Washington D.C. Employment Law Update : Washington D.C. Employment Lawyer & Attorney : Littler Mendelson Law Firm : Virginia, Tyson's Corner

The House on January 9 passed an identical bill (H.R. 11) by a margin of 247-171, although this version was combined with the Paycheck Fairness Act (H.R. 12) when it was sent to the Senate for consideration. H.R. 12 would weaken an employer’s affirmative defense in a wage discrimination lawsuit and provide for compensatory and punitive damages, essentially lifting the damages cap for such claims. The Senate decided to consider each measure separately, most likely to ensure that President Obama would have at least one employment-related bill to sign within a month of his taking office.

The Lilly Ledbetter Act effectively eliminates the statute of limitations in wage discrimination cases by resetting the time limit for filing suit every time a claimant receives a paycheck or other form of compensation whose amount stems from an alleged act of discrimination. This bill applies to all claims of compensation discrimination under Title VII, the Age Discrimination in Employment Act, Title I and Section 503 of the Americans with Disabilities Act, and Sections 501 and 504 of the Rehabilitation Act. In addition, this legislation would apply retroactively to May 28, 2007, the day before the U.S. Supreme Court decided in Ledbetter v. Goodyear Tire & Rubber Co. that applying this “paycheck rule” was incorrect. The bill also entitles a plaintiff to recover back pay for up to two years preceding the filing of the charge.

From a logistical standpoint, this bill poses severe problems for employers attempting to gather evidence to defend against wage discrimination lawsuits for events/decisions that occurred years before the wage claim is made. Many current employers will be the unwitting beneficiaries of claims stemming from decisions made by those who no longer work for the company. If this bill is signed into law – which is almost a certainty – anticipate a dramatic increase in wage discrimination claims.
 

The bill effectively overrules the U.S. Supreme Court case Ledbetter v. Goodyear Tire & Rubber Co., which rejected the argument that the statute of limitations for filing a wage discrimination claim is reset every time the employee receives a paycheck or other compensation that was initially based on a discriminatory act or decision. The Ledbetter Act, among other things, amends Section 706(e) of the Civil Rights Act of 1964 by deeming that an unlawful employment practice occurs when (a) a discriminatory compensation decision or other practice is adopted; (b) an individual becomes subject to a discriminatory compensation decision or other practice; or (c) when an individual is affected by application of a discriminatory compensation decision or other practice, including each time wages, benefits, or other compensation is paid, resulting in whole or in part from such a decision or other practice.

Liability accrues and an aggrieved plaintiff may recover back pay for up to two years preceding the filing of the charge, where the unlawful employment practices that have occurred during the charge filing period are similar or related to unlawful employment practices with regard to discrimination in compensation that occurred outside the time for filing a charge.

This bill would take effect as if it was enacted on May 28, 2007 – the day before the Supreme Court’s Ledbetter decision – and apply to all claims of compensation discrimination under Title VII, the Age Discrimination in Employment Act, and Title I and Section 503 of the Americans with Disabilities Act, and Sections 501 and 504 of the Rehabilitation Act. This bill is less expansive than the version passed by the House (H.R. 11), which incorporated provisions of the Paycheck Fairness Act (H.R. 12), a bill that, among other things, would limit an employer’s affirmative defense in wage discrimination cases and allow for the award of potentially unlimited compensatory and punitive damages.

The practical result of this bill for employers is that wage discrimination claims will dramatically increase and such claims may be exceedingly difficult to defend against. As written, this bill enables an employee or former employee to allege that an act of discrimination affecting compensation occurred years earlier – perhaps when the current supervisor, CEO, or other decision-maker was not even in the company’s employ. Most of the criticism surrounding this bill focused on the fact that the statute of limitations would be left open-ended, encouraging litigation of discriminatory compensation claims. According to Senate Minority Leader Mitch McConnell (R-Ky), "[t]his bill is about effectively eliminating the statute of limitations on pay discrimination."

A number of amendments to this bill were either tabled or rejected during consideration. The Senate handily dismissed by a vote of 40-55 an amendment in the nature of a substitute (SA 25) introduced by Sen. Kay Bailey Hutchinson (R-Tex.). This amendment would have applied a “known or should have known” standard when enforcing the statute of limitations. In other words, the applicable 180- or 300-day statute of limitations would have started when a litigant had or would have been expected to have had a reasonable suspicion that discrimination had occurred. Additionally, this amendment would have precluded allegations of unlawful employment practices relating to the provision of a pension or pension benefits. Under the current version of S. 181, an unlawful employment practice occurs when, among other things, an individual is “affected” by the application of a discriminatory compensation decision or other practice.

Sen. Arlen Specter (R-Pa.) submitted an amendment (SA 26) that would have permitted an employer to assert a defense based on waiver of right, estoppel, or the doctrine of laches. He also offered an amendment (SA 27) that would have eliminated the clause “or other practices” in the section defining what constitutes an unlawful employment practice under the act, thus limiting the application of the bill to discriminatory payroll decisions, as opposed to things such as negative performance evaluations.

Sen. Mike Enzi (R-Wyo.) submitted two amendments to the act (SA 28 and SA 29) which would have clarified standing and restored the Supreme Court’s interpretation of the statute of limitations for most types of employment discrimination.

Sen. Johnny Isakson (R-Ga) sought to change the effective date of the act from a retroactive date of May 28, 2007, to the actual day of enactment.

Sen. Jim DeMint (R-SC) attempted to include a number of right-to-work provisions in the bill. Similarly, Sen. David Vitter (R-La) sought to include provisions attempting to prevent the government from adopting union-only rules for contractor companies.

None of these amendments made their way into the final bill.
 

The Lilly Ledbetter Fair Pay Act would amend Title VII of the Civil Rights Act and the Age Discrimination in Employment Act, and modify the operation of the Americans with Disabilities Act and the Rehabilitation Act to enable plaintiffs to sue for wage discrimination potentially years after a discriminatory act that generated that pay decision occurs. In essence, the Ledbetter Act resets the statute of limitations for filing a wage discrimination claim each time that individual receives a paycheck or pension benefit, a concept that was expressly rejected by the Supreme Court in Ledbetter v. Goodyear Tire & Rubber Co., 550 U.S. 618 (2007). Moreover, the Act would expand the class of potential plaintiffs to those who are “affected by” the application of a discriminatory compensation decision or other practice, not merely those who are directly subject to such decisions or practices.

The expected result of this Act is a dramatic increase in pay discrimination lawsuits, and the corresponding difficulty that employers face in defending against alleged discriminatory actions that may have occurred years before the lawsuit was initiated and/or under different corporate leadership. As a practical matter, new employers and managers should be prepared to inherit potential lawsuits for actions committed by their predecessors or other decision makers who are no longer employed by the company. In addition, allowing suits by those who are merely “affected” by discrimination is a nebulous concept at best. In theory, a spouse or other beneficiary of a former employee’s pension payments would be entitled to bring suit for past acts of discrimination not directed at the recipient of those payments.

To mitigate against this seemingly endless potential for lawsuits, Sen. Kay Bailey Hutchinson (R-Tex) sought to offer an alternative bill that would delay the start of the statute of limitations period for filing an employment discrimination claim until such a time as the aggrieved person had, or should have had sufficient information to support a reasonable suspicion that discrimination had taken place. The Title VII Fairness Act (S. 166) would serve as a compromise measure, instituting a “known or should have known” standard for starting the limitations clock running. This measure was referred to the Senate Committee on Health, Education, Labor and Pensions. Given the swift treatment of the Lilly Ledbetter Fair Pay Act, however, S. 166 is not expected to make it out of Committee.
 

Among other things, the Paycheck Fairness Act expands damages under the Equal Pay Act of 1963 to include potentially unlimited compensatory and punitive awards. In prepared remarks in opposition to this bill, Rep. Howard “Buck” McKeon (R-CA), senior Republican member on the U.S. House Education and Labor Committee, referred to this aspect of the legislation as a “trial lawyer boondoggle” that would encourage more and costlier lawsuits.

Additionally, the bill amends the broad affirmative defense previously available to employers that the pay differential in question is caused by a factor other than sex. Under the new legislation, an employer is required to show that any wage discrepancy is caused by a bona fide factor other than sex, such as education, training and experience, and that this factor is job-related and consistent with business necessity. An employee can rebut this claim by showing that there exists an alternative employment practice that would serve the same business purpose without resulting in the pay disparity, and that the employer has refused to adopt this alternative practice. It is this portion of the affirmative defense that will likely cause significant litigation, pitting the viability of an alternative work practice against the employer’s sound business discretion.

The Act also eliminates the “establishment” requirement that employees must work in the same place of employment for wage comparison purposes. Under this bill, an employer’s establishment would include workplaces located in the same county or similar political subdivision of a state.

The Lilly Ledbetter Fair Pay Act amends the Civil Rights Act of 1964 to declare that an unlawful employment practice occurs when: (1) a discriminatory compensation decision or other practice is adopted; (2) an individual becomes subject to the decision or practice; or (3) an individual is affected by application of the decision or practice, including each time compensation is paid. Stated differently, this bill would allow plaintiffs to bring wage claims years after the alleged discrimination occurred. The Ledbetter Act would reinstitute the “paycheck rule,” which was expressly rejected in the Supreme Court decision Ledbetter v. Goodyear Tire & Rubber Co. In this case, the Supreme Court held that employees cannot challenge ongoing compensation discrimination if the employer's original discriminatory decision occurred more than 180 days before. Under the paycheck rule, the statute of limitations for filing a wage claim would effectively be reset each time the employee receives a paycheck. Liability accrues, so an aggrieved claimant could recover back pay and other relief for up to two years preceding the filing of the charge, where the unlawful employment practices that have occurred during the charge filing period are similar or related to practices that occurred outside the time for filing a charge. These amendments would apply to claims of pay discrimination under Title VII, the Americans with Disabilities Act of 1990, the Rehabilitation Act of 1973, and the Age Discrimination in Employment Act of 1967.

Either of these bills, if enacted, would open the doors to increased wage discrimination litigation. Under the Lilly Ledbetter Fair Pay Act, employers could be scrutinized – and made liable for – acts and decisions made years earlier. Moreover, a worker or retiree could seek damages against a company run by employees and executives who had nothing to do with the initial act of alleged discrimination that occurred 5, 10, or even 20 years earlier. Trying to reconstruct ancient alleged acts of discrimination in order to defend these lawsuits could prove challenging for employers. Under the Paycheck Fairness Act, a valuable affirmative defense would be significantly restricted. With either Act, employers face increased financial penalties for any violations.