This article discusses two recent legal developments in the US (a new law in Massachusetts and a recent court decision) indicating that employers may no longer be able to refer to an employee’s previous salary to justify a gender pay gap.

By: Jeffrey D. Mokotoff, Courtney E. Majors

Firm: FordHarrison

The US federal Equal Pay Act already imposes limitations on employers when it comes to compensating employees of the opposite sex for equal work. With a recent legislative change in Massachusetts and a court decision in April, however, several jurisdictions now prohibit the use of prior salary information to justify any pay differential between men and women.

Massachusetts’ New Equal Pay Act

On 1 July 2018, Massachusetts’ new Equal Pay Act will take effect. The new Act expands Massachusetts law to prohibit an employer from:

  • seeking the wage or salary history of a prospective employee;
  • requiring, as a condition of employment, that employees refrain from discussing their wages;
  • retaliating against employees with respect to actions protected by the Act.

Penalties may include the amount of the wage underpayment, liquidated damages (an additional amount equal to the wage underpayment), and reasonable lawyers’ fees for violations of the unequal pay provisions, or damages for violations of provisions such as the anti-retaliation provision.

However, the Act does not create a total ban on prior salary inquiries. If the prospective employee has voluntarily disclosed their prior wages or salary, the prospective employer can confirm this information. Additionally, after the prospective employer has made an offer of employment that includes salary to the prospective employee, the prospective employer can confirm the prior wages or salary.

The Act also expands the guidelines regarding possible defences to paying employees of the opposite sex different salaries for equal work. The defence provisions mirror those of the federal Equal Pay Act with one exception. Instead of including the catch-all defence of ‘any other factor other than sex,’ the Massachusetts Act lays out specific defences. Thus, in addition to the federal Equal Pay Act defences (a seniority system, a merit system, and a system that measures earnings based on quality or quantity of production, sales, or revenue), the Massachusetts Act provides that differences in wages shall not be prohibited if based upon:

  • the geographic location in which the job is performed;
  • education, training, or experience (to the extent such factors are reasonably related to the particular job in question;
  • travel (if the travel is a regular and necessary condition of the particular job).

At least in Massachusetts, the Act contradicts current case law within the First Circuit (the judicial area that covers Massachusetts, Maine, New Hampshire, Puerto Rico and Rhode Island) regarding the federal Equal Pay Act. This case law states that ‘acceptable ‘factors other than sex’ include prior salary (Akerson v. Pritzker, D. Mass. 2013). The new law specifically states that an employee’s previous wage or salary history shall not be a defence to an equal pay action. The Act puts Massachusetts in line with California, which also prohibits using prior salary to justify a gender pay gap and, as a result of the Ninth Circuit’s recent decision discussed below, it also puts Massachusetts in line with several other states.

The California Labor Code (§ 432.3) prohibits employers from asking job applicants about their salary histories. Applicants may still ‘voluntarily and without prompting’ disclose their own salary history information, and an employer may rely on that information in determining salary history, as long as prior salary is not the only factor justifying a disparity in pay. Additionally, employers are required to provide a salary range upon reasonable request by an applicant. This means that in a state law unequal pay claim (brought under California’s Fair Pay Act, Cal. Lab. Code § 1197.5), an employer may use an employee’s prior salary in combination with other factors as a defence. However, as discussed below, a recent Ninth Circuit decision held that an employer could not use prior salary (alone or in combination with other factors) as a defence to an unequal pay claim.

The Ninth Circuit’s Recent Decision

In Rizo v. Yovino (9th Cir. 9 April 2018), the Ninth Circuit reversed its previously held position that employers may use prior salary as a defence to federal Equal Pay Act claims. In this decision, the Ninth Circuit (the judicial area that covers California, Nevada, Oregon, Washington, Idaho, Montana, Arizona, Alaska and Hawaii) held that ‘prior salary alone or in combination with other factors cannot justify a wage differential.’ However, this conflicts with other circuits’ interpretations of what can constitute a ‘factor other than sex.’

For example, the Eleventh Circuit (the judicial area that covers Florida, Georgia and Alabama) has held that prior salary alone does not establish an affirmative defence (that is, a legal or factual reason why the employer’s actions are justified), but that prior salary in combination with other ‘factors other than sex” (i.e. prior salary and experience) can establish an affirmative defence against federal Equal Pay Act claims (Irby v. Bittick, 11th Cir. 1995). On the other hand, the Seventh Circuit (the judicial area that covers Illinois, Indiana and Wisconsin) has held that prior salary is always a ‘factor other than sex’ (Wernsing v. Dep’t Human Servs. 7th Cir. 2005).

The concurrences of the Rizo decision (that is, the opinions of the judges who agreed with the conclusion of the majority opinion but provided different reasoning) address these sister circuit decisions. While the concurrences agreed with the majority opinion’s holding that prior salary alone could not establish an affirmative defence, they disagreed with the conclusion that prior salary can never be considered. In following the decisions of sister circuits, the concurring judges argued that prior salary should be allowed to be considered in conjunction with other factors when setting initial wages, and that not allowing it ‘ignores the realities of business and . . . may hinder rather than promote equal pay for equal work.’

Due to this split between circuits, the issue of whether prior salary can be used as a defence to an Equal Pay Act claim may ultimately reach the US Supreme Court for resolution. However, given the recent trend of state laws toward banning the use of prior salary, it is uncertain whether or how the Supreme Court will decide such a split.

Suggested Strategies to Ensure Compliance

Due to the new Massachusetts Act, California law and the Ninth Circuit decision, employers must become familiar with current and pending laws prohibiting prior salary inquiries and examine their hiring practices to ensure they are compliant. Massachusetts employers also should take note of the affirmative defence made available under the Act. Employers who perform a good faith, reasonable self-evaluation within the three-year period prior to an employee’s claim and show reasonable progress toward eliminating any unlawful gender wage gaps may assert the affirmative defence. Additionally, employers in Massachusetts and all jurisdictions should take the following steps to ensure compliance with these laws:

  • Review the laws in your jurisdiction. Massachusetts is not the only jurisdiction to pass such a law, and many of these laws vary slightly from jurisdiction to jurisdiction. For example, California’s prior salary ban requires employers, upon reasonable request, to provide the pay range for the applied-for position. Additionally, employers who operate in multiple jurisdictions should consider auditing their practices to ensure compliance in all jurisdictions.
  • Revise your materials. Employers should review their handbooks, applications, and on-boarding materials to remove any requirement that the applicant disclose his or her prior salary. Further, anti-discrimination and anti-retaliation policies should be revised to cover these new laws.
  • Re-train your hiring managers. Employers should educate their hiring managers and supervisors regarding the questions that may and may not be asked during the hiring process, as well as on the information that may and may not be considered in determining compensation.
  • Re-evaluate your use of third-party service providers. Employers should not forget about any third-party service providers they may be using, as employers may face additional legal exposure based on background checks performed by third parties that routinely obtain prior salary. Some recent prior salary-ban laws exempt employers from liability for discovery of prior salaries due to background checks, but other state laws, including Massachusetts, are silent on the issue. Additionally, employers using outside recruiters should ensure the recruiter is aware of the limitations set by these laws.

Conclusion

Based on recent trends, it is likely that laws prohibiting prior salary inquiries are only going to gain popularity in other states and localities. Although these laws are focused on benefitting groups that have been historically disadvantaged by lower wages, they create issues for employers regarding legal exposure and compliance. In jurisdictions such as Massachusetts, where such laws have already been passed, clients are advised to take legal advice to ensure their practices and policies are compliant with the new law. Clients in other jurisdictions should keep watch on their state and local legislative bodies to stay aware of any potential legislation, as many states have already introduced similar laws in their legislatures.