The Lilly Ledbetter Fair Pay Act and What It Means for Employers

When is history simply that: “history”? Perhaps never under the Lilly Ledbetter Fair Pay Act, which sailed through the House and Senate in January and became the first piece of legislation signed into law by President Obama.

The Lilly Ledbetter Fair Pay Act (the “Ledbetter Act”) is Congress's response to the Supreme Court's May 2007 decision in Ledbetter v. Goodyear Tire & Rubber Co., Inc. It is a legislative “fix” intended to close the average, national pay gap between the sexes, by eroding statutes of limitations in civil rights-related compensation and benefits cases.

The Case

Lilly Ledbetter was employed by Goodyear Tire & Rubber Company for almost 20 years. For most of that time, she was employed as an area manager, a position mainly held by men. At some point she discovered through an anonymous tip from a coworker that she was being paid less than male supervisors doing substantially similar work. By Ledbetter's own admission, this chain of events had commenced many years earlier (well outside the statute of limitations period) and, in fact, Ledbetter sat on the information for another three years before she filed an EEOC charge. Her claim eventually was tried to a jury, which awarded Ledbetter significant back pay and damages as well as attorneys' fees and costs.

The Eleventh Circuit reversed the jury verdict, finding that Ledbetter's claim was time barred, a decision which the Supreme Court affirmed. In so doing, the Supreme Court relied upon a long line of cases standing for the proposition that the statute of limitations for a Title VII discrimination claim begins to run at the time the discriminatory act is undertaken, not when the effects of that decision are felt. (The statute of limitations ' often referred to as the “charge filing period” ' under Title VII, for example is 300 days in most states and 180 days in the handful of states that do not have a state fair employment agency.) As the Supreme Court recognized, Ledbetter did not assert that Goodyear acted with discriminatory intent when it issued her paychecks during the EEOC charging period. “Rather, she argue[d] that the paychecks were unlawful because they would have been larger if she had been evaluated in a nondiscriminatory manner prior to the EEOC charging period.” Justice Alito, writing for the 5-4 majority, “reject[ed] the suggestion that an employment practice committed with no improper purpose and no discriminatory intent is rendered unlawful nonetheless because it gives some effect to an intentional discriminatory act that occurred outside the charging period.” Because Ledbetter filed her claim years after the discriminatory decisions that affected her pay were made, the Supreme Court held Ledbetter's claim to be untimely.

What It Means

The Ledbetter Act undoes the Supreme Court's decision. It amends Title VII of the Civil Rights Act of 1964, the Age Discrimination in Employment Act of 1967, the Americans with Disabilities Act of 1990, and the Rehabilitation Act of 1973 to provide that a discriminatory act occurs each time compensation is paid, if such compensation has been impacted by a discriminatory decision or practice somewhere along the line.

The import of the Ledbetter Act is great. For purposes of this article, we focus on two primary impacts on employers. First, the Ledbetter Act codifies the so-called “paycheck rule,” effacing the statute of limitations period set forth in each amended Act. Second, it broadly applies to “wages, benefits, or other compensation,” which extends application of the Act to employer-sponsored benefit plans.

The codification of the “paycheck rule” certainly increases the potential for litigation. Under the Ledbetter Act, the statute of limitations essentially resets every time an employee is paid compensation that was based on a previous discriminatory decision, no matter how old the decision. This revives untold stale claims, potentially decades old, which previously would have been regarded as untimely. In other words, history is allowed to repeat itself, and repeat itself, and repeat itself ' while memories fade; witnesses leave, retire, or die; key documents are lost or recycled; and the underlying facts of a policy or event become increasingly difficult (and often impossible) to unearth. Moreover, there can be little doubt that this passage of time is more burdensome for employers than employees. Although it will be the employee's burden to prove that discrimination occurred some five, 10, 20, or even 30 years earlier, the employee will, no doubt, present his or her memory of events, and an employer may have little, if any, remaining evidence to rebut or defend against the employee's accusations.

Should You Modify Procedures?

Beyond these evidentiary concerns, employers likely will want to modify administrative procedures, such as document retention policies, so as not to lose evidence that could be useful decades in the future. Currently, many employers maintain such records (such as personnel files and documents reflecting compensation policies and decisions) until the applicable statutory periods have run. After passage of the Ledbetter Act, employers may be inclined ' and, perhaps, rightly so ' to retain such documents indefinitely, which leads to other issues, such as the costs associated with document storage, maintenance, and retrieval (a particularly significant concern with respect to electronically stored information).

Where records still exist, employers would be wise to perform an internal audit or review of past compensation decisions (including performance evaluations if they form the basis for raises and promotions) and take action, if appropriate, with respect to decisions that were potentially discriminatory ' if such discriminatory intent can be divined. Corrective actions could include (but would not be limited to) wage increases, back pay, and the amendment of seniority systems. (The Ledbetter Act caps back pay damages at two years prior to the filing of a charge.)

'Benefits, or Other Compensation'

It is also important to note that the Ledbetter Act extends beyond wages to “benefits, or other compensation.” Whether calculated or not, passage of the Ledbetter Act at the beginning of 2009 came at the precise moment the Supreme Court was reviewing a benefits case similar to Ledbetter. While an opinion is expected soon (oral argument was heard Dec. 10, 2008), passage of the Ledbetter Act may render the issue in AT&T Corp. v. Hulteen moot. AT&T Corp. v. Hulteen, (No. 07-543), available at: http://www.oyez.org/cases/2000-2009/2008/2008_07_543/ (last visited Monday, Feb. 9, 2009).

AT&T used a “Net Credited Service” (“NCS”) date as the system for calculating service credit for pension and retirement benefits. Prior to the passage of the Pregnancy Discrimination Act (the “PDA”) in 1978, AT&T and its predecessor companies treated pregnancy leave as personal leave and, therefore, allowed up to a maximum of thirty days of NCS credit, whereas employees on disability leaves received full service credit during their absences. As of April 29, 1979 (the effective date of the PDA), AT&T modified its service credit policy so that pregnancy leave was treated the same as other temporary disability leaves; however, it did not amend or restore service credit to those employees who had taken pregnancy leaves prior to that date. Women like Noreen Hulteen, who took pregnancy leave prior to passage of the PDA, did not receive full service credit for the time they were on leave. Failure to restore credit meant that such women subsequently received reduced pension benefits and lost preferential treatment relating to eligibility for early retirement and other benefits and programs, when compared with men (and women) who had not taken pregnancy leaves and with women who took such leaves after the PDA.

The question to be decided in AT&T Corp. v. Hulteen is whether the calculation of pension benefits based on the NCS system, which is, arguably, a facially neutral and nondiscriminatory system, is somehow converted into a discriminatory act by decisions that were made more than 30 years ago and at a time when those decisions were, in fact, legal.

The AT&T Corp. v. Hulteen debate highlights yet another key concern for employers and employees, alike: The Ledbetter Act may jeopardize the solvency of some employee benefit plans. Benefits calculations based on length of service, periods of leave, and compensation all may be subject to legal challenge if those underlying factors were arguably influenced ' at any time ' by discriminatory decisions.

Consequently, under the Ledbetter Act, the actual obligations of such plans (after being retroactively adjusted) may, in fact, substantially exceed the predicted obligations that were anticipated at the time of funding. This, coupled with the significant costs of recalculating plan obligations every time a plaintiff prevails, could cause a plan to be inadequately funded, requiring additional funding under ERISA, or it could lead to plan termination and a potential assumption of liabilities by the Pension Benefit Guaranty Corporation ' an entity that is already under severe financial stress. (The Ledbetter Act gives no indication about whether reasonable contractual statute of limitations periods that are commonly included in employee benefit plan documents will continue to be upheld by courts.) These benefits consequences threaten to harm not only the employers who sponsor the plans, but also the employees (and their beneficiaries) whom the Ledbetter Act seeks to protect.

AT&T Corp. v. Hulteen also foreshadows battles over the retroactive application of certain laws. Prior to passage of the PDA, for example, it was not a violation of Title VII to treat pregnancy leave differently from other temporary disability leave. Thus, the service credit system at issue in Hulteen was legal at the time, and absent clear Congressional intent that the PDA should be retroactively applied, AT&T arguably was not legally required to restore credit for pregnancy leave taken prior to its passage. Under the Ledbetter Act, however, pension or retirement benefits based on similar service credit calculations will be challenged as discriminatory. Courts will be left to decide these messy questions.

How Can Employers Be Proactive?

If an employee complains about a prior practice, take heed and, if necessary, appropriate remedial action:If you are aware of a historic company policy or practice that discriminated against a currently protected class ' even if the practice was legal at the time it was being utilized ' audit the practice and figure out what, if anything, could be done to address fairly the potential effects of such practice now; Examine your document retention policies and ensure that key documents relating to benefits and compensation decisions are being maintained (indefinitely, at least for now, until the courts begin to delimit the Ledbetter Act); andBe prepared to defend against these cases, as history is about to be re-written.

Holly S. A. Eng is a Partner in the Labor and Employment practice group at Dorsey and Whitney, LLP. Kahla Bunde is an associate in the group.

When is history simply that: “history”? Perhaps never under the Lilly Ledbetter Fair Pay Act, which sailed through the House and Senate in January and became the first piece of legislation signed into law by President Obama.

The Lilly Ledbetter Fair Pay Act (the “Ledbetter Act”) is Congress's response to the Supreme Court's May 2007 decision in Ledbetter v. Goodyear Tire & Rubber Co., Inc. It is a legislative “fix” intended to close the average, national pay gap between the sexes, by eroding statutes of limitations in civil rights-related compensation and benefits cases.

The Case

Lilly Ledbetter was employed by Goodyear Tire & Rubber Company for almost 20 years. For most of that time, she was employed as an area manager, a position mainly held by men. At some point she discovered through an anonymous tip from a coworker that she was being paid less than male supervisors doing substantially similar work. By Ledbetter's own admission, this chain of events had commenced many years earlier (well outside the statute of limitations period) and, in fact, Ledbetter sat on the information for another three years before she filed an EEOC charge. Her claim eventually was tried to a jury, which awarded Ledbetter significant back pay and damages as well as attorneys' fees and costs.

The Eleventh Circuit reversed the jury verdict, finding that Ledbetter's claim was time barred, a decision which the Supreme Court affirmed. In so doing, the Supreme Court relied upon a long line of cases standing for the proposition that the statute of limitations for a Title VII discrimination claim begins to run at the time the discriminatory act is undertaken, not when the effects of that decision are felt. (The statute of limitations ' often referred to as the “charge filing period” ' under Title VII, for example is 300 days in most states and 180 days in the handful of states that do not have a state fair employment agency.) As the Supreme Court recognized, Ledbetter did not assert that Goodyear acted with discriminatory intent when it issued her paychecks during the EEOC charging period. “Rather, she argue[d] that the paychecks were unlawful because they would have been larger if she had been evaluated in a nondiscriminatory manner prior to the EEOC charging period.” Justice Alito, writing for the 5-4 majority, “reject[ed] the suggestion that an employment practice committed with no improper purpose and no discriminatory intent is rendered unlawful nonetheless because it gives some effect to an intentional discriminatory act that occurred outside the charging period.” Because Ledbetter filed her claim years after the discriminatory decisions that affected her pay were made, the Supreme Court held Ledbetter's claim to be untimely.

What It Means

The Ledbetter Act undoes the Supreme Court's decision. It amends Title VII of the Civil Rights Act of 1964, the Age Discrimination in Employment Act of 1967, the Americans with Disabilities Act of 1990, and the Rehabilitation Act of 1973 to provide that a discriminatory act occurs each time compensation is paid, if such compensation has been impacted by a discriminatory decision or practice somewhere along the line.

The import of the Ledbetter Act is great. For purposes of this article, we focus on two primary impacts on employers. First, the Ledbetter Act codifies the so-called “paycheck rule,” effacing the statute of limitations period set forth in each amended Act. Second, it broadly applies to “wages, benefits, or other compensation,” which extends application of the Act to employer-sponsored benefit plans.

The codification of the “paycheck rule” certainly increases the potential for litigation. Under the Ledbetter Act, the statute of limitations essentially resets every time an employee is paid compensation that was based on a previous discriminatory decision, no matter how old the decision. This revives untold stale claims, potentially decades old, which previously would have been regarded as untimely. In other words, history is allowed to repeat itself, and repeat itself, and repeat itself ' while memories fade; witnesses leave, retire, or die; key documents are lost or recycled; and the underlying facts of a policy or event become increasingly difficult (and often impossible) to unearth. Moreover, there can be little doubt that this passage of time is more burdensome for employers than employees. Although it will be the employee's burden to prove that discrimination occurred some five, 10, 20, or even 30 years earlier, the employee will, no doubt, present his or her memory of events, and an employer may have little, if any, remaining evidence to rebut or defend against the employee's accusations.

Should You Modify Procedures?

Beyond these evidentiary concerns, employers likely will want to modify administrative procedures, such as document retention policies, so as not to lose evidence that could be useful decades in the future. Currently, many employers maintain such records (such as personnel files and documents reflecting compensation policies and decisions) until the applicable statutory periods have run. After passage of the Ledbetter Act, employers may be inclined ' and, perhaps, rightly so ' to retain such documents indefinitely, which leads to other issues, such as the costs associated with document storage, maintenance, and retrieval (a particularly significant concern with respect to electronically stored information).

Where records still exist, employers would be wise to perform an internal audit or review of past compensation decisions (including performance evaluations if they form the basis for raises and promotions) and take action, if appropriate, with respect to decisions that were potentially discriminatory ' if such discriminatory intent can be divined. Corrective actions could include (but would not be limited to) wage increases, back pay, and the amendment of seniority systems. (The Ledbetter Act caps back pay damages at two years prior to the filing of a charge.)

'Benefits, or Other Compensation'

It is also important to note that the Ledbetter Act extends beyond wages to “benefits, or other compensation.” Whether calculated or not, passage of the Ledbetter Act at the beginning of 2009 came at the precise moment the Supreme Court was reviewing a benefits case similar to Ledbetter. While an opinion is expected soon (oral argument was heard Dec. 10, 2008), passage of the Ledbetter Act may render the issue in AT&T Corp. v. Hulteen moot. AT&T Corp. v. Hulteen, (No. 07-543), available at: http://www.oyez.org/cases/2000-2009/2008/2008_07_543/ (last visited Monday, Feb. 9, 2009).

AT&T used a “Net Credited Service” (“NCS”) date as the system for calculating service credit for pension and retirement benefits. Prior to the passage of the Pregnancy Discrimination Act (the “PDA”) in 1978, AT&T and its predecessor companies treated pregnancy leave as personal leave and, therefore, allowed up to a maximum of thirty days of NCS credit, whereas employees on disability leaves received full service credit during their absences. As of April 29, 1979 (the effective date of the PDA), AT&T modified its service credit policy so that pregnancy leave was treated the same as other temporary disability leaves; however, it did not amend or restore service credit to those employees who had taken pregnancy leaves prior to that date. Women like Noreen Hulteen, who took pregnancy leave prior to passage of the PDA, did not receive full service credit for the time they were on leave. Failure to restore credit meant that such women subsequently received reduced pension benefits and lost preferential treatment relating to eligibility for early retirement and other benefits and programs, when compared with men (and women) who had not taken pregnancy leaves and with women who took such leaves after the PDA.

The question to be decided in AT&T Corp. v. Hulteen is whether the calculation of pension benefits based on the NCS system, which is, arguably, a facially neutral and nondiscriminatory system, is somehow converted into a discriminatory act by decisions that were made more than 30 years ago and at a time when those decisions were, in fact, legal.

The AT&T Corp. v. Hulteen debate highlights yet another key concern for employers and employees, alike: The Ledbetter Act may jeopardize the solvency of some employee benefit plans. Benefits calculations based on length of service, periods of leave, and compensation all may be subject to legal challenge if those underlying factors were arguably influenced ' at any time ' by discriminatory decisions.

Consequently, under the Ledbetter Act, the actual obligations of such plans (after being retroactively adjusted) may, in fact, substantially exceed the predicted obligations that were anticipated at the time of funding. This, coupled with the significant costs of recalculating plan obligations every time a plaintiff prevails, could cause a plan to be inadequately funded, requiring additional funding under ERISA, or it could lead to plan termination and a potential assumption of liabilities by the Pension Benefit Guaranty Corporation ' an entity that is already under severe financial stress. (The Ledbetter Act gives no indication about whether reasonable contractual statute of limitations periods that are commonly included in employee benefit plan documents will continue to be upheld by courts.) These benefits consequences threaten to harm not only the employers who sponsor the plans, but also the employees (and their beneficiaries) whom the Ledbetter Act seeks to protect.

AT&T Corp. v. Hulteen also foreshadows battles over the retroactive application of certain laws. Prior to passage of the PDA, for example, it was not a violation of Title VII to treat pregnancy leave differently from other temporary disability leave. Thus, the service credit system at issue in Hulteen was legal at the time, and absent clear Congressional intent that the PDA should be retroactively applied, AT&T arguably was not legally required to restore credit for pregnancy leave taken prior to its passage. Under the Ledbetter Act, however, pension or retirement benefits based on similar service credit calculations will be challenged as discriminatory. Courts will be left to decide these messy questions.

How Can Employers Be Proactive?

If an employee complains about a prior practice, take heed and, if necessary, appropriate remedial action:If you are aware of a historic company policy or practice that discriminated against a currently protected class ' even if the practice was legal at the time it was being utilized ' audit the practice and figure out what, if anything, could be done to address fairly the potential effects of such practice now; Examine your document retention policies and ensure that key documents relating to benefits and compensation decisions are being maintained (indefinitely, at least for now, until the courts begin to delimit the Ledbetter Act); andBe prepared to defend against these cases, as history is about to be re-written.

Holly S. A. Eng is a Partner in the Labor and Employment practice group at Dorsey and Whitney, LLP. Kahla Bunde is an associate in the group.