Courts and legislatures alike have been working to find ways to close the gender pay gap through interpretation of existing laws and new laws. One of reasons often cited for the gender pay gap is the carry-forward effect of historical pay inequality. From an employer perspective, salaries offered to employees are calculated to entice candidates and are often formulated based on the employee’s current salary. For example, employers reason that they should not need to double an employee’s current salary if a 25% increase will suffice. When this approach is used, if women are historically paid lower salaries, there is a cascading effect that carries through for each successive position.
The U.S. Court of Appeals for the Ninth Circuit ruled that the federal Equal Pay Act does not permit an employer to perpetuate pay inequality by using an employee’s prior salary as a factor. The Court expressly ruled that an employer cannot justify a wage differential between male and female employees by relying on prior salary. Rather, the Court held factors that justify such a wage differential must be based on job-related factors such as a prospective employee’s experience, educational background, ability, or prior job performance. Importantly, the Court’s opinion clarified that prior salary is an impermissible basis for paying unequal wages, whether prior salary is considered alone or along with other factors.
Savvy employer takeaways: Employers should audit salaries to ensure that there are not gaps in pay based on gender or other factors and employers should be prepared to explain the factors that account for salaries.