• New Jersey Supreme Court Holds that Employers are Liable for Discriminatory Wages, Even When the Pay Decision Was Made Outside the Statute of Limitations
  • November 30, 2010 | Authors: John P. Barry; Jeremy M. Brown; Wanda L. Ellert; Marvin M. Goldstein; Joseph C. O'Keefe; Lawrence R. Sandak; Steven Yarusinsky
  • Law Firms: Proskauer Rose LLP - New York Office ; Proskauer Rose LLP - Newark Office ; Proskauer Rose LLP - New York Office ; Proskauer Rose LLP - Newark Office ; Proskauer Rose LLP - New York Office
  • On November 23, 2010, the New Jersey Supreme Court held that each payment of discriminatory wages is a separate and actionable wrong that restarts the running of the two-year statute of limitations under the LAD. Alexander v. Seton Hall University, A-87-09 (Nov. 23, 2010). Thus, even if the act of discrimination that caused the pay differential occurred more than two years before an employee filed a suit, the employee can still maintain a LAD claim for discrimination in compensation based on paychecks issued within the two-year period. 

    The plaintiffs in Alexander were three female tenured professors at Seton Hall University, all over the age of 60 with 19 or more years of service. In 2005, the plaintiffs obtained a copy of Seton Hall’s most recent annual report, which included information on the salaries of full-time faculty members. The salary information was categorized by age and gender, and it was readily apparent that the plaintiffs were earning less than more recently hired younger faculty members. The plaintiffs also concluded that there were pay disparities between males and females. The plaintiffs filed suit in 2007 under the LAD, alleging age and gender discrimination. They did not allege, however, that any discriminatory pay decisions occurred within the limitations period. Rather, they alleged that decisions made earlier continued to impact their pay within the limitations period. They sought back pay dating back to their hire.

    The Court rejected the plaintiffs’ argument that discrimination in pay is a continuing violation of the law that would allow them to reach back and recover damages for decades of unequal pay. Accordingly, while an employer may have to defend against allegations of discriminatory pay decisions made long ago that continue to affect an employee’s compensation, the plaintiff will not be able to recover damages for lost pay before the two-year period prior to filing suit.

    In its holding, the Court rejected the U.S. Supreme Court’s rationale in Ledbetter v. Goodyear Tire & Rubber, 550 U.S. 618 (2007), which held that the statute of limitations for pay discrimination claims under Title VII of the Civil Rights Act of 1991 started when the alleged discriminatory pay decision was made and was not revived with the issuance of each paycheck. The Ledbetter decision was legislatively reversed by the enactment of the Ledbetter Fair Pay Act (FPA), which was retroactive to May 28, 2007, the day before the Ledbetter decision. The FPA amended Title VII and other federal employment discrimination laws to provide that an unlawful act occurs “each time wages, benefits, or other compensation [are] paid resulting from an earlier discriminatory practice.” 42 U.S.C.A. § 2000e-5(e)(3)(A)). The FPA further allows for recovery of back pay up to two years preceding the filing of the charge. 42 U.S.C.A. § 2000e-5(e)(3)(B)). While the Court based its decision on prior New Jersey case law and its own interpretation of the LAD, it concluded that the FPA rendered the Ledbetter decision “obsolete” and saw no reason to adopt its reasoning. Indeed, the result of the Court’s holding is that the statute of limitations for discriminatory pay cases under the LAD appears to be similar to the FPA, with respect to when the statute starts running and the time period for which back pay may be recoverable.

    Implications for Employers

    The Alexander decision will enable New Jersey plaintiffs to bring this type of pay discrimination claim in state court rather than under federal employment statutes and thus avoid federal court jurisdiction. Further, unlike federal law, there are no caps on emotional distress or punitive damages under the LAD. Thus, plaintiffs’ options and remedies are enhanced by the Alexander decision. Importantly, though, the Court noted that employers can still raise equitable defenses such as laches (based on a plaintiff’s undue delay in seeking relief).

    The potential impact of the discovery rule, under which a statute of limitations does not begin to run until a plaintiff discovers the wrong at issue, is not yet clear. The plaintiffs here brought their action within two years of obtaining a copy of the annual report with the faculty salary information. The Court noted that the trial court had declined to apply the discovery rule to the plaintiffs’ claims, but that this issue was not appealed and not before the Court. Thus, it remains to be seen whether such claims could be precluded if the plaintiff was aware of the alleged discriminatory pay disparity before the limitations period, but failed to file suit within two years of “discovering” that disparity.

    In addition, this case should serve as a wake-up call for any employers which have not yet reviewed their policies and practices on documenting pay decisions and retention of documents that might be needed to defend pay decisions in lawsuits many years or even decades hence. Put another way, this opinion permits lawsuits commenced 10, 15, 20 or more years in the future to be based on decisions made today. Accordingly, Employers which have not done so already should consider instituting procedures to put themselves in a position to adequately defend such future lawsuits. Some steps may include:

    • Ensure that your workplace has systems in place for setting and reviewing all pay decisions - including initial pay at hire and merit-based decisions arising from performance evaluations;

    • Document the reasons for pay decisions, particularly the rationale for why certain employees may receive higher or lower pay, benefits, or evaluations than similarly situated co-workers;

    • Recognize that documentation is key to defending against a pay discrimination claim;

    • Train managers, supervisors, and executives on how to conduct an appropriate performance evaluation. Consider establishing a review process for all personnel evaluations that impact merit-based pay decisions;

    • Retain indefinitely any documents in personnel or other files that relate to compensation decisions in any way;

    • Train managers, supervisors, and executives in document retention and maintenance to ensure consistent employment records;

    • Consider whether a review of compensation levels should be conducted, possibly with assistance of counsel to maintain confidentiality; and

    • Seek advice of counsel when unsure of your obligations.