On April 9, the full Ninth Circuit held that employers may not rely on an employee’s prior salary as a “factor other than sex” in defending against a claim under the Equal Pay Act. Rizo v. Yovino, No. 16-15372 (9th Cir. April 9, 2018) (found here). In making this determination, the court phrased the question before it concisely, asking “can an employer justify a wage differential between male and female employees by relying on prior salary?” The answer: a resounding “no.” The court further stated that the “text, history and purpose of the Equal Pay Act” do not allow an employer to rely on an employee’s prior salary to justify a wage disparity. Id.

The Equal Pay Act was passed in 1963, and requires employers to pay men and women equal pay for jobs requiring equal skill, effort, and responsibility under similar working conditions. 29 U.S.C. § 206(d)(1). To succeed in a claim under the Equal Pay Act, a plaintiff must show that her employer paid male and female employees different wages for substantially equal work, unless one of four statutory exceptions applies. The four exceptions are: “(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.” Id.

Rizo involved the fourth exception, “any other factor other than sex.” The plaintiff was a female math consultant working in the Fresno County (California) Office of Education (the “County”). Ms. Rizo had previously worked in Maricopa County, Arizona, as a middle and high school math teacher, where teacher salaries are generally lower than in Fresno County.[1] At the time Ms. Rizo was hired, the County set employees’ initial salary levels utilizing a procedure that relied exclusively on prior salary. During lunch with colleagues, Ms. Rizo learned that her male colleagues were hired at higher salary levels, and subsequently brought suit against the County. The County responded that it was acceptable to rely on Ms. Rizo’s prior salary as a factor other than sex under the Equal Pay Act. Under a 1982 Ninth Circuit case, Kouba v. Allstate Insurance Co., the court had previously approved use of salary as a factor other than sex that could be considered, so long as the employer was able to articulate business reasons for using prior salary in setting compensation, and uses prior salary in a way that is consistent with the articulated reasons. See Kouba, 691 F.2d 873 (9th Cir. 1982), overruled by Rizo v. Yovino, No. 16-15372 (9th Cir. Apr. 9, 2018). Last year, a three judge panel had agreed that prior salary could be considered under Kouba. Ms. Rizo then petitioned the full court for a rehearing.

In reaching the decision on April 9 in Rizo, the full Ninth Circuit overturned Kouba. The court ruled that the phrase “factor other than sex” in the Equal Pay Act is “limited to legitimate, job-related factors such as a prospective employee’s experience, educational background, ability, or prior job performance.” Rizo, slip op. at 12. The court went on to explain its view that prior salary is simply not “job related,” and is not “a legitimate measure of work experience, ability, performance, or any other job-related quality.” Id., slip op. at 27. Further, the court noted that utilizing salary history “may well operate to perpetuate the wage disparities prohibited by the [Equal Pay] Act.” Id. Accordingly, the court held that salary history may never be considered in setting initial salaries. Although all eleven judges participating in the April 9 decision agreed that the County’s use of salary history was impermissible, five of the judges expressed concerns about the court’s blanket ban on using salary history to set initial salaries. Judge McKeown expressed concern that the court’s decision, taken to its logical conclusion, would prohibit an employer from using salary history, even when a job applicant voluntarily discloses salary information in negotiations. Slip op. at 37 (McKeown, J., concurring). In contrast, recent legislation enacted in California expressly permits an employee to voluntarily disclose prior compensation. Cal. Labor Code § 432.3(g).

The Ninth Circuit, which covers nine western states (Alaska, Arizona, California, Hawaii, Idaho, Montana, Nevada, Oregon and Washington), is now the only federal court of appeals to hold that salary history may never be used to set initial salaries. This is in sharp contrast to the Seventh Circuit, which is the sole federal court of appeals to hold that salary history is always a factor other than sex. See Wernsing v. Dep’t of Human Servs., State of Illinois, 427 F.3d 466 (7th Cir. 2005). Several courts have held that prior salary history alone may not justify wage disparities between men and women. See Riser v. QEP Energy, 776 F.3d 1191 (10th Cir. 2015); see also Irby v. Bittick, 44 F.3d 949 (11th Cir. 1995). In the Tenth Circuit (which covers Colorado, Kansas, New Mexico, Oklahoma, Utah, and Wyoming), for example, prior salary may only be used in combination with other factors to justify wage disparities, and in the Eighth Circuit (which covers Arkansas, Iowa, Minnesota, Missouri, Nebraska, and South Dakota), use of prior salary is acceptable, but courts will “carefully scrutinize” discrepancies to avoid the improper use of market wage disparities. See Riser, 776 F.3d 1191; see also Drum v. Leeson Elec. Corp., 565 F.3d 1071 (8th Cir. 2009). The attorney for the employer in Rizo has publicly stated that the County will appeal the decision to the U.S. Supreme Court.

Key Takeaways

1. Employers should revise job applications, other recruiting forms and practices, and other policies to ensure objectivity in setting compensation levels.

2. Employers may also wish to consult with an employment lawyer and consider conducting a pay equity audit.