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Employer Cannot Consider Prior Pay To Set Salary Under U.S. Equal Pay Act
Aileen Rizo worked as a math consultant with the Fresno County Office of Education (County). She sued the County under the U.S. Equal Pay Act after discovering the County paid her male colleagues more for the same work.
Under the U.S. Equal Pay Act, an employee must first prove the receipt of different wages for equal work because of sex. The burden then shifts to the employer to show the wage disparity falls under one of the following exceptions: (1) a seniority system; (2) a merit system; (3) a system that measures earnings by quantity or quality of production; or (4) a factor other than sex.
When Rizo began working for the County Superintendent of Schools, the Superintendent used Standard Operation Procedure 1440 (SOP 1440) to determine her starting salary. SOP 1440 was a salary schedule that consisted of levels and “steps” within each level. New employees’ salaries were set at a step within Level 1. To determine the appropriate step, the County considered Rizo’s prior salary and added five percent. That calculation resulted in a salary lower than the lowest step within Level 1, so the County started Rizo at the minimum Level 1, Step 1 salary, and added a $600 stipend for her master’s degree.
The County conceded that Rizo received lower pay for equal work. The County argued, however, that its consideration of Rizo’s prior salary was permitted as a “factor other than sex.” The trial court rejected the County’s argument and held that a “factor other than sex” could not be prior salary. The County appealed.
In its 2017 opinion, the Ninth Circuit Court of Appeals analyzed its previous opinion in Kouba v. Allstate Insurance Co., which held that a prior salary can be a “factor other than sex” if the employer: (1) showed it to be part of an overall business policy; and (2) used prior salary reasonably in light of its stated business purposes.
The County offered four business reasons to support its use of Rizo’s prior salary to set her current salary: (1) it was an objective factor; (2) adding five percent to starting salary induced employees to leave their jobs and come to the County; (3) using prior salary prevented favoritism; and (4) using prior salary prevented waste of taxpayer dollars. The trial court did not evaluate those reasons under the Kouba factors, so the court sent the case back to the trial court to evaluate the County’s reasons. Then, the court granted a petition for rehearing before all of the judges of the court to clarify the law, including the effect of Kouba.
In the rehearing in 2018, the Ninth Circuit considered which factors an employer could consider to justify a salary difference between employees under the “factors other than sex” exception. Prior to this decision, the law was unclear whether an employer could consider prior salary, either alone or in combination with other factors, when setting its employees’ salaries. The court concluded 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. Therefore, prior salary is not a permissible “factor other than sex.” The court stated that the language, legislative history, and purpose of the Equal Pay Act made it clear that Congress would not create an exception for basing new hires’ salaries on those very disparities found in an employee’s salary history—disparities, the court noted, Congress declared are not only related to sex, but caused by sex. This decision overruled Kouba. Accordingly, the County’s affirmative defense for why it paid Rizo less than it paid her male colleagues for the same work failed.
However, before the court issued its opinion, a judge who participated in the case and authored the opinion died. Without that judge’s vote, the opinion only had approval of five of the ten living members of the panel when the decision was filed, which did not create a majority sufficient to overrule the previous opinion in Kouba. Although the five living judges agreed in the ultimate judgment, they did so for different reasons.
The County appealed to the U.S. Supreme Court and asked whether a federal court may count the vote of a judge who died before the decision was issued. In a February 2019 opinion, the Supreme Court ruled that the Ninth Circuit erred in counting the deceased judge as a member of the majority. The Supreme Court vacated the opinion and sent the case back to the Ninth Circuit for further proceedings.
All judges of the Ninth Circuit Court of Appeals reheard the case in September 2019. The County argued its policy of setting employees’ wages based on their prior pay was based on a factor other than sex. Rizo argued the use of prior pay to set prospective wages perpetuated the gender-based pay gap.
The Ninth Circuit again examined the U.S. Equal Pay Act’s four exceptions: (1) a seniority system; (2) a merit system; (3) a system that measures earnings by quantity or quality of production; or (4) a factor other than sex. Using principles of statutory construction, the court ruled that because the first three exceptions were all job-related, Congress’s use of the phrase “any other factor other than sex” signaled the fourth exception was also limited to job-related factors.
Ultimately, the court held that employers cannot consider prior pay as a factor in determining an employee’s pay. Accordingly, prior pay, alone or in combination with other factors, cannot serve as a defense to a U.S. Equal Pay Act claim. However, the U.S. Equal Pay Act does not prohibit employers from considering prior pay for other purposes, such as in the course of negotiating job offers.
Yovino v. Rizo (9th Cir. 2020) 950 F.3d 1217.
This decision will have little impact in California, because our State’s Fair Pay Act prohibits using prior salary to justify compensation disparities between employees of different sexes, races, or ethnicities.