Why it matters

Noting that “[s]alaries speak louder than words,” the en banc U.S. Court of Appeals, Ninth Circuit ruled that employers may not justify a wage differential between male and female employees by relying on prior salary, even in combination with other factors. Aileen Rizo filed her Equal Pay Act (EPA) lawsuit after the math consultant with the public school system in Fresno County, CA, learned that her male counterparts were all paid more than she was. The employer defended the pay scale by pointing to its Standard Operation Procedure 1440, where initial salary level is set by the employee’s most recent prior salary, plus 5 percent. The county said the pay differential was based on a “factor other than sex,” namely, the plaintiff’s prior pay, and therefore was permissible under the EPA. A district court denied summary judgment in favor of the employer, and a three-judge panel of the Ninth Circuit reversed. However, the en banc Ninth Circuit granted rehearing, vacated the prior appellate decision and affirmed denial of summary judgment to the county. “[W]e now hold that prior salary alone or in combination with other factors cannot justify a wage differential,” the court wrote. “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 opinion may not be the end of the subject, however. Counsel for the employer promised the county would file a writ of certiorari with the Supreme Court, and given the current circuit split on the issue of using prior pay to justify a wage differential, the case could appear on the justices’ docket in the near future.

Detailed discussion

While having lunch with her coworkers at the Fresno County School District one day, Aileen Rizo learned that a male math consultant who had recently been hired was paid more than she was. When she discovered that all her male counterparts were paid more than she was, she filed suit under the Equal Pay Act (EPA).

The employer conceded that it paid Rizo less than comparable male employees for the same work. But the county presented an affirmative defense that the pay differential was based on a “factor other than sex,” specifically, prior salary. The employer used a salary schedule known as Standard Operation Procedure 1440—with 12 levels and progressive steps within each—to determine the starting salaries of management-level employees.

For example, when Rizo started working for the county, she was placed at Level 1, Step 1 for an annual salary of $62,133, plus a $600 stipend for her master’s degree. The male who was newly hired for the same position started on Level 1, Step 9.

The county moved for summary judgment, but the district court denied the motion. On appeal, a three-judge panel of the U.S. Court of Appeals, Ninth Circuit reversed. The EPA permits wage disparity when it occurs based on “any other factor other than sex,” the panel said, including prior salary.

But after an en banc rehearing, the full Ninth Circuit sided with Rizo and affirmed the district court’s denial of summary judgment in favor of the employer.

“The Equal Pay Act stands for a principle as simple as it is just: men and women should receive equal pay for equal work regardless of sex,” the court wrote. “The question before us is also simple: can an employer justify a wage differential between male and female employees by relying on prior salary? Based on the text, history, and purpose of the Equal Pay Act, the answer is clear: No.”

Pursuant to the statute, there are only four ways an employer can justify an unequal pay scale: “(i) a seniority system; (ii) a merit system; (iii) a system which measures earnings by quantity or quality of production; or (iv) a differential based on any other factor other than sex.”

The case turned on the fourth catchall exception, which the employer argued included prior salary. Considering the history and purpose of the statute, the Ninth Circuit strongly disagreed.

“We conclude, unhesitatingly, that ‘any other factor other than sex’ is limited to legitimate, job-related factors such as a prospective employee’s experience, educational background, ability, or prior job performance,” the court wrote. “It is inconceivable that Congress, in an Act the primary purpose of which was to eliminate long-existing ‘endemic’ sex-based wage disparities, would create an exception for basing new hires’ salaries on those very disparities—disparities that Congress declared are not only related to sex but caused by sex. To accept the County’s argument would be to perpetuate rather than eliminate the pervasive discrimination at which the Act was aimed.”

At the time of the passage of the EPA, an employee’s prior pay would have reflected a discriminatory marketplace that valued the equal work of one sex over the other, the court said. “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 Ninth Circuit cautioned that it was expressing “a general rule” and did not attempt to resolve its applications under all circumstances. Whether past salary may play a role in the course of an individualized salary negotiation, for instance, was a question reserved for another case.

Statutory interpretation also supported the court’s conclusion, it wrote. The first three exceptions in the EPA all relate to job qualifications, performance and/or experience, and it “follows that the more general exception should be limited to legitimate, job-related reasons as well,” the court said. Legislative history backed this reading, as the catchall exception was added after testimony about the need for job-related exceptions, and other federal courts have similarly held the fourth exception was limited to job-related factors.

“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,” the court wrote. “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 court also took the opportunity to clarify prior law, overruling a 1982 case relied upon by the three-judge panel. In Kouba v. Allstate Insurance Co., the Ninth Circuit held that the EPA allows an employer to consider prior salary in setting starting pay where it could establish an “acceptable business reason” for doing so. Finding that Kouba was inconsistent with the rule it announced in the Rizo opinion, the panel overruled the decision.

“If money talks, the message to women costs more than ‘just’ billions: women are told they are not worth as much as men,” the court concluded. “Allowing prior salary to justify a wage differential perpetuates this message, entrenching in salary systems an obvious means of discrimination—the very discrimination that the Act was designed to prohibit and rectify.”

Several members of the panel filed concurring opinions. Two members of the court wrote that the majority went too far in holding that any consideration of prior pay was impermissible, even when assessed with other job-related factors. Two others expressed concern that the majority “ignore[d] the realities of business” by missing the fact that prior salary may reflect factors other than gender (such as geographic location or cost of living). A fifth concurrence agreed with the court’s result but arrived at it through a different reading of the statute.

To read the opinion in Rizo v. Yovino, click here.