On April 9, 2018, the US Circuit Court of Appeals for the Ninth Circuit held, in an en banc decision, that employers cannot rely on an employee’s past salary to justify disparities in compensation between men and women. The decision overturns longstanding precedent that an employee’s salary history can constitute a “factor other than sex” upon which employers can defend against claims under the federal Equal Pay Act (the “EPA” or the “Act”). In reaching this conclusion, the Court stated that “[t]o hold otherwise – to allow employers to capitalize on the persistence of the wage gap and perpetuate the 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 EPA requires employers to pay equal wages to employees who work in the same establishment and who perform substantially equal work, regardless of their sex. Under the Act, pay disparities in such cases are defensible only if the employer can show that the differential is based on:

  1. Seniority;
  2. Merit;
  3. A system that “measures earnings by quantity or quality of production”; or
  4. Any other factor other than sex.

In other words, a plaintiff need not show that any alleged pay disparities are the result of intentional discrimination; rather, he or she must only show that a disparity exists that does not fall within one of the four enumerated statutory exceptions.

The named plaintiff in the Ninth Circuit case, Aileen Rizo, was a math consultant employed by the Fresno County, California Office of Education (the “County”). When Rizo was hired, the County determined her starting salary in accordance with its standard operating procedures, which dictate that a new hire’s salary should be set at a level equal to that individual’s prior salary increased by 5%. Rizo filed suit under the EPA and similar state law after she discovered that her male colleagues had been hired as math consultants at higher starting salary rates than her own.

In its defense of Rizo’s claim, the County conceded that she was paid less than her male counterparts for the same work, but argued that the pay differential was justifiable under the EPA’s fourth, catchall exception because it was based on the salary she received in her prior job—a factor that the County claimed was one “other than sex.” The trial court rejected the County’s argument, holding that the County’s standard operating procedures conflicted with the EPA because “a pay structure based exclusively on prior wages is so inherently fraught with risk . . . that it will perpetuate a discriminatory wage disparity between men and women that . . . cannot stand.

On appeal, the Ninth Circuit affirmed the trial court’s decision, concluding that “any other factor other than sex” includes only “legitimate, job-related factors such as a prospective employee’s experience, educational background, ability or prior job performance.” The Ninth Circuit stated that it was “inconceivable” that Congress, in enacting the EPA, would create an exception that would perpetuate “endemic sex-based wage disparities” by permitting employers to set a new hire’s wages based on his or her salary history, which may itself have been the result of sex-based discrimination. However, the court made clear that its opinion was intended only to set forth a general rule without deciding “whether or under what circumstances past salary may play a role in the course of an individualized salary negotiation.

The Ninth Circuit’s decision in Rizo is significant because it creates a clear split between federal appellate courts on whether an employee’s prior salary history permits an affirmative defense to unequal pay claims under the EPA. For example, the Seventh Circuit has held that an employee’s prior salary history is always a “factor other than sex” under the EPA, while the Eighth Circuit has held that an employee’s prior salary history may justify pay disparities only under certain circumstances. As such, the Ninth Circuit’s decision makes it increasingly likely that the federal appellate courts’ competing approaches to the issue may ultimately need to be resolved by the Supreme Court. In the meantime, employers with employees in states within the Ninth Circuit (Alaska, Arizona, California, Hawaii, Idaho, Montana, Nevada, Oregon, and Washington) should conduct a review of employee wage rates to ensure that any pay disparities can be justified by bona fide factors other than an employee’s past salary history.