On February 27, 2020, the Ninth Circuit issued a long-anticipated decision in Rizo v. Yovino.1 Consistent with the Ninth Circuit’s original opinion issued in 2018, which was vacated on procedural grounds by the United States Supreme Court in 2019, the appellate court affirmed its prior holding and concluded that: (1) only job-related factors may excuse wage disparities between comparable employees within the context of a federal Equal Pay Act (EPA) claim, and (2) prior salary, alone or in consideration with other factors, is not job-related, and therefore cannot serve as an affirmative defense to an EPA claim.
The Federal Equal Pay Act
By way of background, the EPA prohibits using compensation as a means to discriminate against employees “on the basis of sex” by paying employees differently for comparable work performed under similar working conditions.2 The statute includes four exceptions to this general prohibition, and provides that wage disparities between comparable employees of the opposite sex will be deemed lawful where the employer can establish that the wage disparity relates to: (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.”3 The exceptions to the EPA function as affirmative defenses to liability.4
In the Rizo decisions, the Ninth Circuit considered the scope of the most widely used affirmative defense exception to the federal EPA—the fourth enumerated exception—commonly referred to as the “catchall” exception.
Factual Background Regarding Rizo’s Equal Pay Claims
In 2014, a math consultant employed by Fresno County Office of Education, sued her employer and brought claims under the federal Equal Pay Act and sex discrimination under Title VII of the Civil Rights Act. The plaintiff argued that the County’s pay schedule, which was used to set her compensation upon hire, was unlawful under the EPA.
Fresno County used a pay schedule to set new employee compensation. The pay schedule designated various salary levels, which corresponded to different job classifications. In calculating new employee compensation, the pay schedule started with the employee’s prior compensation, increased that compensation by 5%, and then placed the employee at the equivalent step within the pay schedule.5 While attending a lunch with colleagues in 2012, the plaintiff learned that one of her newly hired male colleagues was placed at a higher “step” within the pay scale than she was, and that all of her comparable male colleagues earned more than she did.
In its motion for summary judgment, the County argued that the disparity between the plaintiff’s pay and that of her comparable male colleagues was permissible under the EPA’s fourth “catchall” exception because it was the result of the County’s pay schedule, which was gender-neutral on its face, and constituted a “factor other than sex” sufficient to defeat the plaintiff’s EPA claim. The district court denied the County’s motion for summary judgment and the case was appealed to the Ninth Circuit.6
Procedural Background Regarding Supreme Court’s Order to Vacate, Remand Rizo
In April 2018, the Ninth Circuit issued its first decision in the Rizo case (“the 2018 decision”).7 In the 2018 decision, the Ninth Circuit concluded that, in order to avail themselves of the EPA’s fourth “catchall” exception, employers must establish that the factor other than sex was “job-related” and that prior salary, alone or in conjunction with other factors, could never excuse such a disparity.8
However, on February 25, 2019, the United States Supreme Court vacated the Ninth Circuit’s 2018 decision on a procedural basis.9 The author of the majority opinion, the Honorable Stephen Reinhardt, passed away a few days before the 2018 decision was issued.10 Accordingly, the Supreme Court determined that Judge Reinhardt’s vote could not be counted in the en banc majority for purposes of the 2018 opinion.11 On this basis, the Supreme Court vacated the 2018 decision and remanded the case for further proceedings consistent with its opinion.12
The Ninth Circuit’s Analysis on Remand
On remand, the Ninth Circuit reached the same conclusion it did in 2018.13 The Ninth Circuit held that only job-related factors may serve as affirmative defenses to EPA claims, and that prior pay, alone or in combination with other factors, cannot serve as an affirmative defense to an EPA claim.14
Although the Ninth Circuit’s decision on remand (“the 2020 decision”) ultimately reached the same conclusion as its predecessor opinion, its analysis differed slightly from that of the original. These differences may have wider implications with respect to federal EPA claims and, as such, we review them here.
EPA Plaintiff is not Required to Prove Pretext Under McDonnell Douglas Framework
In the 2020 decision, the Ninth Circuit first clarified the burden-shifting framework applicable to EPA claims. According to the majority opinion, existing Ninth Circuit authority was ambiguous as to whether an EPA claim should be analyzed within the context of the well-known McDonnell-Douglas burden-shifting framework, applicable to employment discrimination claims.15 In its decision, the Ninth Circuit explained that because the EPA does not require proof of intentional discrimination, the three-step burden-shifting framework of McDonnell Douglas is inapplicable to EPA claims.16
In doing so, the Ninth Circuit clarified that EPA claims have two basic steps: (1) the plaintiff bears the burden of proof to establish a prima facie showing of a sex-based wage differential;17 and (2) if the plaintiff meets this burden, then the burden shifts to the employer to prove that one of the four statutory affirmative defenses applies.18 If the McDonnell Douglas standard applied to EPA claims, then after the second step, the burden would shift back to the plaintiff to prove that the employer’s affirmative defense was pretextual. In clarifying the burden-shifting framework, the Ninth Circuit clarified that no showing of pretext is required, and emphasized that the EPA operates within a “strict liability” framework.19
Factors Other Than Sex Means “Job-Related” Factors Other Than Sex
Like the 2018 decision, the 2020 decision relied on statutory construction canons and the EPA’s legislative history to support its conclusion that the fourth catchall exception related exclusively to job-related factors.20
In doing so, however, the 2020 decision took a slightly different approach, and focused more specifically on the phrasing of the statute’s fourth exception. As noted by the Ninth Circuit, the EPA’s fourth catchall exception is frequently abbreviated and referred to as “any factor other than sex.” However, the text itself states that wage disparities will be excused only if the employer can establish that the wage differential at issue results from “any other factor other than sex.”21 In emphasizing the first “other,” the Ninth Circuit relied on common canons of statutory construction to conclude that “any other factor other than sex” “implicitly refers to ‘any similar factor other than sex.’”22 Similarity, in this context, related to the EPA’s three exceptions that immediately preceded the fourth catchall exception, and which provide that a wage differential may be deemed legitimate if it is based on a seniority system, a merit system, or a production system.23 Because the first three exceptions to the EPA inherently relate to the work being performed by an employee, the Ninth Circuit concluded that “the more general exception [the catchall exception] that follows them refers to job-related factors too.”24
In reaching its conclusion, the Ninth Circuit also reviewed the circuit split to which Rizo belongs. The court reviewed decisions from the Second, Fourth, Sixth, Seventh, Eighth, Tenth and Eleventh circuits, and concluded that a “significant majority” of the circuits “agree[d] that the scope of the EPA’s fourth exception is not unlimited.”25 On this basis, the Ninth Circuit reiterated that it is appropriate that the “factors other than sex” be limited to job-related factors.
Prior Salary, Alone or in Combination With Other Factors, is not Job-Related for Purposes of the EPA’s Fourth Exception
In reaching the second prong of its holding, the Ninth Circuit concluded that “prior pay—pay received for a different job—is necessarily not a factor related to the job for which an EPA plaintiff must demonstrate unequal pay for equal work.”26 In reaching this conclusion, the Ninth Circuit again pointed to the EPA’s legislative history. The court explained that prior salary does not qualify as a job-related factor within the context of the EPA’s fourth exception because prior pay may inherently “carry with it the effects of sex-based pay discrimination”—the EPA’s “precise target.”27
Individualized Negotiation, Employer Reliance on Voluntarily Disclosed Salary History Remains Questionable under Federal EPA
Like the 2018 decision, the 2020 Rizo decision clarified that it overruled prior precedent.28 In doing so, the Ninth Circuit stated in dicta that the EPA does not address, or prohibit, employer and prospective employees from discussing “prior pay in the course of negotiating job offers.”29 The Ninth Circuit explained that its holding relates solely to whether employers can rely on prior pay to defend against an EPA violation, not whether employers may consider prior pay when setting a prospective employee’s salary.30 The Ninth Circuit emphasized that its decision addressed the “use of prior pay as an affirmative defense” not “the consideration of prior pay to make a competitive job offer, to negotiate higher pay, or to set a salary.”31 The court further expressed that “there is no basis for concern that our opinion will prevent employers from considering prior pay when employees disclose it.”32
The Ninth Circuit’s 2018 decision likewise sidestepped the question of whether its holding carried implications within the context of individual salary negotiations. The 2018 decision stated it did not address “whether or under what circumstances past salary may play a role in the course of an individualized salary negotiation” and instead expressed a preference to save that determination for “subsequent cases.”33
The Ninth Circuit’s pronouncements with respect to whether an employer may consider a job applicant’s voluntarily disclosed salary history information in setting compensation, or whether an employer may consider a current employees’ salary history in setting compensation, are somewhat misleading. As an initial matter, this dictum overlooks the employer’s burden of proof within the context of a prima facie EPA case. As stated elsewhere in the Ninth Circuit’s 2020 decision, an employer bears the burden of proving “not simply that the employer’s proffered reasons could explain the wage disparity [at issue], but that the proffered reasons do in fact explain the wage disparity.”34 Rizo unambiguously clarifies the factors an employer can prove to avoid EPA liability. Those factors must be job-related and, per Rizo, prior salary is not job-related. If employers rely on non-job-related factors in setting employee compensation upon hire, it will be all but impossible to attribute a resulting wage differential to anything other than those impermissible factors.
Moreover, as discussed further below, this dictum overlooks the myriad state equal pay laws, which contain their own prohibitions with respect to reliance upon salary history. Despite the Ninth Circuit’s pronouncement that its holding does not affect individualized salary negotiations or voluntarily disclosed salary history information, employers nevertheless leave themselves vulnerable to EPA lability if the factors they use in setting employee compensation are anything other than job-related.
Takeaways for Ninth Circuit Employers
Although the Ninth Circuit’s decision applies only to federal EPA claims, employers, especially those in California, Oregon and Washington, should review their state equal pay legislation, to determine whether any applicable state legislation places additional limitations on the manner in which employers may request or rely upon salary history information.35
Further, employers should review their compensation systems to ensure that consideration of prior salary is removed from decisions relating to setting employee compensation. Instead, employers should confirm that their compensation systems rely on job-related factors, including but not limited to, experience, qualifications, performance, education or training. Employers should likewise train hiring managers and review hiring documentation to ensure that prior salary is not solicited from job applicants during the hiring or interview process.
Finally, employers should consider conducting a privileged pay equity audit to determine whether any wage differentials exist between comparable employees of opposite protected categories.36 An audit allows an employer to determine, within a privileged context, whether there exist any wage differentials between comparable employees, and most importantly, whether the wage differentials can be explained by job-related factors. If the audit reveals that problematic wage disparities exist, the audit provides employers the opportunity to cure such differentials, or otherwise address the problem, prior to litigation.