Employers Use Pay History to Stay Competitive, SHRM Tells Supreme Court

Total bans on considering past salary go too far, SHRM argues

Stephen Miller, CEBS By Stephen Miller, CEBS April 29, 2020

The Society for Human Resource Management (SHRM) asked the U.S. Supreme Court to resolve a split among federal appellate courts over whether, and in what ways, employers can take prior pay into account when setting wages under the federal Equal Pay Act.

SHRM's amicus brief, submitted on April 22, asks the Court to hear the case Yovino v. Rizo, in which the Ninth Circuit became the first federal appellate court to rule that the Equal Pay Act bans all consideration of prior salary, either alone or in combination with other factors, in determining pay.

The Equal Pay Act requires equal pay for equal work, regardless of sex, while also recognizing that pay disparities are allowed when they are based on "any other factor other than sex."

"Historically, federal appellate courts have recognized that an individual's prior salary may be a 'factor other than sex,' " said Nancy Hammer, SHRM vice president for regulatory and judicial engagement. Rizo, however, rejects that view, creating a split among federal appellate courts and "leaving national employers to face conflicting requirements under the law," Hammer said.

Although the employer in Rizo—Fresno County, Calif.—takes the position that prior salary alone is always a factor other than sex and thus is a permitted consideration, SHRM has a more nuanced view. In its brief, SHRM argues that prior salary is a legitimate factor where it is tethered to a legitimate business reason and where the employer is not simply relying on market forces that have permitted employers to pay women less because they are women.

"Employers, acting in good faith, need the ability to set salaries based on business and organizational needs," Hammer said.

The brief includes scenarios, drawn from SHRM research, that show how employers use a job candidate's pay history to make an attractive offer and to keep their own pay structure competitive, among other legitimate purposes.

We've rounded up the following articles from SHRM Online and other trusted media sources on employers' use of pay history and gender pay equity. 

SHRM Resource Spotlight
Coronavirus and COVID-19

Conflicting Appellate Rulings

In March 2019, a federal court in Illinois, relying on two decisions from the Seventh Circuit, declined to follow Rizo and held that prior wages are a valid "factor other than sex" under the Equal Pay Act that can alone justify a pay disparity. Disagreeing with both the Ninth and Seventh Circuits, other courts have concluded that while employers may consider prior salary as part of a mix of factors, they cannot consider prior salary alone. Given the confusion among the federal courts, this may be an issue destined for the Supreme Court.
(JD Supra)

How Employers Use Prior Pay in Decision-Making

Most employers who consider prior pay in making pay decisions do so to ensure they can frame an attractive offer, a poll of 616 SHRM members showed. A majority of HR professionals said the top reasons they consider a job candidate's prior pay are to ensure they make an attractive offer, to screen out candidates that they cannot afford, or to increase their offer to attract a candidate away from their current job. Employers also commonly use job candidates' prior pay to evaluate whether their own pay structure remains competitive for attracting job seekers and to make sure they don't lose current employees to a rival employer.
(SHRM Online

[SHRM members-only toolkit: Managing Pay Equity] 

More Jurisdictions Are Banning Salary-History Inquiries

To address gender pay disparity, a number of states and localities have enacted prohibitions on asking job candidates about their pay history, though these prohibitions vary in terms, scope and applicability. States that have enacted some form of ban for private employers include California, Connecticut, Delaware, Hawaii, Massachusetts, Oregon and Vermont. Localities with these bans include Cincinnati, New York City, Philadelphia (pending appeal), Puerto Rico and San Francisco, as well as several counties in New York. Additionally, some states and localities ban salary-history inquiries from public employers only.
(SHRM Online)

Pay Transparency Fosters Gender Equity

The pay gap between men and women disappears for most jobs when employers adopt transparent pay practices, research shows. Compensation data and software firm PayScale collected 1.6 million survey responses over a two-year period, and then examined the "controlled" pay gap, a comparison of pay for men and women with the same experience and education doing the same job in the same geographic location. This approach showed that women earn 98 cents for every dollar earned by men. However, when employees said they have a transparent pay process at their company, women were estimated to earn between $1 and $1.01 for every dollar men earn—effectively erasing the gender pay gap.
(SHRM Online)



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