A. Introduction

This case presents a question about the application of Title VII’s timely filing requirement to the compensation process of an employer that regularly reviews employees’ pay levels.

B. The Facts

Lilly Ledbetter sued her former employer, Goodyear, for paying her less than it paid similarly situated men because of her gender. Goodyear hired Ledbetter as a manager in 1979. Beginning in the early 1980s, Goodyear raised managers’ salaries primarily through annual merit-based raises. The company issued guidelines limiting the size and frequency of merit-based raises.

Ms. Ledbetter’s salary was significantly lower than those of her male peers. In most years Ms. Ledbetter was not the lowest-performing person with her job title, but it appears that she was always the lowest paid. In 1993 Ms. Ledbetter received the largest percentage raise (5.28%) of anyone with her job title, but because of the disparity between her salary and those of the men, her raise was the smallest in absolute dollars.

Ms. Ledbetter accepted early retirement from Goodyear effective November 1, 1998. She filed an EEOC charge on March 25, 1998. Ms. Ledbetter worked in Alabama, which is not a deferral state, so she could seek recovery only for damages incurred within the 180 days before March 25, 1998.

C. The Legal Question

The question the Eleventh Circuit addressed was how far into the past a plaintiff can look for an intentionally discriminatory decision where her pay level was subjected to periodic re-assessment through regularly scheduled raise decisions. The Eleventh Circuit’s answer was that a plaintiff may go back no further than the last “affirmative decision” affecting her compensation immediately preceding the start of the limitation period. In other words, if there was no “affirmative decision” affecting her pay during the limitations period, but the plaintiff did receive pay checks during the limitations period, she could look back no further than the last affirmative decision that did affect her compensation to determine whether her employer had an impermissible motivation when it set her pay level.

D. The Supreme Court

The Supreme Court held that “[b]ecause the later effects of past discrimination do not restart the clock for filing an EEOC charge, Ledbetter's claim is untimely.” The Court held that while there may have been discriminatory intent behind the original decision that established her salary level, the employer had no discriminatory intent in setting Ledbetter’s raises or issuing her paychecks within the statute of limitations period. The original intentionally discriminatory decision “triggered” the “EEOC charging period,” and “a new charging period does not commence[] upon the occurrence of subsequent non-discriminatory acts that entail adverse effects resulting from past discrimination.” As the dissent noted, the Court’s opinion “immunize[s] forever discriminatory pay differentials unchallenged within 180 days of their adoption.”

From the Employee’s Perspective: Remedying Past Discrimination

The majority’s ruling allows employers with a history of pay discrimination to continue discriminating against employees in protected categories (e.g. sex, race, religion, national origin, etc.) without legal consequence. The dissent noted that “the unlawful practice is the current payment of salaries infected by gender-based (or race-based) discrimination – a practice that occurs whenever a paycheck delivers less to a woman than to a similarly situated man.” The Supreme Court’s ruling essentially renders that unlawful practice lawful by allowing employers to “[k]nowingly carry[] past pay discrimination forward.”

Take a woman whose employer set her pay level substantially lower than those of her male peers because of her gender in 1995. Every year thereafter, the company gave her merit increases untainted by any discriminatory motive, but under company policy merit increases could not exceed 5% of an employee’s salary. In 2007, she is still earning substantially less than her male peers because of discrimination (in fact, the disparity has grown), even though the company has not made a discriminatory “affirmative decision” affecting her compensation in 12 years. The employee continues to suffer monetary harm from the employer’s discriminatory decision, but she cannot recover for the disparity between her compensation and that of her male comparators, and her employer is not obligated to remedy it. The Supreme Court’s ruling allows employers to save money by continuing to underpay victims of discrimination, as long as the employer’s current motivation is greed, laziness, indifference, or anything else but discrimination.

It is ironic that the majority emphasized the importance of giving timely notice to employers of potential discrimination claims against them, since it encourages employers to give no notice at all of discriminatory decisions to employees. Watch for those employers that don’t already have them to adopt policies prohibiting employees from disclosing compensation information to each other. Under the majority’s ruling, employers can use such policies to insulate themselves from lawsuits for discriminatory compensation by keeping the victims in the dark about the discrimination, at least until their time to sue has lapsed. (Of course, employers remain subject to the National Labor Relation Act’s limitation on such prohibitions, (See Super One Foods , 294 NLRB 462 (1989) ) but the dissent notes that nonetheless, “one-third of private sector employers have adopted specific rules prohibiting employees from discussing their wages with co-workers.”)

In most cases, plaintiffs’ attorneys should resist the urge to encourage clients to rush to file charges against their current employers with only the slightest wisp of suspicion that their pay is discriminatory. The cost to employees in attorney fees, time, and their employers’ good will (as we all know, retaliation happens) may not be worth the small chance that they will prevail.

The Court’s ruling does not doom all discrimination cases in which the plaintiffs have received unfairly low pay for more than 180 days. The majority explicitly limited its holding to “disparate-treatment pay cases,” excluding disparate impact claims from its coverage. The majority also distinguished cases involving discriminatory “pay structures,” as opposed to individualized compensation decisions. These limitations suggest that this ruling need not affect many class-wide pay disparity cases. Further relief may come from Congress: heeding the dissent’s advice that “the Legislature may act to correct” the ruling, Senator Clinton has announced her intention to propose a bill that would effectively reverse the majority’s holding.

From the Employer’s Perspective

Employers should have expected the Supreme Court to rule in Goodyear's favor because its holding protects the frame work Congress put in place to ensure that both employees and their employers promptly deal with discrimination claims.  For over 30 years, employees wanting to sue their employer for discrimination under Title VII have been required to file a charge of discrimination with the EEOC within 180 days of the discriminatory act.  This precondition to filing a lawsuit with a court, puts the employer on notice of the discrimination charge and the possibility of having to defend a future discrimination law suit. 

The frame work gives both parties the opportunity to promptly deal with the alleged discrimination while the facts are fresh in the minds of the parties and witnesses.  Discrimination charges brought years after the alleged discriminatory act, may leave employers in a difficult situation defending a case where witnesses may have left the company or, as in Ledbetter, a crucial witness may have died, leaving the company with no witness to counter the employee's allegations.

Ledbetter wanted the Supreme Court to allow her to recover for present effects of alleged past discrimination, which occurred outside the period for her to file the charge of discrimination.  In ruling against her, the majority opinion relies on prior cases establishing that past alleged (and actual, for that matter) discriminatory acts, which are not timely filed with the EEOC are time-barred and considered to be past events in history with no legal consequences. 

Although the Ledbetter ruling favored the company, employers must still pay close attention to ensure that their pay systems and modifications to those systems, do not create a discriminatory pay structure, which could give some validity to the argument Ledbetter tried to advance under Bazemore v. Friday, 478 U.S. 385, i.e., that an employer violates Title VII and triggers a new EEOC charging period when ever an employer issues a new paycheck under a discriminatory pay system.  Proactive employers will likely assess their pay system to determine whether employees in protected categories could claim that the pay system discriminates against them. These employers will also appropriately adjust their pay system to preclude potential plaintiffs from making Bazemore-type arguments.

Link to decision: http://www.supremecourtus.gov/opinions/06pdf/05-1074.pdf

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The contributors to this Hot Topic edition are from the Employment Rights and Responsibilities Committee.

Piper Hoffman, Esq. is a partner of Outten & Golden LLP in New York City. She represents employees exclusively, with a focus on discrimination and wage and hour class actions. She is a member of the ABA’s Section of Labor and Employment Law, Employee Rights and Responsibilities Committee. She is also the Co-Chair of the Class Action Committee of the National Employment Lawyers Association, and co-chairs Outten & Golden’s Financial Services Practice Group. For more information please visit www.outtengolden.com.

Stacey A. Campbell, Esq. is a partner representing management with Baker Hostetler LLP in Denver, Colorado.  Mr. Campbell is a trial lawyer and represents employers in both federal and state courts in all types of employment-related law suits, including covenants not to compete and unfair competition cases.  He frequently advises companies on employment-related matters and has served as "temporary" in-house counsel for a medical device company, where he represented the company in non-compete and trade secret cases across the country.  His practical approach to solving company problems both inside and outside the courtroom stems from his previous human resources experience in the corporate headquarters of Hallmark Cards, Inc. and later working in Hallmark's Legal Department.  He is a member of the ABA's Section of Labor and Employment Law, Employee Rights and Responsibilities Committee.  For more information please visit www.bakerlaw.com .