This week, the 9th Circuit issued a decision that many say represents a sea change in how employers may defend against Equal Pay Claims. The decision in Rizo v. Yovino issued on April 9, 2018 overturned decades of interpretation of the Equal Pay Act and held that prior salary history may not be considered by employers. However, there is some language in the ruling that appears to muddy the general rule announced by the Court.
Under the Equal Pay Act, it is illegal for employers to pay men and women different salaries for substantially similar work. However, an employer may defeat an Equal Pay Act claim by proving that there were legitimate, non-discriminatory reasons for the salary differential. Traditionally, courts have found that one of those legitimate, non-discriminatory reasons might be that the employer based the salary on the compensation the employee received at a prior job.
Indeed, many employers routinely ask what salaries applicants are currently making. In that way, employers understand applicants’ salary expectations but also have an awareness of where to set the salary being offered to the applicant.
In recent times, some jurisdictions have passed laws prohibiting employers from asking about prior salary history. The stated reason for these laws is that it perpetuates prior gender pay discrimination. Basically, if an employee was subjected to a discriminatory wage rate at a prior employer, using that salary at the new employer would set the employee’s salary lower than other employees and, even if the new employer is not overtly acting in a discriminatory manner, would continue the past discriminatory practice.
Right now, the number of jurisdictions with such laws is limited. However, the Rizo decision may change that.
Rizo, a school teacher, was hired by Fresno County as a math consultant. Fresno County had a standard operating procedure that set ten salary steps. When a teacher was hired, salary was set based on taking the teacher’s former salary and adding 5%. Once the salary was calculated, the teacher was placed in the appropriate step of the pay scale. After her hire, Rizo discovered that male math consultants had been hired at higher salary steps. For its part, Fresno County claimed that the use of prior salary was a long-recognized legitimate factor and that if salaries were reviewed as a whole, more women were placed at higher salary steps than men.
The Ninth Circuit heard the case en banc in order to clarify the law as to whether prior salary history alone or in combination with other factors could be a legitimate factor “other than sex” that justified the salary differential.
The Ninth Circuit held that prior salary alone cannot be a legitimate factor other than sex. It then went even further, which caught most people off guard, and said that prior salary is never a legitimate business factor even if taken into consideration with other factors. The Court did say that there might be individualized cases where salary was negotiated and past salary came into play and that it took no position on whether prior salary could be considered in those cases.
This ruling is contradictory and employers should not consider this language a safe harbor. Given the other language in the opinion that repeatedly states that asking about prior salary frustrates the entire purposes of the Equal Pay Act and should never be considered, employers should not bank on the fact that there might be some conceivable fact pattern that allows employers to consider prior salary history. This is true, despite the very valid points brought out in the concurring opinions, that there are times that prior salary history has nothing to do with gender. For example, prior salary may have been set based on cost of living or demand for particular jobs.
Based on this ruling, the safest course of action would be for employers within the Ninth Circuit to never ask about prior salary history. However, what happens if the applicant volunteers it while trying to negotiate terms and conditions of the new job? This decision doesn’t really answer that question.
At this point, there are other circuits that allow for the consideration of prior salary history in combination with other factors. It will be interesting to see if the Supreme Court decides to take up the split.