Circuit courts throughout the country have not come to a consensus when it comes to interpreting a critical portion of the federal Equal Pay Act, and whether it permits employers to base an employee’s salary on prior pay history alone. An April 2017 decision in the Ninth Circuit has added to the growing debate around this issue.
The case, Rizo v. Fresno County Office of Education, centers around Aileen Rizo, a math consultant with the Fresno County Office of Education (FCOE). After being employed by FCOE for three years, Rizo learned from a recently hired male colleague that he was making substantially more money than her, despite having less experience than Rizo. After filing an internal complaint, Rizo learned that FCOE has a policy of basing new employee salaries only on the employee’s prior salary history. Rizo then sued FCOE in 2014, alleging that this policy violates the Equal Pay Act.
The Equal Pay Act prohibits employers from paying men and women differently for the same work. Employers can defend pay differences using four available defenses: the pay difference is based on seniority, it is based on merit, it ‘measures earnings by quantity or quality of production’, or it is based on ‘any other factor other than sex’.
The initial ruling by U.S. Magistrate Judge Michael J. Seng in the lower court in December 2015 found that FCOE’s policy of paying differently based only on the employees’ wages at their prior employer did not fall under the ‘any other factor’ defense under the Equal Pay Act. In his decision, Judge Seng wrote that women’s earlier salaries are likely to be lower than men because of gender bias.
In their April 2017 decision, the Ninth Circuit overturned this ruling, and used a case from 1982 to explain their decision. The Nine Circuit stated that Judge Seng failed to take into consideration the ruling in Kouba v. Allstate, which held that previous salary does fall under the ‘factor other than sex’ defense. In the Kouba case, the court determined that Equal Pay Act claims should be reviewed under a disparate treatment analysis, as opposed to disparate impact. This means that the employer only must show that a sex-neutral factor was used to determine compensation, and the employee must prove that the employer’s use of that sex-neutral factor was just an excuse to discriminate based on sex. The Ninth Circuit ruled in the Kouba case that prior salary could be used as a ‘factor other than sex’ if it was ‘used reasonably in light of the employer’s stated purpose as well as its other practices.’
Circuit courts across the country are divided on whether employers can use salary history as the only justification for a pay difference without violating the Equal Pay Act. Some see this case as potentially moving to the Supreme Court for review, though commentary is split on whether the court, in its current composition, would interpret the law narrowly or view basing pay on prior salary as perpetuating past discrimination. Other equal pay advocates argue that ultimately, legislative changes are required to make a significant impact toward closing the pay gap. There has already been an increase in legislation around this issue, as Massachusetts, New York City, and Philadelphia have all passed local laws that prohibit employers from asking applicants about their salary history. California’s state equal pay law also was recently amended to provide that prior salary, by itself, cannot justify a pay disparity.