Seventh Circuit Decision May Portend Increase in Equal Pay Act Claims for Illinois, Indiana, and Wisconsin Employers

On January 5, 2021, the U.S. Court of Appeals for the Seventh Circuit issued a decision in Kellogg v. Ball State University that expanded the scope of potential evidence plaintiffs may rely on to support their Equal Pay Act (EPA) claims. The decision serves as a warning to Illinois, Indiana, and Wisconsin employers to consider reviewing employee compensation to ensure compliance with pay equity requirements. Under the Seventh Circuit’s reasoning, dated evidence originating outside the statute of limitations period, such as statements made at the time of salary negotiation, may be deemed admissible to support causes of action under the EPA.

Background

The Indiana Academy for Science, Mathematics, and Humanities, which was overseen by Ball State University’s Teachers College, hired Cheryl Kellogg in 2006 as a life science teacher. During her salary negotiations at the time of her hire, Kellogg alleged that the Academy’s executive co-director told her “he wouldn’t pay [her] any more, because then [she] would be making as much as his Ph.D instructors and … he offhandedly told [her] that [she] didn’t need any more money, because he knew [her] husband worked at Ball State, so [they] would have a fine salary.” [Brackets and ellipsis in original.] In 2017, Kellogg complained that she was paid less than similarly situated male employees. The Academy responded that the issue was “salary compression”—individuals hired after Kellogg began employment at a higher salary rate. Additionally, the Academy pointed out that “Kellogg’s salary increased by 36.45% during her time at the Academy while her colleagues’ salaries increased by less.”

Kellogg subsequently sued the Academy under Title VII of the Civil Rights Act of 1964 and the EPA. In both causes of action, Kellogg claimed that the Academy engaged in sex-based pay discrimination.

The Seventh Circuit’s Analysis

The Seventh Circuit reversed the district court’s decision that granted summary judgment to the employer on both claims. With respect to her EPA claim, the court applied its precedent that required the plaintiff to first present a prima facie case of pay discrimination. The court then examined whether a genuine issue of material fact existed regarding the Academy’s defense that Kellogg’s “pay discrepancy was ‘based on any factor other than sex.’”

The court’s decision is notable because it clarified that the Lilly Ledbetter Fair Pay Act of 2009’s paycheck accrual rule applies to EPA claims. The paycheck accrual rule holds that “a new cause of action for pay discrimination ar[ises] every time a plaintiff receive[s] a paycheck resulting from an earlier discriminatory compensation practice.” [Brackets in original.] The court found the paycheck accrual rule applied to Kellogg’s EPA claim notwithstanding that the Lilly Ledbetter Fair Pay Act did not amend that law. As explained in the Lilly Ledbetter Fair Pay Act’s preamble, that law amended Title VII, the Age Discrimination in Employment Act of 1967, the Americans with Disabilities Act of 1990, and the Rehabilitation Act of 1973.

The court determined that the paycheck accrual rule applied to EPA claims even though that law was not among those amended because the Lilly Ledbetter Fair Pay Act overturned a Supreme Court of the United States’ decision. Until that decision, the Seventh Circuit “recognized the paycheck accrual rule for all allegations of unlawful discrimination in employee compensation.” [Emphasis in original.] With that obstacle removed, the Seventh Circuit returned to widely recognizing the paycheck accrual rule, including with respect to EPA claim.

Key Takeaways

While both laws prohibit sex-based pay discrimination, plaintiffs’ counsel can find multiple aspects of EPA claims more attractive to raise in litigation compared to Title VII causes of action. For example, plaintiffs do not have to exhaust any administrative requirements to bring EPA claims. Additionally, while Title VII allows capped compensatory and punitive damages, the EPA allows plaintiffs to recover uncapped liquidated (double) damages.

Kellogg highlights another difference plaintiffs may prefer with respect to EPA claims related to the different burden-shifting frameworks that apply to each law. Under Title VII, the plaintiff bears the ultimate burden of persuasion once he or she establishes a prima facie case of unlawful pay discrimination and the employer articulates a legitimate, nondiscriminatory reason for the difference in pay. However, EPA claims place the final analysis burden on the employer to establish one of the statutory defenses available under that law. Typically, the employer’s defense focuses on a pay disparity that is attributable to a factor other than sex.

The Kellogg decision foretells a potential increase in EPA claims in federal courts under the Seventh Circuit’s jurisdiction, which includes Illinois, Indiana, and Wisconsin. Plaintiffs may view the court’s reasoning related to the paycheck accrual rule as an avenue to expand the scope of evidence that they may raise to contest an employer’s basis other than sex that justifies a difference in pay (or other statutory defense). In Kellogg, statements the employer allegedly made over a decade before litigation were admissible to support the employee’s claim. This evidentiary argument and the employer’s ultimate defense burden may combine to make these claims attractive for plaintiffs in the future.