Supreme Court Issues Employer-Favorable Pay Discrimination Decision

On May 27, 2007, the United States Supreme Court, by a 5-4 decision in Ledbetter v. The Goodyear Tire & Rubber Company, Inc., (2007), held that in disparate treatment cases under Title VII alleging pay discrimination, the discriminatory act is the decision to set or alter the plaintiff's pay rate based on a protected category, not the subsequently issued paychecks resulting from that decision. It thus reaffirmed its prior holdings that the later effects of past discrimination do not restart the clock for filing a Charge of Discrimination with the Equal Employment Opportunity Commission ("EEOC"), a principle it had never applied before to a pay discrimination claim. This is a tremendously favorable decision for employers.

Plaintiff, Lilly Ledbetter, was a salaried employee at Goodyear's Gadsen, Alabama plant from 1979 until 1998. For most of her employment, Ledbetter was an area manager, a position largely held by men. By the time she retired, she was the only female area manager. At that time, she was making $3,727/month, which was $559-$1509/month less than the male area managers. Ledbetter claimed the salary disparity was the result of the company's practice of determining pay based on performance evaluations; she claimed she had received poor performance reviews due to sex discrimination by her supervisors.

In March 1998, Ledbetter submitted a questionnaire to the EEOC, followed by a Charge of Discrimination in July 1998. By the time Ledbetter contacted the EEOC in March 1998, the statute of limitations to file an EEOC Charge had expired with respect to the decision setting her last wage rate. However, she had received paychecks based on that decision during the applicable limitations period. Thus, she argued that, because her salary was set based on a discriminatorily poor performance evaluation, every paycheck she received thereafter was discriminatory and should extend the limitations period for her claim.

After receiving her right-to-sue letter, she commenced her lawsuit in November 1998 alleging, among other things, a Title VII pay discrimination claim and a claim under the Equal Pay Act of 1963 ("EPA"). The District Court dismissed her EPA claim prior to trial; Ledbetter did not appeal this decision. However, the jury found in favor of Ledbetter on her Title VII claim. The Court of Appeals, Eleventh Circuit, reversed that decision, and Ledbetter appealed.

The question before the Supreme Court, as framed by the Court, was whether a Title VII pay discrimination claim can be based on a discriminatory event that occurred outside the applicable limitations period for filing an EEOC Charge (300 days in states with state EEOC-equivalent agency, 180 days in states without such an agency), when the adverse effects of the discrimination occurred within the applicable time frame. The Court had previously decided that question in the negative with regard to other kinds of disparate treatment claims, such as discharge decisions, in United Air Lines, Inc. v. Evans, 433 U.S. 553 (1977), Delaware State College v. Ricks, 449 U.S. 250 (1980) and Lorance v. AT&T Technologies, 490 U.S. 900 (1989).

In Ledbetter, the Supreme Court decided that question in the negative for pay discrimination claims, explicitly rejecting the suggestion "that an employment practice committed with no improper purpose and no discriminatory intent is rendered unlawful nonetheless because it gives some effect to an intentional discriminatory act that occurred outside the charging period." Specifically, the Court held that a Title VII pay discrimination claim cannot be based on any pay decision that occurred prior to the applicable limitations period for filing an EEOC Charge, even if paychecks based on that prior decision were issued during the limitations period. Because Ledbetter never alleged Goodyear acted with discriminatory intent regarding the two pay checks she received during the 180 days prior to submitting the EEOC Questionnaire, she did not have a timely Title VII claim.

Key to the Court's analysis was its determination that Ledbetter's claim contained a series of discrete acts (wage decisions and paychecks), each of which was independently identifiable and actionable, instead of a single wrong consisting of a succession of acts. In other words, it was not a "continuing violation." Thus, the Court explained, to be considered unlawful, each act must have been motivated by discriminatory intent. Yet Ledbetter conceded, and the Court agreed, each issuance of her paycheck within the limitations period was not done with any discriminatory intent; rather, they simply effectuated the prior pay decision, made outside the limitations period. Because the repeated pay checks were merely the non-discriminatory adverse effects of a past alleged discriminatory act, the Court held they neither created a new violation nor extended the limitations period for the actual alleged discriminatory act. The Court believed that to hold otherwise would place too large a burden on employers and would distort Title VII's "integrated, multi-step enforcement procedure."

Ledbetter also argued that the Court should find in her favor based on its prior decision in Bazemore v. Friday, 478 U.S. 385 (1986). In Bazemore, the employer used a discriminatory pay structure; it had one pay scale for Caucasians and another for African-Americans. The Court held that usage of a facially discriminatory pay structure creates a new Title VII violation each time a paycheck is issued. However, as the Court explained, Bazemore was premised on the notion that the pay system itself was discriminatory, and thus with each paycheck, the employee could demonstrate an intent to discriminate. Conversely, Ledbetter conceded that the pay system at Goodyear - which was based on performance - was facially neutral, not adopted for the purpose of discriminating on the basis of gender, and neutrally applied. The problem was not the system itself, but rather the actions of a single supervisor in giving her an allegedly discriminatory performance review to subvert the system. Bazemore was thus inapplicable.

Finally, the Court explicitly rejected Ledbetter's argument that claims related to pay should be treated differently from other discriminatory acts. Ledbetter relied heavily on the EPA, which prohibits paying unequal wages for equal work because of sex. Ledbetter argued that many lower courts hear EPA claims challenging pay disparities that first arose outside the limitations period, and she suggested the Court hold that Title VII is violated each time an employee receives a paycheck reflecting past discrimination. In response, the Court noted two things: 1) Title VII is not the EPA - the former requires proof of discriminatory intent while the latter does not; and 2) Ledbetter's original EPA claim was not before the Court because she never appealed its dismissal. The Court did not address how it would have ruled if Ledbetter had appealed her EPA claim except to note that, had she done so, she would not face the Title VII obstacles she was confronting in this case. Unfortunately, this does not provide any indication how it might address similar claims under the EPA.

The Ledbetter decision is a great victory for employers. It clearly puts the onus on an employee to challenge every potential discriminatory act in order to preserve a pay claim. This will likely lead plaintiffs to attempt more vigorous use of the EPA as a way to challenge pay claims, although the EPA is only available for gender-based disparities, whereas Title VII covers additional protected classes (e.g., race, religion). However, it will be interesting to see how long the decision remains in force. Already several members of Congress have decried Ledbetter and vowed to introduce legislation overruling it. While such a course of action is not common, Congress has legislatively countermanded several past Supreme Court decisions. Indeed, on June 22, Rep. George Miller (D-Calif.) introduced the "Lilly Ledbetter Fair Pay Act" (bill number not yet available). This bill would amend Title VII, as well as the Age Discrimination in Employment Act, Americans with Disabilities Act, and Rehabilitation Act, to specify that a discriminatory pay decision occurs each time a paycheck is issued based on a discriminatory wage decision. This issue certainly merits further monitoring.