Federal Court Rules Past Salary Cannot Justify Unequal Pay

IMPORTANT DATES

April 9, 2018 The U.S. Court of Appeals for the 9th Circuit ruled that the Equal Pay Act requires pay equity between genders regardless of salary history.

HIGHLIGHTS

  • A federal court has ruled that paying men and women differently based on pay history violates federal law.
  • The court held that an individual’s prior salary is not a factor “other than sex” under the Equal Pay Act.
  • The decision means employers may not rely on prior salary, even in combination with other factors, to set unequal wages.

ACTION STEPS

Affected employers should ensure that any pay differentials between their male and female employees who perform substantially equal work are not based, even in part, on the employees’ past salaries.

OVERVIEW

The U.S. Court of Appeals for the 9th Circuit has ruled that employers may not use salary history as a basis for paying one employee less than it pays another employee of the opposite gender for equal work. The court’s decision in Rizo v. Fresno County Office of Education, issued on April 9, 2018, applies to employers in Alaska, Arizona, California, Hawaii, Idaho, Montana, Nevada, Oregon and Washington.

The decision overturned a prior ruling by the same court and may conflict with case law from other circuits, which hold that employers may use past salary in combination with other factors to set initial wages. In Rizo, the 9th Circuit held that, even when combined with other factors, salary history cannot justify paying men and women differently for similar work.

Background

The Equal Pay Act (EPA) is a federal law that prohibits virtually all employers from compensating employees differently based on gender. Specifically, the EPA requires employers to pay male and female employees equally if they perform work that is “substantially equal” in the same workplace. However, the law does permit unequal pay between employees of opposite genders if the difference is based on a seniority or merit system, a production-based earning system or any other factor “other than sex.”

Rizo v. Fresno County Office of Education

In Rizo v. Fresno County Office of Education, the 9th Circuit held that the EPA’s exception for factors other than sex does not include salary histories. This case began in 2012, when Aileen Rizo, a woman who worked as a math consultant for the Fresno County Office of Education, learned that her male co-workers were paid significantly more than she was paid to perform the same work. Alleging that these disparities violated the EPA, Rizo filed a lawsuit against the employer.

In response, the employer admitted that it paid Rizo less than it paid her male counterparts for equal work, but asserted that it had a valid defense under the EPA’s other than sex exception because it had based all of its employees’ pay rates on the amounts the employees had earned at their previous jobs. A district court disagreed, holding that the EPA does not allow employers to use salary history as the sole basis for pay differences.

The employer appealed to the 9th Circuit, which also held in Rizo’s favor. However, the 9th Circuit’s ruling went beyond that of the district court by specifying that the EPA imposes a strict prohibition against using salary histories to set employees’ initial wages. This overturned a previous decision the 9th Circuit had issued in 1982, in which it held that no strict prohibition applied. Replacing that decision, the court in Rizo concluded that the EPA’s exception for factors other than sex is limited to legitimate, job-related factors—such as a prospective employee’s experience, educational background, ability or prior job performance—and that an individual’s past salary does not constitute a job-related factor. Therefore, the court held employers may not use salary history, neither alone nor in combination with other factors, to set wages.

Considerations for Employers

The 9th Circuit’s holding does not necessarily determine whether, or under what circumstances, past salary may play a role in the course of an individualized salary negotiation. Instead, the decision sets a general prohibition against using past salary, alone or as part of a combination of factors, to justify paying men and women differently where no individualized salary negotiation is involved. In addition, the EPA itself only applies in situations where men and women perform substantially equal work.

However, employers with 15 or more employees should be aware that Title VII of the Civil Rights Act also prohibits them from discriminating in pay based on gender, and that this equal pay requirement applies even in cases where employees do not perform substantially equal work.


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