While the Equal Pay Act (EPA) permits “a differential based on any other factor other than sex,” the Ninth Circuit Court of Appeals issued an important decision on April 9, 2018 in Rizo v. Yovino, holding that an employee’s prior compensation is not a “factor other than sex.” Specifically, the Court held that the above exception under the EPA is intended to allow employers to rely upon only job-related factors, such as experience, educational background, ability, or prior job performance. Prior compensation, the Court opined, is not job-related.
Aileen Rizo was hired as a school teacher in Fresno County in 2009. Rizo’s new salary was set according to the County’s Standard Operating Procedure No. 1440 (SOP 1440), which implemented a 10-level salary scale. SOP 1440 determined a new hire’s salary by taking the individual’s prior salary, adding 5%, and placing the new employee in the corresponding step of the salary schedule. Based on her previous position where Rizo earned a salary of just over $50,000 per year, SOP 1440 placed Rizo in the lowest salary tier, earning $62,133 per year.
While one the job, Rizo discovered that she was being paid less than other male teachers performing the same job. She sued for unequal pay under the Equal Pay Act (29 U.S.C. § 206(d)), and sex discrimination under Title VII and California’s Fair Employment and Housing Act (FEHA).
The Equal Pay Act
The EPA provides that no employer shall discriminate between employees on the basis of sex “by paying wages to employees . . . at a rate less than the rate at which he pays wages to employees of the opposite sex . . . for equal work on jobs the performance of which requires equal skill, effort, and responsibility, and which are performed under similar working conditions. . . .”
Unlike Title VII, the EPA does not require a plaintiff to show that the employer intended to discriminate. Instead, the plaintiff need only show that she is doing the same job as a male employee (and only needs to have one comparator) but is paid less. If the plaintiff can establish those facts the employer must prove one of four affirmative defenses. In this case, the relevant affirmative defense was that the pay differential was “based on any factor other than sex.”
Fresno County Motion in District Court
Fresno County conceded that it paid Rizo less than her male counterparts. However, it moved for summary judgment noting that SOP 1440’s reliance on an employee’s prior salary was a “factor other than sex” under the EPA. The district court denied Fresno County’s motion but certified it for immediate appeal.
A three judge panel vacated the district court’s decision. The panel held that a prior Ninth Circuit decision, Kouba v. Allstate Insurance Co., had settled the issue back in 1982. Under Kouba, an employer could rely on prior salary as a “factor other than sex.” Ms. Rizo did not take that decision lying down and asked for the entire Ninth Circuit to weigh in.
Ninth Circuit Court of Appeals overruled prior Circuit law to hold that an employee’s previous compensation, either alone or in combination with other factors, cannot form the basis of a wage differential between men and women. In an en banc decision, the Ninth Circuit did so, indicating its intent to “clarify the law, including the vitality and effect of Kouba.” “Prior salary alone or in combination with other factors cannot justify a wage differential. To hold otherwise—to allow employers to capitalize on the persistence of the wage gap and perpetuate that gap ad infinitum—would be contrary to the text and history of the Equal Pay Act, and would vitiate the very purpose for which the Act stands.”
The Court reserved the question of “whether or under what circumstances, past salary may play a role in the course of an individualized salary negotiation.” It remains an open question, therefore, whether an employer would violate the Equal Pay Act by offering an increased salary to an applicant who had rejected a lower offer because of his or her salary history.
Employers should exercise extreme caution when using prior salary history to make hiring decisions. In California, recently-enacted Labor Code 432.3 stipulates restrictions on the use of such information, as do laws in several other states. If you have questions about the Equal Pay Act or would like to discuss a situation you are experiencing at work, please call us toll-free at 888-500-8469. Our attorneys are here to help you understand your rights.