The 9th circuit ruled that prior salary is not a defense if it causes unlawful pay disparities in the workplace. It’s generally poor practice to ask about prior salary when setting pay, but this confirms (yet again) that prior pay cannot be used whatsoever as a defense for gender or race disparities. What can a company do to ensure pay fairness? First, conduct ongoing pay analyses to analyze and resolve any pay disparities due to gender or race. Second, stay in compliance over time by ensuring that every starting pay offer (transfer or new) is made with visibility to the appropriate range to maintain pay equity.
Here is the full article by Laura Turczanski and Judith Droz Keyes, David Wright Tremaine LLP:
On February 27, 2020, the 9th Circuit ruled in Rizo v. Yovino that prior salary, whether alone or in combination with other factors, is not a defense to a claim of pay discrimination under the federal Equal Pay Act (EPA). The ruling comes after the 9th Circuit’s 2018 decision in Rizo was vacated by the U.S. Supreme Court due to a procedural issue.
In the newly issued opinion, the court once again ruled that prior salary is not a defense to an EPA claim, but clarified that employers are not absolutely prohibited from considering prior salary in setting compensation – rather it is not a defense if the result is a pay disparity between men and women (or between a man and a woman).
Employers in many of the states in the 9th Circuit (which includes California, Oregon, Washington, Alaska, Hawaii, Nevada, Arizona, Montana, and Idaho) are prohibited by state law from inquiring into a candidate’s salary history except in certain circumstances, but those laws generally do not prohibit the employer from considering the prior salary if the applicant volunteers the information (see additional advisories on this topic for Washington, California, and general trends).
Now, the Rizo decision makes clear that employers must be careful in how they use the information if they do get it.
Aileen Rizo was hired as a math consultant by the Fresno County Office of Education in October 2009. Before working for Fresno County, Rizo had worked as a high school math teacher in Arizona. Her starting salary at Fresno County was determined in accordance with the county’s Standard Operating Procedure (SOP) by taking her prior salary, adding 5 percent, and then placing her on the corresponding step of the salary schedule.
Rizo’s job-related experience and education (which included two advanced degrees) was not a factor. When Rizo learned that male math consultants had been hired at higher salary levels based on their prior earnings history, she filed an internal complaint. The county rejected her claim, noting that all salaries had been objectively determined in accordance with its SOP, and thus had nothing to do with her sex.
Rizo sued, alleging, among other claims, a violation of the EPA. The county argued that its practice was lawful because prior salary was “any other factor other than sex,” and thus its use was permitted under the EPA’s catch-all defense. This argument was supported by the 9th Circuit’s earlier decision in Kouba v. Allstate Ins. Co., in which the court determined that the EPA did not impose a strict prohibition on the use of prior salary, and that such use was lawful as long as it “effectuate[d] some business policy.”
The Court’s Decision
In the 2018 Rizo decision, the 9th Circuit rejected Kouba, concluding that the defense of “any other factor other than sex” is “limited to job-related factors such as a prospective employee’s experience, educational background, ability or prior job performance,” and specifically does not include prior salary.
The 2018 decision was authored by Judge Stephen Reinhardt, who passed away 11 days before the opinion was issued. The U.S. Supreme Court ruled that it was procedural error for the appeals court to issue the opinion after Judge Reinhardt’s death, and remanded back to the 9th Circuit for reconsideration.
In the 2020 opinion, authored by Judge Christen, the court again determined that “an employee’s prior pay cannot serve as an affirmative defense to a prima facie showing of an EPA violation.” The court noted that the EPA’s catch all defense – “any other factor other than sex” – is limited to job-related factors and that “prior pay – pay received for a different job – is necessarily not a factor related to the job for which an EPA plaintiff must demonstrate unequal pay for equal work.”
The court acknowledged that “prior pay could be viewed as a proxy for job-related factors such as education, skills, or experience related to an employee’s prior job” and that the EPA “does not prevent employers from considering prior pay for other purposes.” But the court concluded that “if called upon to defend against a prima facie showing of sex-based wage discrimination, the employer must demonstrate that any wage differential was in fact justified by job-related factors other than sex. Prior pay, alone or in combination with other factors, cannot serve as a defense.”
Impacts on Employers in the 9th Circuit
Because other circuits have to varying degrees allowed the consideration of prior salary as a defense to an EPA claim, the issue is likely to be taken up by the U.S. Supreme Court. Nevertheless, the ruling is controlling law in the 9th Circuit – at least for the time being.
Accordingly, employers with employees in the 9th Circuit should consider taking the following steps to reduce the risk of exposure to equal pay claims:
- Review practices for setting starting salaries and eliminate any reference to and/or reliance on prior salary, whether alone or in combination with other factors;
- Make sure that whatever factors are used in setting salaries are specific to the job in question; and
- To the extent prior salary has been used in salary setting, consider undertaking a privileged analysis of the compensation structure to determine whether gender-based pay disparities exist and, if so, what should be done about it.