On the Legal Front: What’s New in Compensation Discrimination Enforcement: A Review of the Ledbetter Fair Pay Act and Paycheck Fairness Act
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Eric Dunleavy
DCI Consulting
Art Gutman
Florida Institute of Technology
The Supreme Court decision in Ledbetter v. Goodyear Tire & Rubber Company, Inc. was reviewed in the January 2008 edition of this column. The title of that article accurately captured short- and long-term reactions to the Ledbetter ruling: “A Divided Supreme Court Causes Quite a Stir.” In that article we concluded that Ledbetter was the latest in a string of rulings that divided the Supreme Court and produced majority and dissenting opinions that couldn’t be more diametrical. As expected, control of the longer term implications of the ruling ended up the responsibility of Congress in the form of the Ledbetter Fair Pay Act. It was up to the House and Senate to decide (a) whether the Supreme Court ruling was consistent with intended Equal Employment Opportunity (EEO) statutory protections, and if not, (b) what EEO law should and should not protect with regard to compensation discrimination. Since we wrote that article in 2008, the Ledbetter Act made its way to Congress more than once, detoured through a presidential election, and was eventually passed and signed into law by President Obama in January of 2009. In fact, the Ledbetter Act was the first bill President Obama signed into law. Interestingly enough, it may not be the last bill related to compensation discrimination that President Obama signs into law in 2009; Congress may have voted on another compensation discrimination bill, the Paycheck Fairness Act, by the time you read this article.
Given a renewed enforcement focus on compensation discrimination, we think it is important for the I-O community to understand the implications of the Ledbetter Act and the potential implications of the Paycheck Fairness Act. Toward that end, we briefly summarize the Ledbetter Supreme Court ruling, review the political context around the Ledbetter Act on its journey to becoming law, and consider the implications of that law. We also review the Paycheck Fairness Act, which, as written at the time of this article, would meaningfully amend the Fair Labor Standards Act (FLSA), the Equal Pay Act (EPA), and enforcement policies for both the Equal Employment Opportunity Commission (EEOC) and Office of Federal Contract Compliance Programs (OFCCP). We conclude with some potential implications for I-O psychologists, particularly for those involved in developing and monitoring compensation systems.
The Supreme Court Ruling in Ledbetter v. Goodyear Tire & Rubber Co.
As described in the January 2008 column, Ledbetter v. Goodyear Tire & Rubber was a disparate treatment case where pay discrimination was alleged based on sex. Lilly Ledbetter worked at the Goodyear Tire & Rubber company for close to 20 years and, after retiring, discovered evidence that she may have been discriminated against early in her career at Goodyear. She filed a claim of intentional discrimination in her pay under multiple statutes, including Title VII and the Equal Pay Act (EPA).
Ledbetter’s claim centered on pay decisions made early in her career, which, as expected, had long term “rippling effects” on her pay relative to men in similar jobs. Interestingly, because of the temporal lag before Ledbetter discovered potential evidence of discrimination, none of the Goodyear employees that made pay decisions early in Ledbetter’s career were at Goodyear at the time she filed her claim. In fact, the manager who made raise decisions early in Lilly Ledbetter’s career had passed away at the time of litigation.
In an initial district court ruling, a jury decided that Ledbetter was paid less than her male coworkers based on her sex. However, the jury agreed that Goodyear had not discriminated against Ledbetter in the 2 years before the filing of her complaint. In fact, over Goodyear’s objection, the judge allowed the jury to consider pay review decisions made at different times by different managers over the course of Ledbetter’s long career. The jury initially awarded her over $3 million in back pay and for emotional distress and punitive damages before the amount was reduced to meet Title VII’s damages maximum.
Goodyear appealed the ruling, and upon appeal, the Eleventh Circuit decided not to consider the pay decisions prior to the period 2 years before Ms. Ledbetter’s charge and excluded them from evidence. Instead, the Circuit held that Title VII’s protection extended to the last discriminatory act affecting pay before the start of the 2-year back pay limitations period and not to the duration of Ledbetter’s tenure. That is to say, Ledbetter’s claim had a time limit relative to when the discriminatory act occurred. If that time limit passed without a claim, then a claim cannot be made after the fact, regardless of whether a claimant was aware of the act or not. The Circuit Court of Appeals then reversed the initial verdict and dismissed the lawsuit.
Ledbetter appealed the reversal and the Supreme Court agreed to hear the case in 2006, eventually ruling in the spring of 2007. A majority of the Court sided with the Eleventh Circuit and dismissed the lawsuit in a close 5–4 ruling. Justice Alito delivered the opinion of the majority and was joined by Justices Roberts, Scalia, Kennedy, and Thomas. Justice Ginsberg filed a dissenting opinion joined by Justices Stevens, Souter, and Breyer.
The majority relied upon a set of decisions spanning 4 decades, including Bazemore v. Friday (1986) and United Air Lines, Inc. v. Evans (1977). The majority held that the initial act of pay discrimination is a “discreet act” and happens only, for example, on the day of that specific check, raise, or promotion and not during the days after that initial action when the alleged victim is paid. In other words, pay is similar enough to employment decisions like hiring and promotion that it should be treated similarly. In situations where the victim does not timely file a charge challenging the discriminatory policy or practice, the employer act is necessarily legal and is “an unfortunate event in history with no current legal consequence.”
The dissenting justices focused on the fact that employees are often unaware of pay information related to their coworkers, and given the absence of this information, it is very difficult to determine whether discrimination is occurring. The dissenting justices also supported the notion that pay discrimination is particularly damaging because of the long-term ripple effect that it can have on compensation after the initial discriminatory act. In addition, the dissent questioned the ruling relative to the purpose of Title VII and suggested that it was not consistent with the intention of EEO protection. The dissent foreshadowed where these issues would conclude in the final paragraph of their opinion: “Once again, the ball is in Congress’ court. As in 1991, the Legislature may act to correct this Court’s parsimonious reading of Title VII.”
Reactions to the Ruling
Given the potential implications of the ruling for various stakeholders, it was not surprising to see immediate reaction from the public. Many civil rights groups (e.g., National Partnership for Women and Families, Leadership Conference on Civil Rights, National Organizational for Women, etc.) and politicians agreed with the dissenting justices and considered the ruling a setback to equal employment opportunity for women. However, many employer associations (e.g., Society for Human Resource Management, Chamber of Commerce, HR Policy, National Association of Manufacturers, Equal Employment Advisory Council, etc.) agreed with the decision and argued that the Court’s ruling correctly interpreted Title VII.
Politicians including Hillary Rodham Clinton, Nancy Pelosi, George Miller, and Ted Kennedy openly condemned the ruling, and this political reaction eventually led to drafting the Lilly Ledbetter Fair Pay Act, which would reverse the ruling. However, the timing of the bill was an important issue, primarily because there was a presidential election on the horizon. Further complicating the matter was the fact that, given the makeup of Congress, the bill was expected to pass both the House and Senate. However, the Bush administration supported the Supreme Court ruling, openly criticized the act, and threatened to veto the bill if it made it to the president’s desk.
If you followed the presidential election, you know that the Supreme Court ruling was not the last time you heard Lilly Ledbetter’s name. In fact, pay discrimination became a priority in the presidential campaigns of Barack Obama and Hillary Clinton. The eventual president talked about Lilly Ledbetter and the issue of pay discrimination on the campaign trail, framing it as both an economic and civil rights issue. Lilly Ledbetter told her story to America at the Democratic National Convention. At this point, it was clear that the act had political momentum behind it, particularly if eventual President Obama was elected to the White House. Congress first voted on the act before the election in 2008, and it was passed by the House of Representatives. The act stalled in the Senate later in 2008, probably in part because of the impending election.
After the election in November, the Act once again became a legislative priority. In January of 2009, the House approved both the Ledbetter Fair Pay Act (247 to 171) and a companion bill called the Paycheck Fairness Act(256 to 163). The bills were combined in a session of Congress and sent to the Senate, and eventually separated into two bills again and voted on. On January 22, 2009 the Senate approved the stand-alone Ledbetter Act (61 to 36), and on January 27 the House again passed the act (250 to 177). On January 29, 2009, President Obama signed the Lilly Ledbetter Fair Pay Act into law, and stated: “Making our economy work means making sure it works for everyone…..That there are no second class citizens in our workplaces, and that it’s not just unfair and illegal—but bad for business—to pay someone less because of their gender, age, race, ethnicity, religion, or disability.”
What the Ledbetter Act Does
The Ledbetter Act amends Title VII of the Civil Rights Act of 1964 and the Age Discrimination in Employment Act of 1967 and modifies the operation of the Americans with Disabilities Act of 1990 and the Rehabilitation Act of 1973. Specifically, the act differentiates pay discrimination from other more overt acts of discrimination and endorses, in effect, a “continuing violation” theory of discrimination that expands the timely filing period.1 From a legal perspective, compensation discrimination may happen at three different times depending on specific context, and those times are the date:
1. “A discriminatory compensation decision or other practice is adopted”;
2. “An individual becomes subject to a discriminatory compensation decision or other practice”;
3. “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.”
1 This period is typically either 180 or 300 days from the discriminatory act.
Thus, the Ledbetter Act refines Title VII and other statutes such that pay discrimination is treated differently from other more overt acts of discrimination (e.g., in employment decisions like hiring and promotion). In addition (as described by the Ledbetter Act):
- The purpose of the act2 is “to clarify that a discriminatory compensation decision or other practice that is unlawful under such Acts occurs each time compensation is paid pursuant to the discriminatory compensation decision or other practice, and for other purposes.”
- The Supreme Court ruling in Ledbetter was flawed in that “The limitation imposed by the Court on the filing of discriminatory compensation claims ignores the reality of wage discrimination and is at odds with the robust application of the civil rights laws that Congress intended.”
- The act, and the amendments made to this act, “take effect as if enacted on May 28, 2007 and apply to all claims…that are pending on or after that date.”
2 Note that the phrase “or other practice” may be an issue of legal contention. Some in the EEO arena are worried that employment decisions other than compensation (e.g., promotions, demotions, etc.) could erroneously be covered by this phrase.
After the act was signed into law, the EEOC quickly issued a press release and a notice of guidance for potential claimants.3,4 Acting Chairman Stuart Ishimaru congratulated Congress and President Obama, saying “The Commission celebrates this important piece of civil rights legislation….The Act is a victory for working women and all workers across the country who are shortchanged by receiving unequal pay for performing equal work. The EEOC intends to enhance enforcement in this area, in addition to increasing public outreach and education.”
3 http://www.eeoc.gov/press/1-29-09.html
4 http://eeoc.gov/epa/ledbetter.html
Although the act is short, it has some important implications for claims of compensation discrimination and, necessarily, EEOC enforcement. It isn’t unreasonable to expect the number of pay discrimination claims to increase substantially in the next few years, primarily under Title VII. This is not a trivial implication, particularly given EEOC charge statistics in FY 2008, which showed a 15% increase in discrimination claims overall and similar spikes across most statutes. Intuitively, more victims of long standing pay discrimination will now be able to make claims that they could not make in light of the Supreme Court ruling. In addition, the Supreme Court ruling, legislation, and compensation discrimination as a national, political, and economic issue have received quite a bit of TV, radio, and newspaper coverage in the last few years.5 For this reason, it is reasonable to assume that many employees may now be more aware of their statutory protection and more interested in gathering information about their pay relative to others. In fact, EEOC placed a notice on its Web site suggesting that if claimants are aware of unexplained differences between their own compensation and coworkers’ compensation and believe that the difference is because of group membership they should call the EEOC for more information.
5 Note that there have been some radical recommendations made in response to the Ledbetter Act. For example, some in the EEO community have suggested that the safest way to avoid allegations of long-standing compensation discrimination would be to stop giving base pay raises. Instead, organizations could pay everyone in similar jobs the same base pay and provide differential lump sum bonuses based on performance once a year. Such a system may in theory limit liability from a temporal perspective because there is only one annual pay decision/application that could be discriminatory, and the timely charging period would expire before the next decision/application. This recommendation has obvious practical limitations, including the possibility that employees and applicants could have strong negative reactions to this type of system.
Note that the Ledbetter Act should not meaningfully affect OFCCP enforcement as it relates to compensation, primarily because the Ledbetter Act does not amend Executive Order 11246, which includes a review of compensation data in audits of federal contractors. The Solicitor of Labor’s office (SOL) has taken the position that EO 11246 does not have a timely filing period for audits and that the executive order has no statute of limitations limiting the collection of back pay. Interestingly, some federal contractors initially interpreted the Ledbetter ruling as limiting OFCCP’s compensation enforcement under the rationale that Title VII and the executive order were similar. Some federal contractors even went as far as to deny OFCCP requests for compensation data under the executive order. OFCCP threatened to take these federal contractors directly to litigation. In fact, in one recent case an administrative law judge considered this issue and ruled in OFCCP’s favor.6
6 OFCCP vs. Scott Technologies of Delaware, issued March 13, 2009. Case no 2009-OFC-00003.
The Paycheck Fairness Act
As mentioned above, the Ledbetter Act isn’t the only legislation that may affect pay discrimination enforcement in the coming years. In 2008, the House passed a version of the Paycheck Fairness Act when it was attached as a companion to the Ledbetter Act. Eventually the two bills were separated, and the Paycheck Fairness Act has been referred to various subcommittees since then but has not been voted on again. The Paycheck Fairness Act could have even broader implications for compensation discrimination enforcement than the Ledbetter Act. For example, as it was written at the time of this article, the Paycheck Fairness Act would refine EEOC enforcement of the EPA and OFCCP enforcement under EO 11246.7
7 The act would also appropriate an additional $15,000,000 to the EEOC and OFCCP to carry out enforcement.
In recent years the EPA has become an infrequently used statute. For example, from fiscal years 1997 to 2007, only between 1% and 2% of all discrimination claims made to EEOC were under the EPA. This isn’t surprising given that the statute only protects one class (gender), applies to one type of employment decision (pay), requires narrow comparisons (employees performing equal work, often interpreted as identical jobs), and has limited damages (back pay and liquidated damages). For these reasons Title VII is generally considered a more powerful and consequential statute for allegations of pay discrimination. The Paycheck Fairness Act could change that. For example, the Act would amend the EPA by:
- Allowing for both punitive and compensatory damages (matching Title VII);
- Allowing for a comparison of similarly situated (and not essentially identical) jobs;
- Endorsing a UGESP standard of affirmative defense, such that a “bona fide factor other than sex” burden would take the place of an “any other factor other than sex” burden. The “bona fide factor other than sex” burden would likely require a demonstration of job relatedness and consistency with business necessity and may also offer the plaintiff or enforcement agency the opportunity to demonstrate a “reasonable alternative;”
- Allowing pay data to be compared across physical establishments in similar geographic locations;
- Requiring EEOC to issue regulations on a compensation survey for employers;
With regard to OFCCP enforcement of EO 11246, the Paycheck Fairness Act would change how OFCCP investigates compensation discrimination by:
- Reinstating the Equal Opportunity (EO) survey as a data collection method;
- Supporting the “pay grade methodology” as adequate prima facie evidence of discrimination. In other words, multiple regression analysis controlling for legitimate factors like experience, education, and geographic location may not be necessary, and anecdotal information would not be required to support initial evidence of systemic discrimination;8
- Allowing OFCCP to decide what variables can be used in more complex analyses (e.g., multiple regression);
- Requiring that the agency “make print readily available…accurate information on compensation discrimination, including statistics, explanations of employee rights, historical analyses of such discrimination, instructions for employers on compliance, and any other information that assist the public in understanding and will address such discrimination.”
8 Note that the Paycheck Fairness Act, as currently written, does not forbid the use of multiple regression analysis to support or refute allegations of pay discrimination. In other words, employers could still use regression models to explain a disparity in later phases of enforcement. Interestingly, the Paycheck Fairness Act also provides some inconsistent guidance on how analyses should be conducted. For example, the Act endorses the “pay grade” theory of analysis, which generally refers to broad analyses where data are grouped by grade. However, the Act also reiterates that “similarly situated employees’ will be defined consistent with the EEOC manual, which are jobs that generally involve ‘similar tasks, require similar skill, effort, and responsibility, working conditions, and are similarly complex or difficult.” Note that the EEOC compliance manual does not endorse a “pay grade” theory. If an agency uses a “pay grade” strategy for initial analyses, and employers use more complex employee groupings that (1) mirror the reality of pay decisions and (2) are consistent with the EEOC manual, and develop regression models that account for bona fide factors related to pay, substantially more claims could end in litigation. In this situation the courts would then determine which methodology is more appropriate to assess allegations of compensation discrimination.
Concluding Thoughts and Implications for I-O Psychologists
It is reasonable to expect that compensation discrimination will be a major focus of enforcement agencies in the next few years. The current economic challenges may only increase scrutiny directed toward compensation systems and decisions; recall that the Obama administration has framed compensation discrimination as both an economic and a civil rights issue. Employees may be more cognizant of compensation decisions in the current economy and may be more willing to share information about pay with coworkers when raises are small or nonexistent.
In the short term, the Ledbetter Act may immediately increase the number of pay discrimination claims, perhaps as early as fiscal year 2009. In the longer term, it will be important to monitor the fate of the Paycheck Fairness Act given its potential implications. When considering the priorities of the new administration, it is also reasonable to expect OFCCP to prioritize compensation discrimination as well, regardless of whether the Paycheck Fairness Act passes.9 OFCCP may even revise their Compensation Analysis Standards and Voluntary Guidelines (2006), which describes the methodology OFCCP uses to investigate systemic compensation discrimination. In the next few years federal contractors could see very different OFCCP enforcement strategies, both in terms of resource allocation and the statistical methods used during investigation. Anecdotally, it appears that some OFCCP regions have increased their focus on pay equity enforcement in 2009, perhaps anticipating the priorities of the new administration. If the Paycheck Fairness Act passes, the EPA may become substantially more relevant, statistical analyses of compensation data in the EEO context may change, and organizations may have a more difficult time justifying the defensibility of pay decisions in litigation.
9 In a review of OFCCP settlements from FY 2007, the Center for Corporate Equality reported that less than 10% of OFCCP settlements focused on compensation discrimination. This percentage may rise under the Obama administration. The report is available at http://cceq.org.
I-O psychologists may be in a position to leverage their skills to help organizations understand the adequacy of their pay-decision systems. For example, job analysis data can be used in the development of compensation systems. Ensuring that compensation systems are standardized, reasonable, and tied to the work requirements of the job may decrease the likelihood of claims of discrimination and increase the likelihood that such a decision system would be legally defensible if disparities exist.
In addition, an understanding of jobs and statistical methods may place the I-O psychologist in a strategic position to conduct proactive pay equity analyses. These analyses are intended to determine whether there are significant disparities in compensation between two groups before the situation escalates to EEO enforcement. Organizations can make a good faith effort to evaluate their current compensation systems for evidence of disparity and may remedy any situations that require it via legitimate and data-driven pay adjustments. These analyses are usually conducted under the attorney–client privilege.
As an initial step in this process, employers should have a clear understanding of the work requirements for each job in their organization. This information can be the foundation for creating meaningful groupings of similarly situated employees for analyses. Such groupings ensure that any disparities that are identified are not simply due to differences in job, job level, and so on. Additional and legitimate factors that affect pay can then be modeled in multiple regression analyses, potentially explaining any initial disparities against protected groups (assessed by a regression coefficient) via education, experience, performance, and so forth. I-O psychologists may be leveraged to develop these statistical models, conduct analyses, and interpret results.
Anecdotally, one recent OFCCP settlement exemplifies the usefulness of a proactive pay equity analysis. In this case a significant pay disparity was identified by the agency. However, the contractor had already made adjustments to salaries based on a proactive pay equity analysis, and the disparity no longer existed. The OFCCP accepted this explanation because an initial disparity was identified proactively and corrected. In some situations like this, proactive analyses may actually cut off liability that is now actionable under the Ledbetter Act by correcting for significant differences in compensation.
As a final point, it is obvious that partisan politics greatly impacted the evolution of the Ledbetter Act and has and will continue to impact the evolution of the Paycheck Act. Generally, it is our policy to avoid political issues, except when absolutely necessary. However, when necessary, our goal is to present such issues objectively. It is not our goal to decide whether these are “good” or “bad” laws but rather to focus on the reality of what the implications of these law are. In our opinion, the reality is that employers will face increasingly heavier burdens to document and support pay scales, particularly if the Paycheck Fairness Act becomes law.
References
Dunleavy, E. M., & Gutman, A. (2008). On the legal front: The Supreme Court ruling in Ledbetter v. Goodyear Tire Co.: A divided Supreme Court causes quite a stir. The Industrial-Organizational Psychologist, 47, 55–63.
U.S. Department of Labor's Office of Federal Contract Compliance Programs. (2006). Compensation analysis standards and voluntary guidelines. Washington DC: Author.
Cases Cited
Bazemore v. Friday, 478 U. S. 385 (1986).
Lilly M. Ledbetter v. The Goodyear Tire and Rubber Company, Inc. 550 U.S. ___ (2007).
OFCCP vs. Scott Technologies of Delaware, 2009-OFC-00003.
United Air Lines, Inc. v. Evans, 431 U. S. 553 (1977).