Ninth Circuit Holds Salary History Does Not Justify Wage Differences Between Male and Female Employees

In a precedential en banc opinion, Rizo v. Yovino, the U.S. Court of Appeals for the Ninth Circuit determined that an employee’s prior salary cannot justify a wage differential between male and female employees under the Equal Pay Act. Significantly, this decision overrules established prior Ninth Circuit precedent that an employee’s prior salary constitutes a “factor other than sex” under the Act upon which a wage differential may be based.

Background

The Plaintiff, Aileen Rizo, was hired by the Fresno County Office of Education in 2009 as a math consultant. At the time of her hire, her starting salary was determined in accordance with Fresno’s standard operating policy which provided that the salary for all new hires would be set by adding five percent to their previous salary. In or about 2012, Rizo learned that male colleagues who were hired after her were earning more than she. In 2014, Rizo filed a lawsuit against Jim Yovino in his official capacity as the Superintendent of the Fresno County Office of Education alleging violations of the Equal Pay Act, Title VII, and California law.

At the District Court, Fresno admitted that it paid Rizo less than her male colleagues for the same work, but argued that the pay differential was permissible based on the Equal Pay Act’s catch all exception of “any other factor other than sex” since its policy of paying all new hires five percent more than their prior salary was gender neutral. The District Court rejected Fresno’s argument, denied Fresno summary judgment, and held that “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. . . .” Fresno filed an interlocutory appeal to the Ninth Circuit which was granted. A three-judge panel of the Ninth Circuit vacated the District Court’s decision and held that the Circuit’s prior decision in Kouba v. Allstate Insurance Co. was controlling and allowed prior salary alone to constitute a “factor other than sex” under the Act. Thereafter, the Ninth Circuit granted Rizo’s petition for a rehearing en banc.

The En Banc Decision

In its en banc opinion, the Ninth Circuit held that the Equal Pay Act’s catch all exception of “any other factor other than sex” is “unhesitatingly… limited to legitimate, job-related factors such as a prospective employee’s experience, educational background, ability, or prior job performance.” It further held that “prior salary, whether considered alone or with other factors, is not job related and thus does not fall within an exception to the Act that allows employers to pay disparate wages.” The Ninth Circuit also concluded that the use of salary history to set wages “may well operate to perpetuate the wage disparities prohibited under the Act.” Notably, it is this specific reasoning that has led to numerous state and local governments to recently enact salary history inquiry bans.

This decision puts the Ninth Circuit directly at odds with the Seventh Circuit, which has held that previous salary can legitimately be considered by employers in setting an employee’s pay. The Tenth and Eleventh Circuits have previously held that while prior pay alone cannot be considered as an exemption to the Equal Pay Act, it may be considered in combination with other legitimate factors. To date, the Third Circuit has not weighed in on this issue. Fresno County has already indicated its intention to seek review of the Ninth Circuit’s decision by the U.S. Supreme Court. Given the Circuit split, there is a considerable chance the U.S. Supreme Court will take up the issue.

Conclusion

Given the Ninth Circuit’s decision and numerous recent state and local laws prohibiting employers from inquiring into an employee’s past salary, employers should carefully review their compensation practices and employment applications. If you have any questions regarding this blog, or how to comply with the Equal Pay Act or New Jersey’s new pay equity law, please feel free to contact any of the attorneys in the Gibbons Employment & Labor Law Department.

Suzanne Herrmann Brock is Counsel in the Gibbons Employment & Labor Law Department.
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