Are Salary-History Questions Off-Limits Under the Equal Pay Act?

Federal appeals courts have reached different conclusions

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Can employers rely on prior salary to justify wage differences between male and female workers? Under some state and local laws, the answer is clearly no. But courts are divided as to whether past pay can be considered under federal law.

Under the Equal Pay Act, a business cannot pay employees of one gender less than it pays the other for equal work. Exceptions apply, however, to wages determined by a merit or seniority system, the quantity or quality of work, or a differential based on any factor other than sex.

The scope of the last catch-all category frequently is the subject of lawsuits, as workers and employers dispute whether past pay counts as a factor other than sex. The U.S. Supreme Court didn't rule on this issue when it recently vacated the 9th U.S. Circuit Court of Appeal's decision in Rizo v. Yovino. So for now, different appeals court rulings may apply in different locations. Here is what employers need to know before they ask job candidates about their past pay.

Conflicting Rulings

The 9th Circuit decided the Rizo case "en banc," meaning that all the court's judges heard the case, rather than a three-judge panel. The court held 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 Equal Pay Act, according to the 9th Circuit.

The decision that employers can't consider past pay under any circumstances was a sea change, noted John Lee, an attorney with Morgan Lewis in Philadelphia. Other circuits have held that employers can consider prior compensation, at least in some situations. The 2nd and 6th circuits allow employers to consider past salary for "business-related" and "job-related" reasons, and the 10th and 11th circuits have also held that prior pay sometimes counts as a factor other than sex, but the details vary.

The employer in Rizo asked the U.S. Supreme Court to weigh in on the issue, but the high court vacated the 9th Circuit's ruling on a technicality. The judge who wrote the opinion died before it was officially issued, and the 9th Circuit counted his vote in the majority.

"That practice effectively allowed a deceased judge to exercise the judicial power of the United States after his death," the Supreme Court said. "But federal judges are appointed for life, not for eternity." Without the deceased judge's vote, the ruling didn't have enough support, so the 9th Circuit will have to revisit the issue.

"I am not convinced that the outcome will be any different from the opinion that was just vacated, although maybe there will be small differences here and there in the rationale," said Tara Presnell, an attorney with Littler in Walnut Creek, Calif. Since the circuits are split on the issue, she believes the matter will make its way back to the Supreme Court. 

"My read based on the current makeup of the Supreme Court is that Rizo will be dialed back a little bit and that employers will be allowed to consider prior salary under certain circumstances," she said, noting that a high court ruling in the case would apply only to federal law, not state or local bans on salary-history inquiries.

Review Policies and Practices

Without clarity from the Supreme Court on whether they can rely on salary history, employers must continue to navigate conflicting rules in different jurisdictions, said Lara de Leon, an attorney with Ogletree Deakins in Orange County, Calif., and San Antonio. "Multijurisdictional employers in particular will need to carefully evaluate their pay-setting practices and determine if any changes need to be made."

CaliforniaOregon and Hawaii—which are in the 9th Circuit—as well as states and localities in other jurisdictions have passed legislation barring employers from asking about and using salary history to set pay, noted Cheryl Pinarchick, an attorney with Fisher Phillips in Boston. "As a result, employers should be extremely cautious about requesting salary history or using it in compensation decisions," she said.

[SHRM members-only toolkit: Managing Pay Equity]

Many employers are grappling with whether they want a uniform, nationwide policy or different policies that are applicable to each jurisdiction, Lee said. But employees may move around or work across state lines, so employers aren't always sure which rule to apply.

"There are many angles from which companies can tackle pay-equity problems," Presnell said. For example, employers can review their performance appraisal and promotion processes for biases, and train their recruiters to comply with the law and evaluate how and why they make compensation recommendations for candidates, she said. "Consider how those practices may inadvertently impact gender or race pay disparities."

Businesses should also consider performing a pay audit. "Even if your company has conducted an audit recently, employers should continue to strive to identify the source of any pay differences and address any areas of concern," de Leon said. Employers should not only address compensation differences, but they should also determine if more fundamental changes need to be made to their compensation system and the factors they rely on to set pay, she said.

[Visit SHRM's resource page on pay equity.]

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