EMPLOYMENT UPDATE – NINTH CIRCUIT BARS THE USE OF PRIOR SALARY TO JUSTIFY GENDER-BASED PAY DISPARITY

By:  Lindy F. Bradley, Esq.

On April 9, 2018, the Ninth Circuit Court of Appeals unanimously ruled that employers may no longer consider an employee’s prior salary, either alone or combined with other factors, to justify gender-based pay disparities. However, the Court noted that this new “general rule” may not apply “under all circumstances”, leaving the full impact of the decision open for future debate.

The en banc ruling overturned last year’s panel decision in favor of the employer of Aileen Rizo, a math consultant for the Fresno County Office of Education. In so holding, the Court overturned the prior holding in Kouba v. Allstate Insurance Co., 691 F.2d 873 (9th Cir. 1982) and ruled that an applicant’s prior salary history is not a “factor other than sex” that an employer may rely on to justify paying an employee differently than an employee of the opposite sex for similar work.

Ms. Rizo filed a lawsuit against her employer when she discovered that her employer had recently hired another math consultant at a salary which was roughly $13,000 greater than her own, and despite the fact that she had more experience and education than the new hire. When she addressed the disparity in pay with her employer, she was told that her own lesser pay was based on her prior salary, following which she filed a lawsuit.

The ruling, written by Judge Stephen Reinhardt, indicates that allowing employers to consider prior salaries in setting pay is “wholly inconsistent” with the 1963 federal Equal Pay Act. Judge Reinhardt’s ruling notes that “[T]he financial exploitation of working women embodied by the gender pay gap continues to be an embarrassing reality of our economy.” The federal Equal Pay Act bars wage disparity except in cases of seniority, merit, quantity or quality of production or “any other factor other than sex.”

Although it was a unanimous decision by an 11-judge panel, several of the judges noted that the decision was overly broad, and that the court had wrongly held that any consideration of prior pay was unlawful, even when it involved job-related factors. Other judges warned that the Court of Appeals’ “drastic holding” might impose liability on employers who even consider prior salary in setting a wage. Furthermore, attorneys on both sides of the case argued that the decision would prevent employers from considering prior pay in any context.

The Ninth Circuit’s ruling applies to nine Western states, including California. Currently, in California, pay differences based on race, sex or ethnicity may not be justified solely by prior salary. The Fresno County Superintendent of Schools has already indicated that the office plans to appeal to the U.S. Supreme Court.

Employer Takeaway:  Employers may not rely on prior salary history as a factor in setting an employee’s wages. If they do so, and this results in a gender-based pay disparity, the affected employee may have a legitimate Equal Pay Act claim. Employers should pay close attention to their pay classifications, particularly as they run along gender lines, and should ensure that any disparities in pay are justified by the employee’s experience, education, ability, and/or performance.

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