By Rebecca Bjork and Chris Palamountain

The Plaintiffs’ class action bar has made much of the retroactivity provisions of the Lilly Ledbetter Fair Pay Act of 2009, which provide that an unlawful employment practice occurs not only when a discriminatory decision is made, but also “each time wages, benefits, or other compensation is paid….”  Pub. L. No. 111-2, § 3, 123 Stat. 5, 5-6. However, a recent Second Circuit decision – Schwartz v. Merrill Lynch & Co, Inc., 2011 WL 5966616 (2d Cir. Nov. 30, 2011) – demonstrates that these provisions are not without limits, particularly when a claimant has previously executed a release of claims that encompasses prior decisions.

Schwartz participated in a 1997 class action known as Cremin, et al. v. Merrill Lynch, which alleged that Merrill Lynch discriminated against female employees by disproportionally steering lucrative client accounts to male Financial Advisors. As part of a broader settlement, class members in Cremin were given the opportunity to pursue their claims in arbitration. Id. at *2. Schwartz arbitrated her Cremin claims. As part of her individual settlement, Schwartz released Merrill Lynch with respect to any and all claims that she had as of April 2, 2001. Claims arising after April 2, 2001 were not released. Id. 

In 2003, Schwartz filed a new action asserting that Merrill Lynch had continued to discriminate against her through utilization of Account Distribution Policy credits. More specifically, Schwartz argued that years of alleged gender discrimination had allowed men to generate greater credits than women, which in turn perpetuated the ability of men to receive larger client accounts. Merrill Lynch promptly moved to confine Schwartz’s arbitration claims to events after the date Schwartz signed her release. Soon thereafter, the arbitration panel chair ruled that Schwartz’s claim “starts with April ’01.” Id. at *3. During the pendency of Schwartz’s arbitration claims, Congress enacted the Fair Pay Act.  The Act is retroactive with respect to Title VII claims pending on May 28, 2007.  Pub. L. No. 111-2, § 6, 123 Stat. 5, 7. 

In the hearing that took place after the Fair Pay Act became law, the arbitration panel permitted presentation of some evidence concerning pre-April 2001 activity but excluded other evidence because it was too remote from the start date for the claims. Ultimately, the majority of the panel concluded that Schwartz failed to establish a violation of law after April 2, 2001. Id. at *4. Schwartz filed a petition in U.S. District Court seeking to vacate the panel’s award, arguing that since her claim was pending on May 28, 2007, the panel’s decision to exclude evidence of pre-Cremin conduct was “clearly contrary to the new [Fair Pay] Act.” Id. at *5. The District Court denied the petition, finding that the arbitration panel had not demonstrated manifest disregard of the law. Id. Schwartz appealed to the Second Circuit, arguing that the Fair Pay Act gave her the right to present and recover for her claims that she lost substantial compensation during the actionable liability period based on or related to discriminatory decisions that predated her 2001 settlement and release.

The Second Circuit found “no basis for vacating the Panel Award denying Schwartz’s claims” and that “Schwartz’s contentions are without merit.” Id. at *6. Relying heavily on a contractual analysis, the Second Circuit found that the “temporal limitation imposed by the arbitrators was based on their interpretation of the Release, in which Schwartz expressly relinquished any claims ‘related to’ her employment with Merrill Lynch prior to the April 2, 2001 date on which she signed the Release.” Id. at *8. The Second Circuit also rejected Schwartz’s argument that the release preserved rights to relief for discrimination occurring after April 2001 “even if that discrimination was similar or related to” past discrimination, stating simply stating that “the Release did not clearly so state.” Id. at *9. Noting that that nothing in the Fair Pay Act “even remotely suggests that Congress intended to alter” the enforceability of releases of Title VII claims or “revive claims that had previously been released,” the Second Circuit affirmed the District Court’s denial of Schwartz’s petition to vacate the arbitration award. Id.

Employers contemplating settlement of gender discrimination claims – especially in the context of a class action settlement – will want to consider the Second Circuit’s rationale in crafting any release of claims. Even if avoiding liability for a recent employment decision is not possible, broad releases like the one Schwartz signed may limit the scope and impact of future lawsuits.