Title VII Disparate Pay Claims

Under Title VII, employees have 180 days from the date of an alleged violation to file a discrimination charge with the Equal Employment Opportunity Commission ('EEOC') if they work in a state that does not have a state or local administrative agency authorized to remedy violations. If an employee works in a state with such an agency, the employee must file a charge within 300 days of an alleged Title VII violation. Therefore, the battle is over how to apply Title VII's short statute of limitations period.

Ledbetter's Path to theU.S. Supreme Court

Lilly Ledbetter, a former area manager at a Goodyear Tire plant in Alabama, sued her employer under Title VII, alleging she received lower pay than her male counterparts as a result of sex discrimination. Ledbetter waited until after she retired from Goodyear Tire to sue, claiming she received paychecks within the 180-day statutory period that were the result of discriminatory pay decisions. Notably, those pay decisions were all based on annual salary reviews made prior to the applicable 180-day statutory period, and covered her 19-year career at the plant. Ledbetter sued in Alabama federal district court in 1999, claiming sex discrimination, age discrimination and retaliation under several federal statutes. Only her Title VII claims proceeded to trial. On the disparate pay claim, the jury was permitted to consider pay decisions dating back to 1979 because Ledbetter's 1998 paychecks reflected all the pay decisions made during the course of her employment. The jury returned a verdict favoring Ledbetter on her disparate pay claim, awarding damages exceeding $3.8 million ' later reduced to $360,000 ' plus attorneys' fees and costs.

Goodyear appealed. The Eleventh U.S. Circuit Court of Appeals reversed, finding that pay claims are discrete acts. It held that the statute of limitations ran from the date the employer made the pay decision, not from the date the employer issued a paycheck reflecting the pay decision. Accordingly, the appeals court only considered Goodyear's 1997 and 1998 pay decisions, based on written performance evaluations, and found no evidence of sex discrimination.

The Eleventh Circuit went on to state that, in disparate pay cases where the employer has a system for periodically reviewing and re-establishing employee pay, an employee may reach outside the limitations period no further than the last pay decision immediately preceding the start of the limitations period. The court then added it was not holding that an employee may reach back to the last pay decision preceding the start of the limitations period, only that an employee may reach back no further. Ledbetter petitioned the U.S. Supreme Court for review. The Court granted certiorari in June 2006.

Where to Draw the Line

Prior court precedent and policy considerations play a major role in Ledbetter. In Amtrak v. Morgan, 536 U.S. 101 (2002), the Supreme Court held that the limitations period under Title VII begins to run when an employer commits a discrete act of discrimination. Goodyear Tire argues there is no basis for treating pay decisions differently from other discrete acts. Goodyear also points to Supreme Court cases arguing that events occurring outside the limitations period, but whose effects are presently felt, are nothing more than unfortunate events in history with no present legal consequences.

Ledbetter and employee groups counter by pointing to cases such as Bazemore v. Friday, 478 U.S. 385 (1986) for support, noting that receipt of each paycheck can be actionable under Title VII. Goodyear Tire and employers have tried to limit Bazemore to its facts, as it involved a discriminatory pay structure rather than a facially neutral compensation system. On the policy side, the struggle is between the competing interests of employees, who face illegal pay discrimination in perpetuity if they do not promptly challenge an initial discriminatory decision, and employers who wish to avoid stale claims. Employees argue that they do not always know they are victims of discrimination, given the often hidden nature of compensation systems.

The Potential Impact on Employers

If Goodyear Tire prevails in Ledbetter, employers can rely on the certainty associated with statutes of limitation; they will not be required to defend against stale claims of disparate pay. Employers, therefore, can focus on ensuring that current pay practices are non-discriminatory, avoiding the need to revisit all pay decisions made during an employee's career.

If Ledbetter wins, however, the potential fallout for employers is significant. Management may have to defend against a slew of disparate pay claims going back years. They may also need seriously to consider retaining documents for the course of an employee's career, or longer in certain instances, to access evidence they may need at a later date. Other potential obstacles are out of employers' control: mobility of the workforce, deceased or otherwise unavailable witnesses, faded memories and lost or destroyed documentation.

The Value of a Solid Performance Evaluation System

One of the key lessons to be learned from Ledbetter, regardless of its outcome, is that employers must pay attention to their performance evaluation systems ' frequently used to determine wage decisions. It is true that no reasonable amount of monitoring guarantees employers will pick up every bias that may have influenced an employee's evaluation years ago. Nevertheless, employers can and should take certain steps to minimize their risk exposure to disparate wage claims.

Design a Facially Neutral System. This is the place to head off most problems. Take a fresh look at your performance evaluation system, in addition to verifying all evaluative criteria are job-related. Determine if they accurately reflect an employee's job functions and, where appropriate, compliance with important company policies such as equal employment opportunity (EEO) laws, workplace safety and attendance/tardiness. The bottom line is that evaluation criteria must not be premised on unlawful considerations of gender, race, national origin, religion, age, disability or any other protected status. If any unlawful bias is found, management must promptly correct pay disparities for those adversely affected by unlawful considerations. Many, if not most, performance evaluation systems today will pass the threshold test of facial neutrality ' just like the system in Ledbetter. Therefore, the focus will be implementing and monitoring the performance evaluation system.

Train Evaluators. Often, the people doing the evaluating either do not understand how to do a proper evaluation, or they let their biases influence the process. As a result, the breakdown in performance evaluation systems frequently occurs. Effective training of evaluators can reduce this risk. As a starting point, evaluators should be people familiar with the employee's job duties and actual performance. This is necessary for a meaningful evaluation, but also focuses the evaluator on job content and reduces conscious and/or unconscious bias. Also, management should institute formal training for evaluators, including the role of EEO laws and awareness of unlawful biases potentially influencing the evaluation process. To be effective, the training should highlight unlawful factors that cannot play a role, such as sex, race, national origin, religion, age, disability or any other protected status. It is vital to recognize the impact of unduly harsh or lenient evaluations, as they can open the door for bias or, at the every least, the perception of bias. Also emphasize the focus on performance, not personality. Finally, caution evaluators about the potential exposure that results when evaluators 'take the easy way out' by rating poor performers as satisfactory to avoid confrontation.

Require Next-Level Management Review. Checks and balances are key to implementing a performance evaluation system successfully. Perhaps the quickest way to catch any bias is to require that the evaluator's manager review all evaluations. The manager can ensure that evaluations are based on objective data where possible and that subjective portions are free from any apparent unlawful bias. Accordingly, this tier of managers should also receive formal training on the proper way to do performance evaluations.

Specify the Reason for Each Wage Adjustment. While no system is perfect, linking merit-based wage adjustments to performance evaluations provides a visible, written and hopefully objective basis for the decisions. Wage adjustments also may be linked, from time to time, to market conditions. For instance, an employer may raise the wages of employees with more longevity to equal the wages of newer employees who were able to command higher wages due to market conditions, as opposed to experience. Management should document these adjustments separately from merit-based adjustments. Companies also should advise employees of the basis for all wage adjustments, including cost-of-living modifications. Good communication is necessary to avoid the appearance that a particular wage adjustment is in recognition of superior performance 'especially if the employee's performance is only average.

Communicate with the Employee under Evaluation. Communication is critical in all employee relations matters, and the performance evaluation process is no exception. Companies should provide employees with advance notice of employer's expectations and evaluation criteria, and then sit down with each employee and go over the evaluation. Employees also should be given an opportunity to comment on their evaluations. Effective communication here promotes understanding between management and the employee. While it does not guarantee that employees will agree with their evaluations, open communication does reduce the likelihood that an employee will view the evaluation process as unlawful.

Monitor the System. Evaluators and reviewers will come and go, and some are more critical of employees than others. Accordingly, management should have a means of monitoring their performance evaluation system at yet another level, both on a yearly basis and over time. Higher-level management or Human Resources managers can provide this additional check ' another way to capture and correct any bias potentially influencing evaluations and consequently wage decisions. It also educates the administration about how the performance evaluation system is being implemented. While adding this additional step is clearly time-consuming, a spot check of evaluations generally is the realistic way to approach monitoring. Those involved should focus on consistency within job categories and among similar types of jobs, and then compare wage decisions, promotions, demotions and transfers tied to performance evaluations.

Conclusion

Hopefully, the U.S. Supreme Court in Ledbetter will recognize workplace realities and follow prior Supreme Court precedent, holding that employers cannot be held liable for the current effects of past discriminatory pay decisions. In the meantime, while there is certainly no magic wand for removing all bias from the performance evaluation process, especially going back in time, employers can remain focused on reducing their risk exposure. The key is being proactive in managing the process.

Debra S. Friedman is a member of Cozen O'Connor, practicing in the Labor & Employment Practice Group in Philadelphia. She has 14 years of experience in litigating and counseling employers on discrimination claims. She may be reached at http://www.lawjournalnewsletters.com/Admin/cgi-bin/udt/dfriedman@%20cozen.com.

The U.S. Supreme Court is currently considering a case of great importance to employers, Ledbetter v. Goodyear Tire & Rubber Co., Inc. It will decide when the statute of limitations begins to run under Title VII of the Civil Rights Act of 1964 (as amended) ('Title VII') for certain types of disparate pay claims.

Most employers have compensation systems that are non-discriminatory on their face. However, even a lawfully designed system can be used as a tool for intentional discrimination if the evaluator misuses the process. Ledbetter presents the issue of whether the statutory clock begins to run when an employer utilizing a lawfully designed compensation system makes an allegedly illegal pay decision ' or whether the clock runs anew each time an employer issues a paycheck reflecting the allegedly discriminatory pay decision. The result will impact an employer's potential liability for intentional pay discrimination under Title VII.

Title VII

Under Title VII, employees have 180 days from the date of an alleged violation to file a discrimination charge with the Equal Employment Opportunity Commission ('EEOC') if they work in a state that does not have a state or local administrative agency authorized to remedy violations. If an employee works in a state with such an agency, the employee must file a charge within 300 days of an alleged Title VII violation. Therefore, the battle is over how to apply Title VII's short statute of limitations period.

Ledbetter's Path to theU.S. Supreme Court

Lilly Ledbetter, a former area manager at a Goodyear Tire plant in Alabama, sued her employer under Title VII, alleging she received lower pay than her male counterparts as a result of sex discrimination. Ledbetter waited until after she retired from Goodyear Tire to sue, claiming she received paychecks within the 180-day statutory period that were the result of discriminatory pay decisions. Notably, those pay decisions were all based on annual salary reviews made prior to the applicable 180-day statutory period, and covered her 19-year career at the plant. Ledbetter sued in Alabama federal district court in 1999, claiming sex discrimination, age discrimination and retaliation under several federal statutes. Only her Title VII claims proceeded to trial. On the disparate pay claim, the jury was permitted to consider pay decisions dating back to 1979 because Ledbetter's 1998 paychecks reflected all the pay decisions made during the course of her employment. The jury returned a verdict favoring Ledbetter on her disparate pay claim, awarding damages exceeding $3.8 million ' later reduced to $360,000 ' plus attorneys' fees and costs.

Goodyear appealed. The Eleventh U.S. Circuit Court of Appeals reversed, finding that pay claims are discrete acts. It held that the statute of limitations ran from the date the employer made the pay decision, not from the date the employer issued a paycheck reflecting the pay decision. Accordingly, the appeals court only considered Goodyear's 1997 and 1998 pay decisions, based on written performance evaluations, and found no evidence of sex discrimination.

The Eleventh Circuit went on to state that, in disparate pay cases where the employer has a system for periodically reviewing and re-establishing employee pay, an employee may reach outside the limitations period no further than the last pay decision immediately preceding the start of the limitations period. The court then added it was not holding that an employee may reach back to the last pay decision preceding the start of the limitations period, only that an employee may reach back no further. Ledbetter petitioned the U.S. Supreme Court for review. The Court granted certiorari in June 2006.

Where to Draw the Line

Prior court precedent and policy considerations play a major role in Ledbetter . In Amtrak v. Morgan , 536 U.S. 101 (2002), the Supreme Court held that the limitations period under Title VII begins to run when an employer commits a discrete act of discrimination. Goodyear Tire argues there is no basis for treating pay decisions differently from other discrete acts. Goodyear also points to Supreme Court cases arguing that events occurring outside the limitations period, but whose effects are presently felt, are nothing more than unfortunate events in history with no present legal consequences.

Ledbetter and employee groups counter by pointing to cases such as Bazemore v. Friday , 478 U.S. 385 (1986) for support, noting that receipt of each paycheck can be actionable under Title VII. Goodyear Tire and employers have tried to limit Bazemore to its facts, as it involved a discriminatory pay structure rather than a facially neutral compensation system. On the policy side, the struggle is between the competing interests of employees, who face illegal pay discrimination in perpetuity if they do not promptly challenge an initial discriminatory decision, and employers who wish to avoid stale claims. Employees argue that they do not always know they are victims of discrimination, given the often hidden nature of compensation systems.

The Potential Impact on Employers

If Goodyear Tire prevails in Ledbetter, employers can rely on the certainty associated with statutes of limitation; they will not be required to defend against stale claims of disparate pay. Employers, therefore, can focus on ensuring that current pay practices are non-discriminatory, avoiding the need to revisit all pay decisions made during an employee's career.

If Ledbetter wins, however, the potential fallout for employers is significant. Management may have to defend against a slew of disparate pay claims going back years. They may also need seriously to consider retaining documents for the course of an employee's career, or longer in certain instances, to access evidence they may need at a later date. Other potential obstacles are out of employers' control: mobility of the workforce, deceased or otherwise unavailable witnesses, faded memories and lost or destroyed documentation.

The Value of a Solid Performance Evaluation System

One of the key lessons to be learned from Ledbetter, regardless of its outcome, is that employers must pay attention to their performance evaluation systems ' frequently used to determine wage decisions. It is true that no reasonable amount of monitoring guarantees employers will pick up every bias that may have influenced an employee's evaluation years ago. Nevertheless, employers can and should take certain steps to minimize their risk exposure to disparate wage claims.

Design a Facially Neutral System. This is the place to head off most problems. Take a fresh look at your performance evaluation system, in addition to verifying all evaluative criteria are job-related. Determine if they accurately reflect an employee's job functions and, where appropriate, compliance with important company policies such as equal employment opportunity (EEO) laws, workplace safety and attendance/tardiness. The bottom line is that evaluation criteria must not be premised on unlawful considerations of gender, race, national origin, religion, age, disability or any other protected status. If any unlawful bias is found, management must promptly correct pay disparities for those adversely affected by unlawful considerations. Many, if not most, performance evaluation systems today will pass the threshold test of facial neutrality ' just like the system in Ledbetter. Therefore, the focus will be implementing and monitoring the performance evaluation system.

Train Evaluators. Often, the people doing the evaluating either do not understand how to do a proper evaluation, or they let their biases influence the process. As a result, the breakdown in performance evaluation systems frequently occurs. Effective training of evaluators can reduce this risk. As a starting point, evaluators should be people familiar with the employee's job duties and actual performance. This is necessary for a meaningful evaluation, but also focuses the evaluator on job content and reduces conscious and/or unconscious bias. Also, management should institute formal training for evaluators, including the role of EEO laws and awareness of unlawful biases potentially influencing the evaluation process. To be effective, the training should highlight unlawful factors that cannot play a role, such as sex, race, national origin, religion, age, disability or any other protected status. It is vital to recognize the impact of unduly harsh or lenient evaluations, as they can open the door for bias or, at the every least, the perception of bias. Also emphasize the focus on performance, not personality. Finally, caution evaluators about the potential exposure that results when evaluators 'take the easy way out' by rating poor performers as satisfactory to avoid confrontation.

Require Next-Level Management Review. Checks and balances are key to implementing a performance evaluation system successfully. Perhaps the quickest way to catch any bias is to require that the evaluator's manager review all evaluations. The manager can ensure that evaluations are based on objective data where possible and that subjective portions are free from any apparent unlawful bias. Accordingly, this tier of managers should also receive formal training on the proper way to do performance evaluations.

Specify the Reason for Each Wage Adjustment. While no system is perfect, linking merit-based wage adjustments to performance evaluations provides a visible, written and hopefully objective basis for the decisions. Wage adjustments also may be linked, from time to time, to market conditions. For instance, an employer may raise the wages of employees with more longevity to equal the wages of newer employees who were able to command higher wages due to market conditions, as opposed to experience. Management should document these adjustments separately from merit-based adjustments. Companies also should advise employees of the basis for all wage adjustments, including cost-of-living modifications. Good communication is necessary to avoid the appearance that a particular wage adjustment is in recognition of superior performance 'especially if the employee's performance is only average.

Communicate with the Employee under Evaluation. Communication is critical in all employee relations matters, and the performance evaluation process is no exception. Companies should provide employees with advance notice of employer's expectations and evaluation criteria, and then sit down with each employee and go over the evaluation. Employees also should be given an opportunity to comment on their evaluations. Effective communication here promotes understanding between management and the employee. While it does not guarantee that employees will agree with their evaluations, open communication does reduce the likelihood that an employee will view the evaluation process as unlawful.

Monitor the System. Evaluators and reviewers will come and go, and some are more critical of employees than others. Accordingly, management should have a means of monitoring their performance evaluation system at yet another level, both on a yearly basis and over time. Higher-level management or Human Resources managers can provide this additional check ' another way to capture and correct any bias potentially influencing evaluations and consequently wage decisions. It also educates the administration about how the performance evaluation system is being implemented. While adding this additional step is clearly time-consuming, a spot check of evaluations generally is the realistic way to approach monitoring. Those involved should focus on consistency within job categories and among similar types of jobs, and then compare wage decisions, promotions, demotions and transfers tied to performance evaluations.

Conclusion

Hopefully, the U.S. Supreme Court in Ledbetter will recognize workplace realities and follow prior Supreme Court precedent, holding that employers cannot be held liable for the current effects of past discriminatory pay decisions. In the meantime, while there is certainly no magic wand for removing all bias from the performance evaluation process, especially going back in time, employers can remain focused on reducing their risk exposure. The key is being proactive in managing the process.

Debra S. Friedman is a member of Cozen O'Connor, practicing in the Labor & Employment Practice Group in Philadelphia. She has 14 years of experience in litigating and counseling employers on discrimination claims. She may be reached at http://www.lawjournalnewsletters.com/Admin/cgi-bin/udt/dfriedman@%20cozen.com.