The Public Policy

Blast from the Past

In their first act, President Obama and the Democratic Congress bring discrimination claims back from the dead.

By 2.3.09

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In the first new law passed by Congress and signed by President Barack Obama, the Lilly Ledbetter Fair Pay Act overturns a U. S. Supreme Court ruling against its namesake.

Lilly Ledbetter, who worked for Goodyear from 1979 through 1998, filed a discrimination claim in May 1998 alleging that she had to rebuff sexual advances of her foreman boss in the early 1980s, and that his unflattering write-ups of her work led to her being underpaid for nearly 20 years. Having stayed on the job, collected money for working and retired receiving additional benefits, she subsequently sought compensatory and punitive damages for actions dating back more than 20 years prior to the time of the trial.

A jury awarded her $228,438 in back pay (including $4,662 for mental anguish), and $3,285,979 in punitive damages. The allegedly harassing supervisor was dead by the time of the trial, so it was Ms. Ledbetter's word against his coffin. She then conflated her sexual harassment claims along with a claim of equal pay for equal work, inviting a mind-numbing review of her roles over the years. The case ended at the Supreme Court in 2007, which overturned this psychodrama by affirming the Equal Employment Opportunity Commission's rule that claims of discrimination be made within 180 days of the actual discrimination.

A key risk factor for investors in the current economic crisis has been the rapid loss of the rule of law. The rules keep changing. As the banking contagion spread, some firms -- like AIG, Fannie Mae and Freddie Mac-- were rescued, while others -- like Lehman -- were killed. Investors panicked because they no longer knew the rules and the credit markets completely seized up.

As its very first order of business, Congress has created an opportunity for the same kind of panic in the market for employing women. With the passage of this new law, there will be no statute of limitations for any transgression, ever, and every conceivable slight will be valid litigation grounds -- forever. Even the death of the discriminator won't stop the case. (In fact, as we can see from Lilly Ledbetter, it only helps.) It will be a rock festival of nuisance lawsuits and awards. At the margin, Human Resource departments will expand; productive employees will pound salt.

When Congress passed the higher minimum wage law in May 2007, teenage unemployment was about 15%. One year later, it was over 20% -- the unintended consequence of making teens more expensive to hire. By this summer it could be even higher.

Lilly's law may have a similar impact on women. From December 2007 through December 2008, men's unemployment rate went from 4.4% to 7.2%, while women's unemployment rate went from 4.3% to 5.9%. Women are employed at higher rates so there must be widespread discrimination, right? One unintended consequence of this act may in fact be greater discrimination against women. Given two equal candidates for a NEW job, the female may now be viewed as carrying greater financial risk from the increased long-term potential for litigation because of Lilly Ledbetter's Act. And perhaps fewer women will be hired compared to men.  

If the unemployment rate for women had been heading towards 8% in the next year or so, I would guess this new law will add at least one or two percent to their top unemployment rate and it will add to the number of hall monitors hired to mitigate liability. The market will have the job of discounting this additional millstone, and I doubt it will like it much.

With this opening act, Congress shows itself to be truly unserious about making it easy for business to take risks and hire people. This law represents a giant step towards copying the mediocrity of European socialism, with its persistent 10% to 12% unemployment rate in good times.

Once upon a time, only murder had no statute of limitations. Now murder one charges and EEOC claims have the same lease on life. Lilly Ledbetter's law puts the future behind us, and promises an endless rehash of the past. Only ghosts live in the past all the time. Congress is taking us to the dark side.

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About the Author

Eric Singer is the founder and manager of the Congressional Effects Fund, a mutual fund that seeks to minimize the negative effects Congress has on the stock market