Salary history not a defense to sex discrimination under Equal Pay Act according to the Ninth Circuit

The Equal Pay Act is a federal law that prohibits pay discrimination on the basis of sex. Unlike Title VII and state anti-discrimination laws that prohibit sex discrimination in the workplace, the EPA only applies to compensation disparity between the sexes.

The federal Ninth Circuit issued its decision in a case involving the Equal Pay Act surrounding the use of salary history as a deciding factor in salary and wage rates. The Ninth Circuit ruled in Rizo v. Yovino that the use of salary history does not justify pay disparity between men and women, overturning its own precedent. This broad rule has employer-side employment lawyers around the country in a tizzy.

The details on Rizo v. Yovino

We won’t spend too much time on the facts in this case because the Ninth Circuit staked out a position far beyond the facts of the case but it helps to understand a little about how they got here. Rizo is a teacher hired as a math consultant with the Fresno School District. The school district sets pay on a salary system that sets a consultant’s starting salary as the consultant’s prior salary plus five percent. (Then the salary steps up at set intervals.)

Rizo, a woman, discovered the male consultants had higher starting salaries. The school district uniformly applied its salary system so the difference in pay between men and women all arose from the use of past salary as a starting point on the salary track. Rizo sued, alleging the pay disparity violated the Equal Pay Act.

Equal Pay Act and pay disparity

The Equal Pay Act was enacted in 1963 as an amendment to the Fair Labor Standards Act to prohibit wage disparity between men and women. The statute requires employers to pay men and women equal pay for work of the same skill, effort, responsibility and work conditions unless one of four exceptions apply. The Equal Pay Act exceptions allowing wage disparity are:

1. A seniority system;
2. A merit system;
3. A system which measures earnings by quantity or quality of production; or
4. A differential based on any other factor than sex.

The last exception is a catchall exception that allows for any other nondiscriminatory pay system. The Fresno School District argued, as many employer-side employment lawyers do in blogs discussing this case, that the exception applies because the system does not use sex as a factor.

Not so fast, said the Ninth Circuit.

The Ninth Circuit’s new rule on the Equal Pay Act

The Ninth Circuit looked at the statutory language and the legislative history behind the Equal Pay Act, deciding that if the purpose of the statute is to close the wage gap between men and women then it hardly makes sense to allow one employer to perpetuate a prior employer’s wage differential. The majority explained:

In light of the clear intent and purpose of the Equal Pay Act, it is … clear that we cannot construe the catchall exception as justifying setting employees’ starting salaries on the basis of their prior pay. At the time of the passage of the Act, an employee’s prior pay would have reflected a discriminatory marketplace that valued the equal work of one sex over the other. Congress simply could not have intended to allow employers to rely on these discriminatory wages as a justification for continuing to perpetuate wage differentials.

The majority continued to clarify that the catchall exception, as many circuits agree, requires the nondiscriminatory factors to be job-related (not just business-related). It held that prior salary is not within the catchall because it does not act as a reasonable proxy of an applicant’s or employee’s skills or expertise. The majority continues:

Prior salary does not fit within the catchall exception because it is not a legitimate measure of work experience, ability, performance, or any other job-related quality. It may bear a rough relationship to legitimate factors other than sex, such as training, education, ability, or experience, but the relationship is attenuated. More important, it may well operate to perpetuate the wage disparities prohibited under the Act. Rather than use a second-rate surrogate that likely masks continuing inequities, the employer must instead point directly to the underlying factors for which prior salary is a rough proxy, at best, if it is to prove its wage differential is justified under the catchall exception.

The Ninth Circuit therefore established a rule that prior salary is almost never an acceptable factor to establish a wage differential between the sexes.

[W]e now hold that prior salary alone or in combination with other factors cannot justify a wage differential. To hold otherwise—to allow employers to capitalize on the persistence of the wage gap and perpetuate that gap ad infinitum—would be contrary to the text and history of the Equal Pay Act, and would vitiate the very purpose for which the Act stands.

The court left the door cracked for some situations in which prior salary might be an appropriate factor but did not specify in great detail what they are.

Bottom line: As far as the Ninth Circuit is concerned employers should not establish policies that rely on past salary as a factor to set initial wages or salary.

The impact?

Employer-side employment lawyers dumped an avalanche of blog posts last week bemoaning the outcome of this case. (You can read some here, here, here, here, here and here.) The Ninth Circuit’s holding is definitely broad as all of these lawyers complain but breadth by itself is not a reason why the holding is wrong.

Prior salary has nothing to do with an employee’s qualifications to perform a given job. Whether an applicant was paid more than another could be a reflection of performance but the employer has no way to confirm the extent performance affected pay rate over other factors such as cost of living differentials, a seniority system, labor market conditions, or sex discrimination.

An employer who adopts an applicant’s prior salary implicitly adopts all of the reasons–good or bad–for the wage disparity.

I suspect this broad interpretation will make its way to the Supreme Court because it disagrees with several circuits and even the EEOC. Given the conservative majority on SCOTUS I find it improbable that the majority will rule against giving employers the opportunity to make business-friendly salary decisions.

For now, at least, employers within the Ninth Circuit should talk to their employment lawyers about their employment policies under this decision.

The decision in Rizo is part of a set of cases brought across several federal circuits over the catchall exception. Circuits around the country have taken a less than liberal position towards employers but, unsurprisingly, the Ninth Circuit provides employees the greatest help.

Ultimately I expect the Supreme Court will adopt a position closer to the Tenth and Eleventh Circuits that allow employers to consider past salary as a factor but not as a sole factor justifying a wage differential.

How this affects Colorado employees

Like other appellate decisions discussed here outside of the Tenth Circuit this case has no direct impact on our employees. Nevertheless, the way the Supreme Court handles the rule set out in this case could change Equal Pay Act analysis in this circuit and require employers to make changes to policies.

Enterprising employment lawyers might take up similar cases and see if the Tenth Circuit in Denver wants to agree with its colleagues in San Francisco but it’s highly unlikely.

Here the Tenth Circuit rule is that prior salary cannot by itself justify a wage disparity but prior salary can be a factor in setting wage and salary for employees. The court here sets a high burden on the employer to prove it meets the catchall exception.

Its summary judgment standard for employers requires the employer to prove the prior salary policy not only could justify the wage disparity but that it does justify it. If the Supreme Court hears an Equal Pay Act case on prior salary it may rule otherwise; but for now employees have some protection from sex discrimination passing from one employer to the next in Colorado.

As always, if you believe your Colorado employer discriminates in pay on the basis of sex then you should talk to an employment lawyer right away. Delaying talking to an employment lawyer can result in losing opportunities to recover for discriminatory pay systems because each paycheck carries its own statute of limitations.