On April 27, 2017, the Ninth Circuit Court of Appeals ruled that an employer was allowed to base “a pay differential on prior salary so long as it showed that its use of prior salary effectuated some business policy and that the employer used the factor reasonably in light of its stated purpose and its other practices.” By its ruling, it vacated an Eastern District of California District Court holding that basing a male and female pay differential on their prior salaries further perpetuates the wage discrimination which Congress passed the Equal Pay Act (“EPA”) to eradicate. Plaintiff, Aileen Rizzo, a math teacher, sued the Fresno County Superintendent of Schools after she discovered that similarly situated male math teachers were paid more than she was.
The Ninth Circuit concluded that its prior decision in Kouba v. Allstate Insurance Co., in which it held “the Equal Pay Act does not impose a strict prohibition against the use of prior salary,” controlled, even though an employer could “manipulate its use of prior salary to underpay female employees.”
This decision only further complicates the Equal Pay Act/gender pay equity debate. In 2016, the EEOC identified equal pay as a top priority. According to a 2016 Forbes survey, women between 18 and 24 earn 88% of what their male counterparts earn, and women over 35 earn only 76% of what their male counterparts earn. Under the Equal Pay Act, employees, regardless of gender, must be given equal pay for equal work when performing the same job under similar working conditions, and using similar skill, effort and responsibility. An employer can defend against an EPA claim by: 1) showing an established seniority system; 2) a merit system; 3) an incentive system; or 4) by asserting the “any factor other than sex defense” (i.e. employee salary history). Prior to the Ninth Circuit’s opinion, the Tenth and Eleventh Circuit held that relying solely on an employee’s previous salary is precluded by the EPA.
Many jurisdictions across the country, including, but not limited to,
California, Massachusetts, New York City, and Philadelphia, have revised their pay equity laws to prohibit the use of prior salaries. California’s Pay Act prohibits an employer from solely using prior salary to “justify any disparity in compensation.” Massachusetts state law prohibits employers from seeking information about job applicants’ previous compensation during the hiring process. New York City’s Executive Order 21 prohibits New York City agencies from asking about a job applicant’s salary history. Lastly, as previously covered in the HR Legalist, under Philadelphia’s Wage History Ordinance, it is an unlawful employment practice for a Philadelphia employer or employment agency to make any inquiry into a job applicant’s wage history during any stage of the hiring process. However, the Wage History Ordinance has been stayed pending the resolution of a suit filed by the Chamber of Commerce of Greater Philadelphia, which argues the Ordinance suppresses the free speech rights of employers.
The Ninth Circuit’s decision conflicts with previous decisions in the Tenth and Eleventh Circuits, setting up a split that could go to the Supreme Court. Employers should consult with legal counsel to stay on top of Equal Pay laws in their respective jurisdictions. Meanwhile, HR Legalist will continue to report on this developing area of employment law.