Supreme Court Limits Employer Exposure to Discriminatory Pay Claims

Ruling Requires Employees File Charges Promptly After Unlawful Pay Decisions

June 1, 2007

In a 5-4 decision, the Supreme Court has held that an employer's determination setting an employee's wages, and not the mere issuance of a paycheck based on that decision, triggers Title VII's deadline to file an administrative charge based on discriminatory pay. The Court's holding is important to employers throughout the nation because it bars employees from filing a Title VII disparate pay claim if the employee fails to file a charge of discrimination with the Equal Employment Opportunity Commission (EEOC) within 180 days (or 300 days in certain jurisdictions) after the discriminatory pay decision was made. The Court in its May 29, 2007, ruling rejected a "paycheck accrual rule" that had been espoused by the EEOC and others, which would allow such a suit to go forward.

Lilly Ledbetter's Pay

In Ledbetter v. Goodyear Tire & Rubber Co., Case No. 05-1074, Lilly Ledbetter worked as a manager in Goodyear's Gadsden, Alabama plant from 1979 until accepting an early-retirement package in 1998. During most of that time period, Ledbetter's salary was determined annually and was based on her supervisor's ranking of her performance. Ledbetter's performance reviews typically placed her near the bottom of rankings with her coworkers, and consequently she received small salary increases. In her last two years of employment, she was in a job slated for lay-off and, consistent with company policy, did not receive any raises. By the time of her retirement, Ledbetter's meager annual raises resulted in a large pay gap between her compensation and that of her male coworkers.

Plaintiff's Jury Victory, Appellate Defeat

In July 1998, Ledbetter filed an EEOC charge alleging, among other things, that she received disparate pay from Goodyear in violation of Title VII of the Civil Rights Act of 1964. Ledbetter filed suit in November 1999. Ledbetter's disparate pay claim was tried before a jury, which returned a verdict in her favor and awarded $223,776 in back pay, $4,662 for mental anguish and $3,285,979 in punitive damages. In moving for judgment as a matter of law, Goodyear argued that Ledbetter's claim was barred by Title VII's charge-filing deadline. Goodyear contended that no reasonable fact finder could have concluded that Ledbetter's sex was a motivating factor in denying Ledbetter a salary increase in the 180 days before she filed her charge because the uncontradicted evidence established that her impending layoff was the reason she did not receive a raise at that time. The court denied Goodyear's motion, but reduced the award and entered judgment for $360,000, plus attorneys' fees and costs.

Goodyear appealed. The Eleventh Circuit Court of Appeals reversed the district court's denial of Goodyear's motion for judgment as a matter of law. The appellate court concluded that Ledbetter's pay at the time she filed her EEOC charge was the result of long-past decisions that she could not challenge outside of Title VII's charge-filing time period.

Supreme Court Affirmation

The Supreme Court of the United States affirmed the Eleventh Circuit's decision in an opinion delivered by Justice Alito and joined by Chief Justice Roberts and Justices Kennedy, Scalia and Thomas. The Court concluded that a pay-setting decision, like a termination or demotion, is "a discrete act" forming the basis of a Title VII claim and thus triggering the 180-day period to file a charge. The Court rejected the Plaintiff's argument that the issuance of a paycheck based on an allegedly discriminatory pay decision made outside of the charging period constitutes a continuing violation of Title VII. The Court applied the principle established in its decisions in United Airlines v. Evans (1977) and Delaware State College v. Ricks (1980) that "current effects alone cannot breathe life into prior, uncharged discrimination." Noting that in disparate pay cases, "the employer's intent is almost always disputed, and evidence relating to intent may fade quickly with time," the Court also emphasized the importance of statutory time limitations in protecting employers from having to defend allegations of intentional discrimination based on conduct that allegedly occurred many years before.

The Court distinguished its prior decision in Bazemore v. Friday (1986). The Court rejected the Plaintiff's, and the EEOC's, reading of Bazemore as creating a "paycheck accrual rule," under which each new paycheck impacted by a past discriminatory pay decision always triggers a new charging period. Instead, the Court read Bazemore to create a new charging period only when an employer actually applies a discriminatory pay structure within the180-day period. In essence, the Court reconciled its decision with Bazemore by distinguishing between the continued application of a facially-discriminatory pay policy (which triggers a new charging period) and the non-discriminatory application of a facially-neutral policy regarding pay raises (which does not trigger a new charging period, even if the employee's existing pay rate is lower because of a past discriminatory decision outside of the charging period). "Because Ledbetter has not adduced evidence that Goodyear initially adopted its performance-based pay system in order to discriminate on the basis of sex or that it later applied this system to her within the charging period with any discriminatory animus, Bazemore is of no help to her."

The dissent, penned by Justice Ginsburg and joined by Justices Stevens, Souter and Breyer, argued that the unlawful practice under Title VII is the "current payment of salaries infected by gender-based (or race-based) discrimination," even if the "infection" occurred long before the plaintiff filed a charge. The dissent argues that pay claims should be considered different from other forms of disparate treatment because it is difficult for an employee to discover that he or she is receiving unequal pay. The dissent invites Congress to act:" As in 1991, the Legislature may act to correct this Court's parsimonious reading of Title VII."

What's Next?

Ledbetter is a solid victory for employers, but plaintiffs and their attorneys will seek ways to navigate around it, and they will find the dissent to be a useful roadmap. As the dissent points out, it is difficult for an employee to discover that he or she is being paid unequally, and most employers keep compensation information confidential. Consequently, we are likely to see plaintiffs claiming some form of tolling based on their inability to discover the discrimination within the charging period prescribed by Ledbetter. The majority opinion notes that Ledbetter did not claim "that discriminatory decisions that occurred prior to [the charge] period were not communicated to her."

There also is likely to be an increase in Equal Pay Act claims for gender-based disparate pay, as the Court implied that its holding does not impact claims under that Act because such claims do not require the filing of an EEOC charge or proof of intentional discrimination.

Finally, as the dissent has called on Congress to act, we will have to wait and see whether the legislature will respond as it did in 1991, when it passed a Civil Rights Act amending Title VII after several Supreme Court decisions proved unpopular with lawmakers. However, Senators Kennedy (D-MA) and Clinton (D-NY), and Delegate Eleanor Holmes Norton (D-DC), among others, already have announced that they intend to introduce bills to overturn the Court's ruling and allow employees to challenge pay decisions made at any time during their employment. Regardless of how matters proceed in Congress, employers must exercise constant vigilance over the design and implementation of their pay practices to assure fairness and reduce the incidence of discrimination claims. Jackson Lewis attorneys can assist employers in this effort.

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