In pay discrimination cases - whether raised under the Equal Pay Act or Title VII - employers commonly justify pay disparities among employees by pointing to the differences in their education and work experience. In a recent Seventh Circuit case,* however, the Court held that education and work experience may justify different starting pay rates, but don't justify different pay raises and different intervals between raises. Because of the "striking" pay disparities among male and female salespersons in the Acosta case, and because the employer's reliance on the salespeople's different educations and work experiences was insufficient to explain the pay differences, the plaintiff was permitted to proceed with her pay discrimination claims.
In Acosta, the plaintiff was paid $40,000 a year when she started in 2001, and after six years, was paid $46,850. Twelve men (and only two women) in the same position were paid more; the pay levels of five men, some of whom had less time at the Company, were paid more than double her pay level.
As noted, the Seventh Circuit found the gender pay gap at the Company "striking." For example, all of the 12 male salespeople were paid more than all but one of the eight women in the same job classification. That one woman achieved her $60,000 salary only after six years on the job, while men with higher salaries reached their pay levels in less time at the Company. The highest paid woman was paid less than 50 percent of the highest paid man in the same job classification, doing the same work under the same conditions. Moreover, the highest paid woman was paid only $5,000 a year more than the lowest paid man.
The district court in Acosta blindly accepted the employer's argument that the salespersons' different education and experience could have accounted for the pay differences. (The employer did not even try to prove that the differences were actually due to such educational and experience differences. Indeed, Acosta's regional general manager admitted in his deposition that he could not explain how the salaries had become so out of line.) The Seventh Circuit rejected this approach, ruling that the Company would have to prove, on remand, that "education and experience account[ed] for" the pay differences.
What is most striking about the Acosta decision is that the Court of Appeals seemed to assume that - while different education and experience could justify pay differences at the time people are hired - such differences can never justify pay disparities during employment. This assumption was based on the Court's notion of how pay increases should be given - that the criteria used to set an employee's starting pay are not relevant for later pay adjustments. The Court explained: "if men arrive at Acosta with higher salaries because of education, but men and women are equally good on the job, women should get more rapid raises after employment and the salaries should tend to converge." This would be true if the law required that pay rates be based only on the employees' work performance during a brief period immediately preceding the pay increase. But the law does not require that. Education and experience brought by a new hire to an organization may continue to have value well after the employee is hired, and the employer violates no law when it continues to recognize the value of such education and experience.
Indeed, employee pay increases are often not based on work performance at all. The Court's simplistic thinking disregards across-the-board pay increases in an equal amount, for all employees performing satisfactorily. Such across-the-board increases would not close any pay gap that was created at the time-of-hire. Moreover, the Court's analysis disregards across-the-board pay increases of an equal percentage, for all employees performing satisfactorily, which would actually cause the time-of-hire pay gap to widen over time.
Acosta signals to employers that pay differences among men and women are most safely defended if they are based on work performance. This is not bad advice. However, the decision may be best explained as a reaction to an employer that tried to defend its substantial pay disparities by merely proffering a possible explanation, rather than actually proving what caused the disparities.
* King v. Acosta Sales & Marketing, Inc., No. 11-3617 (7th Cir. Mar. 13, 2012).