Equal pay for equal work

The U.S.' long history of pay inequity contributed to the momentous civil rights movement that sparked the enactment of the Equal Pay Act of 1963 and Civil Rights Act of 1964. With the signing of the Lilly Ledbetter Fair Pay Act Jan. 29, President Obama solidified the country's commitment to "equal pay for equal work" and forever altered the manner in which pay discrimination claims are litigated. You must now learn to grapple with the powerful text of the Lilly Ledbetter Fair Pay Act or pay the consequences.

The act expressly amends the Civil Rights Act of 1964 and Age Discrimination in Employment Act and makes its provisions applicable to claims brought under the Americans with Disabilities Act (ADA) and Rehabilitation Act of 1973. In doing so, the act extends the statute of limitations for pay discrimination claims, expands the definition of unlawful pay practices and broadens the scope of people permitted to file claims.

On June 2, 2007, the House Committee on Labor and Education introduced the Ledbetter Fair Pay Act (H.R. 2831). On July 31, 2007, the bill passed the House and moved to the Senate, where it remained dormant until late April 2008 and ultimately was defeated by a filibuster vote of 56-42. The act was reintroduced as H.R. 11 in the House Jan. 6 and hurriedly passed Jan. 9 by a vote of 247-171. Similarly, the act was reintroduced in the Senate Jan. 8 as S.R. 181 and passed Jan. 22 by a vote of 61-36. The House reaffirmed its support of the bill by clearing it for a second time Jan. 27.

The act applies retroactively to pay discrimination claims pending on or after May 28, 2007, the day before the controversial Supreme Court decision was issued in Ledbetter v. Goodyear Tire & Rubber Co. Now that the act is law, you should brace yourself for the expected onslaught of costly lawsuits from current and former employees alleging years of pay discrimination.

Historical overview

During World War II, female workers were needed to fill hundreds of jobs across various industries, particularly those traditionally reserved for men (such as the war industries). In recognition of the significant contributions made by female workers, the National War Labor Board made a controversial request in 1942: The board urged employers to voluntarily eliminate the wage and salary gap between male and female workers.

Rather than comply with the board's request, employers actively pushed female workers out of their new jobs to accommodate returning war veterans. Against this political backdrop, a national spotlight was cast on the plight of female workers. Concurrently, the historic civil rights movement gained momentum. President John F. Kennedy signed the Equal Pay Act June 10, 1963, and shortly thereafter, the Civil Rights Act of 1964 was passed.

The Equal Pay Act states: "No employer having employees subject to any provisions of this section shall discriminate … between employees on the basis of sex by paying wages to employees in such establishment at a rate less than the rate at which he pays wages to employees of the opposite sex in such establishment for equal work on jobs … which require equal skill, effort, and responsibility, and which are performed under similar working conditions, except where such payment is made pursuant to (i) a seniority system; (ii) a merit system; (iii) a system which measures earnings by quantity or quality of production; or (iv) a differential based on any other factor other than sex."

However, the act specifies employers may not reduce the compensation of any employee to comply with the act's requirements. Therefore, to establish a prima facie case (to make a minimum showing of possible liability under the Equal Pay Act), an employee must demonstrate her employer pays her a lower wage rate than that of a male counterpart for equal work in jobs requiring equal skill, effort and responsibility under similar working conditions in the same establishment.

Once the prima facie case is met, the burden shifts to the employer to prove the wage differential is justified by one of the four affirmative defenses provided in the Equal Pay Act (seniority system, merit system, quality- or quantity-based system of production, or any factor other than sex).

If the employer fails to establish one of the four affirmative defenses, liability is automatically established. Unlike Title VII of the Civil Rights Act, the Equal Pay Act does not require a plaintiff to show intentional discrimination to establish liability.

The paycheck accrual rule

Before the Supreme Court's decision in the Ledbetter case, the U.S. Equal Employment Opportunity Commission (EEOC) and a majority of the federal circuit courts of appeal had relied on the paycheck accrual rule when deciding pay discrimination claims.

The paycheck accrual rule provides that each paycheck affected by a past adverse pay-related decision (such as the denial of a promotion) constitutes a separate act of discrimination. In turn, each separate act of discrimination (each paycheck) triggers a new filing period with the EEOC.

Under the rule, employers were disadvantaged because with the issuance of each new paycheck, they were continuously subjected to new claims of pay discrimination based on the same allegedly discriminatory decision. Conversely, employees had the advantage in that with each new paycheck, they were entitled to a new statute of limitations within which to file their pay discrimination claims. This careful balance guided several notable Supreme Court decisions.

Before Ledbetter

The Supreme Court decisions in Bazemore v. Friday (1986) and National Railroad Passenger Corporation v. Morgan (2002) were instructive in formulating the original standard for pay discrimination claims. These rulings provided the foundation for a consistent framework for litigating pay discrimination claims.

In the Bazemore case, the Supreme Court ruled an employer violates Title VII of the Civil Rights Act and triggers a new EEOC filing period every time it issues a paycheck pursuant to a discriminatory pay structure.

Almost two decades later in the Morgan case, the Supreme Court held that when an African American railroad employee sought to recover for "discrete acts" of alleged discrimination—that is, acts that independently violated Title VII of the Civil Rights Act and triggered a new EEOC filing period—the employee's recovery was limited to the acts that occurred within 300 days of the date on which the employee filed his EEOC charge.

Collectively, these landmark Supreme Court decisions articulated a consistent message: Employees were entitled to recover for each individual act of pay discrimination as long as they complained of each act within the applicable statute of limitations. The Supreme Court's Ledbetter decision turned this precedent on its head.

The Ledbetter decision

Lilly Ledbetter worked for Goodyear Tire & Rubber Co.'s Gadsden, Ala., plant from 1979-98. Following retirement, she filed a gender discrimination claim against the company alleging she had received smaller annual pay increases than her male counterparts throughout the almost two decades of her employment.

In a 5-4 decision, the Supreme Court held her claim of pay discrimination was time-barred. The court reasoned that an employee must file a charge of discrimination with the EEOC within 180 days (or 300 days if the charge is also covered by a state or local anti-discrimination law) of a discriminatory pay decision. The court held the employee is required to comply with this filing requirement even if the employee was unaware of the employer's alleged unlawful employment practice.

The Supreme Court clarified that the Civil Rights Act's Title VII statute of limitations for equal pay claims begins to run when the discriminatory pay decision is made and not each time the employee receives a paycheck affected by the initial discriminatory pay decision. In essence, the Supreme Court rejected the paycheck accrual rule and invalidated the historic Bazemore precedent-setting decision.

Under the Supreme Court's newly articulated standard, Ledbetter was not entitled to recover for her pay discrimination claims because the last discriminatory pay-related decision was made years before she filed her claim. Writing for the court's majority, Justice Samuel Alito explained the brief 180-day filing deadline reflected not only congressional intent to provide for the prompt resolution of employment claims but also congressional intent to insulate employers against claims for decisions that often were made years before by what was frequently an entirely different administration.

This employer-friendly decision markedly changed the pay discrimination litigation landscape and sparked a national movement across neutral and employee-friendly labor and employment groups, culminating in the enactment of the Lilly Ledbetter Fair Pay Act.

A new playing field

Motivated by the belief that the Supreme Court's decision in the Ledbetter case significantly impaired statutory protections against discrimination in compensation and unduly restricted the time period during which victims of discrimination could challenge and recover for discriminatory compensation decisions, Congress enacted the Lilly Ledbetter Fair Pay Act. Congress hoped the act would help reconcile the reality of wage discrimination and application of civil rights laws.

The act allows pay discrimination claims arising out of discriminatory actions that took place outside the applicable statute of limitations. In doing so, the act specifically rejects the Supreme Court's decision and restores the pre-Ledbetter framework for litigating pay discrimination claims.

The act provides the statute of limitations for alleged discriminatory compensation practices begins every time an employee receives wages, benefits or "other compensation." Therefore, the act clarifies that unlawful discrimination occurs when:

1. "[A] discriminatory compensation decision or other practice is adopted."
2. "[A]n individual becomes subject to a discriminatory compensation decision or other practice."
3. "[A]n individual is affected by application of a discriminatory compensation decision or other practice, including each time wage, benefits or other compensation is paid, resulting in whole or in part from such a decision or other practice."

Therefore, employees are entitled to three layers of pay discrimination claims. If they fail to complain when a decision is initially made or when the decision is applied to them, they still have a nearly infinite number of opportunities to complain of pay discrimination as long as they continue to receive some sort of compensation. The act, in essence, re-triggers the statute of limitations with each paycheck, benefit or other compensation.

But it is unclear what the act means by "other practices" that affect compensation. This language suggests any practice that affects compensation—not just those "discrete" decisions—may be sufficient to trigger a pay discrimination claim. This interpretation would further broaden the act's effects by extending its coverage to less structured practices, many of which would be difficult for employers to rebut.

Similarly, the act does not clarify which individuals may sue. In fact, the act merely expands the potential pool of plaintiffs by re-triggering the limitations with each new paycheck, benefit or compensation. You should note that "compensation" may include a wide range of remuneration, including health care benefits, paid leave, bonuses, stock options, pension payments and more. However, the act expressly prohibits employees from relying on pension payments received after their retirement to further extend the statute of limitations.

The act's provisions are far-reaching and not limited to pay discrimination claims based on gender. Indeed, the act is widely applicable to pay discrimination claims under anti-discrimination laws such as Title VII of the Civil Rights Act, ADA, Rehabilitation Act and Age Discrimination in Employment Act, covering protected statuses such as race, national origin, religion, age and disability, to name a few.

Employer protections

The act contains numerous significantly pro-employee provisions. Nevertheless, take solace in the fact that the act leaves many areas of pay discrimination litigation untouched.

For example, the act does not extend the recovery of back pay to more than the prescribed two years before the filing of a charge under Title VII of the Civil Rights Act. Similarly, the act does not affect an employer's right to assert equitable challenges to the timeliness of a pay discrimination charge. Further, the act does not in any way modify the Equal Pay Act's requirements or general standards of proof in pay discrimination cases.

It is evident Congress focused primarily on restoring pre-Ledbetter principles. Nonetheless, whether congressional silence as to certain aspects of pay discrimination litigation weighs in favor of employer versus employee interests is a question of statutory interpretation left open for future litigants.

After the storm

Although the act is in its infancy, several courts have begun dutifully interpreting and applying its provisions. For example:

• In Rehman v. State University of New York at Stony Brook, the court held that under the act, the plaintiff's pay discrimination claims based on actions occurring about two years before the filing of his EEOC charge were timely.
• Similarly, in Vuong v. New York Life Insurance Co., the court found the plaintiff's pay discrimination claim was timely under the act even though the alleged discriminatory pay decision was made in 1998.
• In Bush v. Orange County Corrections Department, the court held that the plaintiff's claims regarding demotions and pay reductions that occurred in 1990—16 years before he initiated his lawsuit—were not time-barred under the act.
• In Gilmore v. Macy's Retail Holdings, the court held that the act applied to the plaintiff's EEOC claim filed July 7, 2005, and that back pay was available for pay discrimination taking place as far back as July 7, 2003, as long as such alleged discrimination was similar or related to the unlawful practices at issue.

These decisions make clear that courts have and will continue to apply the new act's provisions liberally, giving full effect to Congress' corrective goals. This does not bode well for employers on the losing side of pay discrimination claims.

Best practices

What should you do to make sure your workplace complies with the Lilly Ledbetter Fair Pay Act? Consider the following:

• Compile and review documents that discuss your compensation policy. The EEOC has expressed specific interest in organization charts, job descriptions, and job evaluation studies or reports. As with all policies, it is important to ensure all compensation policies (if any) properly reflect your actual current compensation practice.
• Take time to create an accurate employee database and implement and follow a comprehensive, consistent compensation policy.
• Pay special attention to determining what factors are taken into account when determining an individual's compensation. Are the factors predominately objective or subjective? Are the factors mandatory or discretionary? Are the factors applied differently in different sectors of your operation? Are the factors subject to any explicit or implicit exceptions? Although experience, responsibility, training, seniority and performance evaluations generally are relevant and appropriate compensation factors, make sure the factors are applied uniformly in a nondiscriminatory manner.
• Establish clearly communicated internal complaint and appeal procedures. Such procedures can help identify possible meritorious pay discrimination claims and help ensure compliance with anti-discrimination laws.
• If you opt to create and maintain documentation of past decisions, be sure to protect privileged information. Although record-retention policies are often governed by law, make sure your retention policies are suitable to your business's unique needs. Appropriately maintained personnel files and other records will be more critical than ever in defending pay discrimination claims.
• Provide managers and supervisors with the necessary training to spot and address inexplicable pay inequities. The resources spent for such preventive measures pale in comparison to the possible sanctions permissible under the new and expansive Lilly Ledbetter Fair Pay Act.

Living with the act

By extending the statute of limitations for pay discrimination claims, expanding the definition of unlawful pay practices and broadening the scope of persons permitted to file claims, the Lilly Ledbetter Fair Pay Act has changed the way pay discrimination claims are litigated.

Unfortunately, the act is only the first in a series of pro-employee legislative initiatives slated for 2009. The Paycheck Fairness Act (which would alter key provisions of the Equal Pay Act), the Arbitration Fairness Act (which would prevent mandatory arbitration mechanisms for resolving employment claims) and the Employee Free Choice Act (which would make it easier for unions to organize) are just a few of these employee-friendly legislative initiatives. Be sure to track such new laws to ensure timely compliance.

You can expect to see a dramatic increase in pay discrimination claims from current and former employees. Working closely with legal counsel to create an appropriate strategy for addressing these issues will not only bring you peace of mind but also help insulate your business from costly pay discrimination claims.

Jason C. Kim is a partner and Gray A. Mateo is an associate in the labor and employment practice group of the Chicago-based law firm Neal, Gerber & Eisenberg LLP.