The court, in a 5-4 ruling, said that employers would otherwise find it difficult to defend against claims "arising from employment decisions that are long past."
The case concerned how to apply a 180-day deadline for complaining about discriminatory pay decisions under Title VII of the federal Civil Rights Act of 1964.
Lilly Ledbetter sued Goodyear Tire & Rubber Co., claiming that after 19 years at the company's Gadsden, Ala., plant, she was making $6,000 a year less than the lowest-paid man doing the same work.
Ledbetter claimed the disparity existed for years and was primarily a result of her gender. A jury agreed, but an appeals court overturned the verdict because she had waited too long to begin her lawsuit.
The deadline set in the law means nothing if employees can reach back years to claim discrimination, the company argued to the court.
Justice Samuel Alito, writing for the court, agreed that Ledbetter's claim was untimely.
CBS News legal analyst Andrew Cohen said the decision is a clear victory for employers.
"By limiting the timeframe that employees can use the decision obviously helps employers, both in limiting the number of cases that will be brought under the federal law and reducing the amount of damages in play even if any of those cases are successful," Cohen said.
However, Cohen added that what is likely to come out of the ruling "is new pressure on employees to bring their complaints right away when they feel there is discrimination in the workplace. So in the short term we may actually see more cases against employers – though they will have less exposure to big damage awards thanks to the time limit the court has just recognized."
The decision broke along ideological lines, with the court's four liberal justices dissenting.
Justice Clarence Thomas, who once led the federal Equal Employment Opportunity Commission, sided with Goodyear.
Five years ago, Thomas joined his liberal colleagues in a 5-4 decision that made it easier for victims to complain about long-term job discrimination or harassment when shabby treatment was extended over a period of months or years.
Ledbetter argued that each paycheck that was smaller than those received by similarly situated men amounted to a new discriminatory act. She didn't sue earlier, Ledbetter said, because employees are less willing to rock the boat when they are new on the job and have no reason to believe there could be such pay disparity.
The EEOC, which is responsible for investigating workplace discrimination claims, said Ledbetter's claims could go forward.
After a trial, she was initially awarded more than $3.8 million. A judge reduced the award to $360,000.
The 11th U.S. Circuit Court of Appeals overturned the verdict. The appeals court said Ledbetter mainly was complaining about decisions made by her supervisors long ago, well after the deadline for raising allegations of discrimination.
The NAACP, AARP and other civil rights groups sided with Ledbetter, saying employers would not suffer any consequences for recurring discrimination if they could rebuff allegations merely by arguing that the deadline for complaining about the first episode passed.
Goodyear denied discriminating against Ledbetter. She received periodic raises despite being ranked near the bottom of her group of workers, the company said.
The U.S. Chamber of Commerce and the National Federation of Independent Business said that if the court had ruled for the worker in this case, employers would be subject to damages for innocent decisions made years ago that would be difficult to defend because of the passage of time.
The case is Ledbetter v. Goodyear Tire & Rubber Co., 05-1074.