Supreme Court Won't Resolve Pay Discrimination Dispute Over Salary History

On July 2, 2020, the U.S. Supreme Court declined to review the Ninth Circuit's decision in Rizo v. Yovino. The federal Equal Pay Act (EPA) requires "equal pay for equal work regardless of sex," subject to four exceptions. The question presented on the request to review the decision was whether prior salary is a "factor other than sex" that can justify a pay disparity under the fourth catchall exception.

Salary Was Based on a 5% Increase Over Salary in Prior Job

Math consultant Aileen Rizo sued her school district employer upon discovering that men in similar roles made as much as $100,000 more than she earned for similar work. Under the employer's "Standard Operating Procedure" for determining salary, new employees were given a 5 percent raise from their previous salaries. The employer did not take prior experience or any other factors into account when setting her salary.

District Court Denied the Employer's Motion for Summary Judgment

Rizo sued in state court alleging violations of the EPA, Title VII, and California state law. The employer removed the case to federal court and moved for summary judgment, arguing that Rizo's prior salary was "a factor other than sex," which would be permissible under the EPA. The district court denied the motion, reasoning that a pay structure based exclusively on prior wages is "inherently fraught with the risk—indeed, here, the virtual certainty—that it will perpetuate a discriminatory wage disparity between men and women[.]"

Ninth Circuit Proceedings

The school district appealed. A three-judge panel of the Ninth Circuit reversed, relying on a decision the court had issued in 1982 holding that prior salary is a "factor other than sex" and may be considered in setting wages if it is a reasonable means of effectuating some business policy. The Ninth Circuit panel ordered the case remanded to evaluate whether the policy was a reasonable means to effectuate a business policy. 

Rizo, however, sought and received review by the full Ninth Circuit, which rejected the panel decision, and became the first federal court of appeals to explicitly reject the employer's defense that salary history could serve as a legitimate justification for a pay disparity under the EPA.

In February 2019, the employer sought Supreme Court review of a technicality on the Ninth Circuit's ruling concerning the death of the Honorable Stephen Reinhart (who wrote the majority opinion) 11 days before the decision was issued. The Supreme Court reversed the Ninth Circuit's opinion, holding that Judge Reinhart's vote should not have been counted towards the majority.

In February 2020, with a replacement judge, the Ninth Circuit reached the same conclusion, again holding that salary history cannot justify a pay disparity under the EPA. The court noted that only job-related criteria fall under the EPA's catchall defense, but prior pay is not job-related, as it pertains to the salary an employee was paid at a different job. In sum, the court reiterated that prior pay could not be used to justify paying a worker of one sex less than workers of the opposite sex for the same work.

In 2020, the school district again petitioned the Supreme Court for review of the question, "Whether prior salary is a factor other than sex?" On July 2, 2020, the Supreme Court denied the request, leaving the Ninth Circuit's ruling rejecting the prior pay history defense intact.

Circuit Split Left Unresolved

The circuit courts of appeal are split about whether prior salary is a factor other than sex for the purposes of the EPA. In Rizo, the Ninth Circuit held that it never is, but the Fourth, Seventh, and Eighth Circuits do allow employers to rely on prior salary in setting pay. Four circuits allow employers to rely on prior salary to set pay in limited circumstances: the Second and Sixth Circuits allow employers to rely on prior salary to set pay only when the employer has a good business reason, and the Tenth and Eleventh Circuits allow it only when the employer relies on prior pay together with another factor to explain the wage disparity.

[SHRM members-only toolkit: Managing Pay Equity]

State and Local Salary History Bans

With the federal EPA interpreted so differently across the country, states began toughening their equal pay laws to make it more difficult to justify disparities in pay between men and women. Some of these state overhauls have included what are called "salary history bans," which prohibit employers from asking job candidates about their salary history. Massachusetts passed the first salary history ban, followed by a number of other states and locales:

While all of these laws (except Alabama) prohibit asking candidates about their salary history, their details differ in significant ways, including:

• Whether the employer can ask about or verify salary history later in the hiring process, e.g., after an offer with compensation is made.
  

• Whether the employer can ask about deferred compensation or unvested equity that may be forfeited were the candidate to resign.
  

• If candidates voluntarily disclose their salary history, whether the employer can then screen them based on it, set their pay based on it, and/or verify it with their current or prior employers.
  

• Whether the employer has to provide a pay scale if requested.
  

• Whether the employer can rely on the prior wage history of existing employees seeking internal transfers.

Conclusion

Employers should carefully evaluate both federal and state law when deciding whether to consider prior salary while setting pay for any employee. Reliance on prior salary may be challenged as perpetuating a discriminatory pay disparity under the Equal Pay Act depending on the federal circuit and/or under analogous state laws. Further, a number of jurisdictions prohibit asking about and/or relying on prior salary history in screening, selecting or setting pay. This patchwork of equal pay obligations presents a significant compliance challenge for employers operating in multiple jurisdictions.

Moreover, the risk in running afoul of the myriad pay equity statutes can have serious consequences for employers. As a result, in addition to carefully analyzing whether to factor prior pay into compensation decisions, employers also should review other legal requirements in the jurisdictions in which they operate, make sure decision-makers are aware of what factors can (and cannot) be considered when making pay decisions, and ensure pay decisions are made based on what the job is worth, not based on how much a particular individual wants to be paid for doing that job. 

Finally, employers should consider conducting a pay equity audit to determine whether there are differences in pay that cannot be explained by legally justifiable reasons which, if not remediated, can create significant risk for the organization.

The authors are attorneys with Littler: Thelma Akpan (associate, New York City), Martha J. Keon (shareholder, Philadelphia), Maureen H. Lavery (knowledge management counsel, Memphis) William J. Simmons (shareholder, Philadelphia) and Denise M. Visconti (shareholder, San Diego). A version with footnotes is available on the firm's website. © 2020 Littler Mendelson P.C. All Rights Reserved. Republished with permission.

Related SHRM Article:

Employers Adjust to Salary-History Bans, SHRM Online, June 2019