The Lilly Ledbetter Fair Pay Act (the "Act") was signed into law on January 29, 2009 by President Obama.  It effectively overturns a 2007 Supreme Court decision, Ledbetter v. Goodyear Tire & Rubber Co., 550 U.S. 618 (2007), which provided that the 180 day statute of limitations for filing a pay discrimination claim begins at the time of the company's first allegedly discriminatory pay decision.  The Act amends the Civil Rights Act of 1964, 42 U.S.C. 2000e-5(e) to provide that an unlawful employment practice occurs in the following situations:  (1) when a discriminatory compensation practice is adopted, (2) when an individual becomes subject to a discriminatory compensation practice, or (3) when an individual is affected by a discriminatory compensation practice, which includes each time wages, benefits, or other compensation is paid.

Under the Act, the 180 day statute of limitations for discriminatory compensation is reset each time an aggrieved employee is paid.  The new law also extends the compensation discrimination provisions to the Americans with Disabilities Act, the Rehabilitation Act of 1973 and the Age Discrimination in Employment Act.  Thus, the statute of limitations for individuals who file discrimination in compensation claims on the basis of their gender, disability, or age also resets each time they are paid.

The law takes effect retroactively as if enacted on May 28, 2007 and applies to all discrimination compensation claims pending on or after that date.  In a February 4, 2009 opinion on the court's own motion, a U.S. District Court judge in New Jersey applied the Act retroactively to allow the plaintiff to pursue claims for back pay for discrimination for two years preceding the date that she filed her gender discrimination complaint with the EEOC.  Gilmore v. Macy's Retail Holdings, (D.N.J.) (2/4/2009).  The court explained that the Act clarifies that a Plaintiff who files a timely EEOC charge may recover back pay for up to two years preceding the filing of the charge if the preceding discrimination in compensation "is similar or related to" the discrimination alleged in the charge.  The court further clarified that the Act affected only plaintiff's federal claim, and not her claim under the New Jersey Law Against Discrimination.

Employees may now be able to file suit against their employers for discriminatory compensation practices that were instituted years prior and not merely those practices instituted within the previously required 180 day statute of limitations period.  Employers may no longer have a statute of limitations defense and suits brought on account of compensation decisions made years earlier will likely be more difficult to defend.  An aggrieved employee may recover back pay for up to two years preceding the filing of the charge.

In light of the potential liability under this legislation, employers should review their pay practices and current employee compensation banding and pay rates.  Employers who do not currently have salary bands or pay rates should consider establishing them. Those compensation practices, including salary banding, should be reviewed by counsel to ensure that employees are paid equitably for the same or similar work.  In addition, employers should revise their record retention policies and retain all records regarding changes in or reasons for compensation decisions.

If you wish to discuss reviewing your company's compensation practices or have any questions about this new law, please contact the NFC attorney with whom you normally work.