Equal Pay Act: Ninth Circuit Decision Delivers Warning to Employers Making Salary Decisions Based on

Last week, the Ninth Circuit Court of Appeals issued an important decision in the case of Rizo v. Yovino, No. 16-15372 (9th Circ. Apr. 9, 2018) addressing the question of whether an employer may use an employee's prior salary history to justify gender pay disparity under the federal Equal Pay Act. In short, the Court’s answer was, no!

Aileen Rizo was hired as a teacher by the Fresno County School District in 2009. Previously, Rizo had earned a salary of just over $50,000 per year. The County utilized its standard method of determining her salary by taking her prior salary, adding 5%, and placing her in the corresponding step of their standard salary schedule, which awarded her the lowest possible salary, earning $62,133 per year.

Rizo later learned that she was being paid less than other male teachers performing the same job. She sued for unequal pay under the Equal Pay Act (29 U.S.C. § 206(d)) (the "EPA"), and sex discrimination under Title VII and California's Fair Employment and Housing Act. The County stipulated that Rizo was performing the same work as higher-paid male colleagues, but argued that it was not in violation of the EPA because the statute contains an exception that allows an employer to justify a salary disparity based on a "factor other than sex." The County stated that its "factor other than sex" was Rizo's prior salary.

The EPA provides that employers must provide equal pay between employees for equal work—work that requires "equal skill, effort, and responsibility" and is performed under "similar working conditions." The EPA provides four exceptions to this general rule, where pay disparities are made pursuant to: (1) a seniority system; (2) a merit system; (3) a system which measures earnings by quantity or quality of production; or (4) a differential based on any factor other than sex. The fourth exception is commonly referred to as the "catchall" exception. To succeed on an EPA claim, a plaintiff must show that her employer has paid male and female employees different wages for substantially equal work. Once she does so, the employer is left to prove that the pay disparity should be excused due to one of the four statutory exceptions.

Rejecting the County’s position, the Court's holding made it clear that a "factor other than sex" must be interpreted to mean not just a facially-neutral factor, but one that is based on job performance:

We conclude, unhesitatingly, that 'any other factor other than sex' is limited to legitimate, job-related factors such as a prospective employee's experience, educational background, ability, or prior job performance. It is inconceivable that Congress, in an Act the primary purpose of which was to eliminate long-existing 'endemic' sex-based wage disparities, would create an exception for basing new hires' salaries on those very disparities—disparities that Congress declared are not only related to sex but caused by sex.

The decision overruled the Court’s prior decision in Kouba v. Allstate Insurance Co., 691 F.2d 873 (9th Cir. 1982), which held that an employer's consideration of multiple factors, including ability, education, experience, and prior salary, met the test of a "factor other than sex."

The Court hedged its holding by issuing a caveat: "Today we express a general rule and do not attempt to resolve its applications under all circumstances. We do not decide, for example, whether or under what circumstances, past salary may play a role in the course of an individualized salary negotiation." Essentially, that means Rizo pertains directly to company policies that uses prior salary to set employees’ new salaries and does not strictly prohibit consideration of prior salary under all circumstances.

The lesson for employers is basically to be very cautious when using prior salary history to make hiring decisions. California, in particular, recently enacted Labor Code 432.3, which restricts the use of such information, making salary history an even greater pitfall for California employers to avoid.