Virginia Lawyers Weekly

When the United States Supreme Court in 2007 denied Lilly Ledbetter’s pay discrimination claim against her employer Goodyear Tire as being untimely, it touched off a rallying cry among women and employee rights groups across the nation. These efforts culminated in the first official piece of legislation signed by President Obama, the Lilly Ledbetter Fair Pay Act.

And while this legislation appears simple enough on its face, in practice it could have profound consequences on the statute of limitations governing most federal discrimination claims.

Deadlines

Employment discrimination claims, perhaps more so than most other civil causes of action, are driven by statutory deadlines that in most cases are jurisdictional and thus cannot be waived if missed. For instance, an employee in Virginia alleging discrimination must file an administrative claim (with the EEOC and state/local human rights agency) within 300 days of the act of discrimination.

In cases alleging wrongful termination, the act of discrimination would obviously be the termination, and so the 300-day deadline to file an administrative complaint runs from the date of termination. No real controversy here.

Why all the hoopla?

Ledbetter’s case was different because it involved claims of pay discrimination, and the key question in her case was when does the administrative filing deadline begin to run: when the pay decision is made, or when the employee actually receives paychecks containing the lower pay.

Ledbetter had started working at Goodyear in 1979, and she alleged that the discriminatory actions that led to her pay disparity with her male counterparts occurred in the early 1980’s and mid-1990’s. But she did not file an administrative claim with the EEOC alleging pay discrimination claim until 1998, shortly before she retired from the company.

The Supreme Court, in a 5-4 decision, held that for pay discrimination claims, you measure the administrative filing deadline from the date the discriminatory pay decision was made. Since Ledbetter conceded that the actual discriminatory pay decision by Goodyear management had been made years before she filed her complaint, her claim was deemed to be untimely and dismissed.

Congress steps in

The Lilly Ledbetter Act was passed by Congress to directly overrule the Supreme Court’s decision, and provides that for pay discrimination claims, the statute of limitations is measured from each paycheck, and not from when the compensation decision was actually made. Thus, each paycheck resets the clock so that as long as an employee files a claim within 300 days of receiving any paycheck, the claim is timely.

Although the Ledbetter case specifically dealt with pay discrimination based on gender, the Ledbetter Act also applies to pay disparity based on all the other federally protected classifications—race, color, age, disability, national origin and religion.

Congress made the Ledbetter Act retroactive to May 28, 2007, which is the day before the Supreme Court’s decision dismissing Ledbetter’s case as untimely. So employers may see a spike in claims by employees from the last two years who otherwise may have been dissuaded to press a claim given the timeliness issue.

Why employers should be concerned

On its face, the Ledbetter Act would not appear to cause extreme alarm for employers. There is legal support for both the Supreme Court’s method for computing the deadline and the way Congress has now said it should be done. And pure gender pay discrimination claims are less prevalent now than in past decades.

So why then are so many business groups up in arms about the new law?

The main fear is that employees (and even former employees such as retirees) could use this law to revive stale employment claims that otherwise would be barred by the administrative statute of limitations. In the past, an employee who missed the administrative filing deadline would be out of luck to proceed. But now, the employee will likely try to use the Ledbetter Act to link an otherwise untimely case to pay disparity.

For instance, an employee who was denied a promotion years ago but did not file a timely claim could now argue that the denial of promotion has resulted in less current pay, thereby invoking the Ledbetter Act to save an otherwise untimely discrimination claim. Thus, as long as a claimant is able to include allegations that the discrimination affected pay in some way, an otherwise untimely claim could now be rendered timely.

The problem is that an employer may no longer have access to records, witnesses or other information relating to a promotion or other employment decision made years ago, making it difficult to defend against such a claim. In fact, the supervisor who Ledbetter claimed made the discriminatory pay decision had died by the time the case went to court.

Other potential concerns

There are other concerns about the reach of the Ledbetter Act that may or may not bear out in future litigation. For example, there is concern that certain language in the statute could be construed to permit a cause of action by spouses and other family members of employees who are affected by pay discrimination. Spurring that concern is the fact that an amendment to the bill that would have limited application of the law only to employees was rejected in Congress.

And although the dispute in the Ledbetter case was limited to pay disparity, the new law also applies to “benefits,” which could be interpreted broadly depending on which court is hearing a case. Take for instance training, which is often viewed as an employee benefit. An employee could allege that a denial of training years prior has affected the employee’s upward mobility in the company and accounts for less current pay than if the employee had received the training.

Record keeping will be key

Now more than ever, employers will need to carefully document compensation and benefit decisions. Conducting compensation audits on a regular basis should now be the norm. Employers will also need to structure their document retention policies to ensure that employment records are preserved. These records may now take on special significance if a company is planning to be acquired at some point in the future, since this issue will likely become a part of the M&A due diligence process.

Get employee releases

Potential liability under the Ledbetter Act is yet another reason among many that employers should endeavor to obtain liability releases from departing employees. Given that most employees in Virginia will now have 300 days from the date of their last paycheck to sue for pay discrimination, companies remain particularly vulnerable to being sued by former employees. Companies can either provide modest severance pay in exchange for the releases, or even condition the payout of accrued vacation time on signing the release as long as this is consistent with company policy.

Declan Leonard practices employment law with Albo & Oblon in Arlington.

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