employment attorney.

Takeaway

The Ledbetter Act may result in significantly more compensation discrimination claims against employers for decisions made long ago. To prepare, employers should conduct privileged audits of their pay and documentation practices and make any necessary changes now.