Ninth Circuit Court Of Appeals Rules Employers Cannot Consider Prior Pay In Determining Employee’s Pay

CATEGORY: Public Education Matters
CLIENT TYPE: Public Education
DATE: Mar 27, 2020

Aileen Rizo worked as a math consultant with the Fresno County Office of Education. She sued the County Office of Education under the Equal Pay Act after discovering the County Office of Education paid her male colleagues more for the same work.

Under the Equal Pay Act, an employee must first prove that he or she received different wages for equal work. The burden then shifts to the employer to show the disparity falls under one of 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 Office of Education conceded that Rizo received lower pay for equal work. But, the County Office of Education argued that its consideration of Rizo’s prior salary was permitted as a “factor other than sex.” The trial court rejected the County Office of Education’s argument and held that a “factor other than sex” could not be prior salary. The County Office of Education appealed.

In its 2017 opinion, the Court of Appeals analyzed its previous opinion in Kouba v. Allstate Insurance Co. in which the Court 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 Office of Education 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 Office of Education; (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 of Appeal sent the case back to the trial court to evaluate the County Office of Education’s reasons. Then, the Court of Appeals granted a petition for rehearing before all of the judges of the court to clarify the law, including the continued effect of Kouba.

In the rehearing in 2018, the Court of Appeals considered which factors an employer could consider to justify a salary difference between employees under the “factors other than sex” exception to the Equal Pay Act. 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 of Appeals 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” within the meaning of the Equal Pay Act. The Court of Appeals 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 Office of Education failed to set forth an affirmative defense for why it paid Rizo less than her male colleagues for the same work

However, before the Court of Appeals issued its opinion, a judge who participated in the case and authored the opinion died. Without that judge’s vote, the opinion would have been approved by only five of the ten members of the panel who were still living when the decision was filed, which did not create a majority to overrule the Court of Appeal’s previous opinion in Kouba. Although the five living judges agreed in the ultimate judgment, they did so for different reasons.

The County Office of Education 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 U.S. Supreme Court ruled that because the judge was no longer a judge at the time the decision by the entire Ninth Circuit was filed, the Court of Appeals erred in counting him as a member of the majority. That practice effectively allowed a deceased judge to exercise the judicial power of the United States after his death. Therefore, the Supreme Court vacated the opinion written by the deceased judge and sent the case back to the Court of Appeals for further proceedings.

All judges of the Ninth Circuit reheard the case again in September 2019. On appeal, the County Office of Education 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, and employers were not allowed to rely on prior pay to justify wage disparities for employees of the opposite sex.

The Court of Appeals again examined the 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 employers cannot consider prior pay as factor in determining an employee’s pay. Accordingly, prior pay, alone or in combination with other factors, cannot serve as a defense to an Equal Pay Act claim. However, the 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 (2019) 950 F.3d 1217.

This decision is binding precedent in California, but it conflicts with Court of Appeals decisions in other circuits. This conflict makes this case ripe for consideration by the United Stated Supreme Court. LCW will continue to monitor any developments.