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A job applicant's prior salary can't be used to justify wage differences between male and female employees, the 9th U.S. Circuit Court of Appeals ruled on April 9—the eve of National Equal Pay Day.
"Employers who have traditionally used prior salary as a factor, even if it's not the sole factor, in setting compensation may now have risk under the Equal Pay Act [EPA] and may not be able to justify a gender pay disparity," said Megan Winter, an attorney with Fisher Phillips in San Diego.
Factors Other Than Sex
The federal EPA prohibits businesses from paying employees of one gender less than the other for equal work—but there are exceptions for wages determined by a merit or seniority system, a system that bases pay on the quantity or quality of work, or "a differential based on any other factor other than sex." This last "catch-all" category was the subject of the lawsuit, because it's unclear if a job candidate's salary history is a permissible factor other than sex.
In an en banc case heard before all of the court's judges, the 9th Circuit found that the catch-all exception for factors other than sex is limited to legitimate job-related considerations, such as experience, education and prior work performance. Past compensation alone—or in combination with other factors—isn't a permissible consideration under the EPA, the court held.
The 9th Circuit's decision is part of a larger trend in which lawmakers and courts are starting to reject the validity of prior salary or salary history information in setting the starting pay for job applicants, said Liz Washko, an attorney with Ogletree Deakins in Nashville.
[SHRM members-only toolkit: Managing Pay Equity]
"Although the [EPA] has prohibited sex-based wage discrimination for more than fifty years, the financial exploitation of working women embodied by the gender pay gap continues to be an embarrassing reality of our economy," the court said.
"What's clear at this point is that there are different standards in different locations on whether employers can consider salary history," said Avi Kumin, an attorney with Katz, Marshall & Banks in Washington, D.C.
Employers operating in states located within the 9th Circuit—Alaska, Arizona, California, Hawaii, Idaho, Montana, Nevada, Oregon and Washington—and in other jurisdictions that prohibit employers from asking about salary history need to remove this factor from consideration.
Other federal appeals courts—such as the 7th Circuit—have held that past earnings can be the basis of a pay differential, so long as there's no evidence of discrimination.
The 10th and 11th Circuits have held that prior salary history alone can't be used to justify pay discrepancies, so there would have to be other permissible factors, too. Employers in those jurisdictions should be prepared to show what other factors they considered, Kumin noted.
Additionally, some states (such as California and Oregon) and cities (such as San Francisco) prohibit employers from asking job candidates about their salary history until a certain stage in the hiring process.
In Rizo v. Yovino, the Fresno County, Calif., Office of Education had a hiring system that consisted of 10 salary levels, and each level had 10 steps within it. The county's policy was to pay new hires 5 percent more than their prior salary and place them on the corresponding step in their salary level.
The plaintiff in this case had previously worked in Maricopa County, Ariz., as a middle and high school math teacher earning $50,630. She was hired in Fresno County as a math consultant for $62,133, which represented step one of level one on the county's hiring schedule.
She sued the county when she discovered that her male co-workers were earning more than she did. The county's superintendent conceded that the plaintiff was paid less, but argued that the salary differential was permissible because it was based on a factor other than sex: the plaintiff's prior salary.
The 9th Circuit disagreed. "To accept the county's argument would be to perpetuate rather than eliminate the pervasive discrimination at which the [EPA] was aimed," the court said, overruling its 1982 opinion in Kouba v. Allstate Ins. Co., 691 F.3d. 873 (9th Cir. 1982).
The court didn't rule, however, on whether past salary could be considered during an individual job applicant's salary negotiations. "We prefer to reserve all questions relating to individualized negotiations for decision in subsequent cases."
Businesses that rely on job applicants' past salary need to review and move away from such practices, Winter said. "Many companies have put conducting a pay audit somewhere towards the end of their to-do list, but there is now no time to waste."
HR staff and hiring managers—as well as outside recruiters—should be trained on what they can and cannot ask during interviews, Kumin noted.
HR professionals should review policies, procedures, practices and forms to determine whether they are seeking prior salary information in connection with the job application process and, where appropriate, eliminate those questions, Washko said. An audit may also involve a more critical review of how starting pay is determined and what factors justify any pay differentials between current employees.
It's possible that the Rizo case could go to the U.S. Supreme Court, but that depends on whether the employer in the case wants to keep pursuing the matter.
The Supreme Court takes very few cases, and it is hard to predict each term what it will review, Winter noted. But given the inconsistent decisions by circuit courts across the country, this decision will have a better chance than many of getting Supreme Court review.
The case is Rizo v. Yovino, 9th Cir., No. 16-15372 (April 9, 2018).
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