On January 29, 2009, in an attempt to close the pay gap between men and women, President Obama signed the Lilly Ledbetter Fair Pay Act into law. This law, considered by many to be a major step forward in giving women the ability to challenge unequal pay in the workplace, overturns the 2007 U.S. Supreme Court decision in Ledbetter v. Goodyear Tire & Rubber. The key issue in that case was whether the suit was timely filed. Under the new Fair Pay Act, a discriminatory act occurs each time compensation is paid if that compensation results from a discriminatory decision or practice at some point in time. This effectively erodes the prior statute of limitations which began to run when the discriminatory decision or practice occurred, not when the effects were felt.

The Fair Pay Act is named after Lilly Ledbetter who started working for Goodyear in 1979. In 1997, she was the only female area manager. At some point, Ms. Ledbetter received an anonymous tip that she was being paid less than her male counterparts. The pay discrepancy between Ledbetter and her 15 male co-workers was described as "stark": she earned $3,727 per month while the lowest paid male received $4,286 per month and the highest received $5,236. After retiring in 1998, she filed suit and was awarded backpay, damages for mental anguish, and punitive damages. Goodyear appealed. In a controversial 5-4 decision, the United States Supreme Court held that employees cannot challenge ongoing discriminatory compensation practices if the employer's original discrimination decision occurred more than 180 days earlier even if the employee continues to receive paychecks that result from discriminatory compensation practices. Since Ms. Ledbetter filed her suit years after the discriminatory pay decisions were made, the Supreme Court held that her suit was untimely.

In response to this decision, Congress began working on the Fair Pay Act to close the pay gap between men and women. Under the Fair Pay Act, the statute of limitations for filing a discrimination claim runs from each discriminatory paycheck (the "paycheck rule"). Accordingly, if a company continues to unfairly pay a female employee less than her fellow male employees, each paycheck resets the clock on the statute of limitations. This Act also applies to discriminatory pay claims under Title VII of the Civil Rights Act of 1964, the Age Discrimination Act of 1967, and the Americans with Disabilities Act of 1990. As such, it also prevents pay discrimination based on race, national origin, age, disability, and other protected categories under federal law.

Under the new Fair Pay Act, an unlawful employment practice occurs when:

• A discriminatory compensation decision or other discriminatory practice affecting compensation is adopted;
• An individual becomes subject to a discriminatory compensation decision or other discriminatory act affecting compensation; or
• An individual's compensation is affected by the application of a discriminatory compensation decision or other discriminatory practice, including each time the individual receives compensation that is based on such decision or practice.

The Fair Pay Act applies broadly to "wages, benefits, or other compensation." It applies to both private companies and government agencies. Under the Fair Pay Act, class action suits may be filed, and plaintiffs may seek compensatory and punitive damages. Backpay awards are capped at two years prior to the filing of a charge. To the extent it requires some employers to provide information regarding job classifications and pay statistics to the Equal Employment Opportunity Commission ("EEOC"), it will provide employees access to necessary information. The Act also prohibits a company from lowering wages to implement fair pay. The Act is retroactive to May 28, 2007, and applies to all discriminatory compensation claims pending on or after that date.

While some lower federal courts had previously adopted the "paycheck rule" statute of limitations concept, the broadened statute of limitations under the Fair Pay Act may lead to increased claims and litigation. The Act could potentially revive old, stale claims, as the statute of limitations is reset every time compensation is paid to an employee that was based on a discriminatory decision, regardless of how long ago the decision was made. While a plaintiff will still bear the burden of establishing that discrimination occurred, whether it be 5 or 20 years ago, the passage of time generally impacts employers more than employees as witnesses leave or retire, documents are lost or recycled, and policies and decisions are difficult to discern.

In order to minimize potential liability, employers should consider reviewing/auditing their current compensation practices including performance evaluations if they provide a basis for promotions and raises, developing specific objective criteria and guidelines for compensation decisions, ensuring that there are verifiable business reasons for compensation disparities, providing training for managers and supervisors regarding the Fair Pay Act, and documenting compensation decisions. Because of the potential for claims and suits based on decisions made years ago, companies should also evaluate their document retention policies regarding payroll and compensation-related records.

In addition to the Fair Pay Act, the Paycheck Fairness Act-anticipated to close loopholes and encourage employers to review their compensation policies-is currently pending in the Senate. In January, the House passed its version of this Act. The Paycheck Fairness Act would allow for recovery of compensatory and punitive damages, facilitate class action lawsuits, prohibit employer retaliation for sharing pay information with their co-workers, require the EEOC to issue regulations within 18 months that require employers to submit needed pay data identified by race, sex, and national origin, and require employers who defend a pay differential to establish that it is truly caused by something other than sex and is related to job performance and consistent with business necessity.

For more information on the Fair Pay Act and protecting against pay discrimination lawsuits, please contact Laurie Sherwood at lsherwood@wfbm.com, (415)781-7072, or any other WFB&M attorney with whom you have an existing relationship.


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