9th Circuit Says Prior Salary Can’t Justify Gender Pay Disparity

 

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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 Feb. 27.

The ruling is part of a trend compelling employers to reconsider the role a job applicant's compensation history should play in setting compensation, said Liz Washko, an attorney with Ogletree Deakins in Nashville, Tenn. Within the past few years, a number of state and local jurisdictions have passed laws prohibiting employers from inquiring about a job applicant's compensation history or relying on salary history in setting pay.

Megan Winter, an attorney with Fisher Phillips in San Diego, noted, "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."

Issue Revisited

This is the second time the 9th Circuit ruled on the issue. The Supreme Court vacated a prior ruling in 2019 on a technicality. A judge who sided with the majority and wrote the original opinion died before the appeals court's final decision was issued.

"The Supreme Court sent the matter back down to the circuit court to take another crack at the case, and the 9th Circuit obliged and came to the same conclusion it had in 2018," Winter explained.

The case could go to the Supreme Court again. "Given that there is a clear split in the circuit courts of appeal on this issue, I think it is more likely than not that the Supreme Court will [hear the case] if a petition is filed," Washko said.

Factors Other Than Sex

The federal EPA prohibits businesses from paying employees of one gender less than it pays employees of the other gender for equal work—but there are exceptions for wages determined by a seniority or merit system, which bases pay on the quantity or quality of work, or "a differential based on any other factor other than sex," according to the act. This last catchall 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 a case heard before all the court's judges, the 9th Circuit again found that the catchall 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.

[SHRM members-only toolkit: Managing Pay Equity]

"The express purpose of the act was to eradicate the practice of paying women less simply because they are women," Justice Morgan Christen wrote for the 9th Circuit. "Allowing employers to escape liability by relying on employees' prior pay would defeat the purpose of the act and perpetuate the very discrimination the EPA aims to eliminate."

The decision affects employers operating in states within the 9th Circuit: Alaska, Arizona, California, Hawaii, Idaho, Montana, Nevada, Oregon and Washington.

The 2nd, 6th, 10th and 11th circuits have also held that salary history alone can't be used to justify pay discrepancies. "However, each of these cases carried with them subtle nuances that may lead to differing conclusions on a case-by-case basis," Winter noted.

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.

Background

In Rizo v. Yovino, the Fresno County, Calif., Office of Education paid new hires 5 percent more than their prior salary. The plaintiff in this case, a math consultant, sued the county when she discovered that her male co-workers were earning more than she was earning. 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. "Contrary to Fresno County's argument, we conclude that only job-related factors may serve as affirmative defenses to EPA claims," the court said Feb. 27, overruling its 1982 opinion in Kouba v. Allstate Ins. Co., 691 F.3d. 873 (9th Cir. 1982).

The court did note, however, that past salary may be relevant during a job applicant's salary negotiation. "Our holding prevents employers from relying on prior pay to defeat EPA claims, but the EPA does not prevent employers from considering prior pay for other purposes," the court said. "For example, it is not unusual for employers and prospective employees to discuss prior pay in the course of negotiating job offers, and the EPA does not prohibit this practice."

Compliance Tips

Businesses that rely on job applicants' past salary need to move away from such practices, Winter said. "Many companies have put conducting a pay audit somewhere toward the end of their to-do list, but there is now no time to waste."

Washko said employers may choose to implement uniform policies that protect the employer across jurisdictions by eliminating questions about compensation history during the hiring process, and ensuring that pay decisions are based on legitimate factors other than a candidate's salary history.

Employers that prefer a more targeted approach—implementing these types of policies only where required by law—should make sure they have a good understanding of the applicable laws in each of the relevant jurisdictions and a process in place to monitor new legal developments in other relevant jurisdictions, Washko suggested.

Employers should also consider evaluating current employees' pay to determine whether there are disparities that cannot be based on legitimate, nondiscriminatory factors and making adjustments where necessary, she noted.

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