Ninth Circuit Now Says the Federal Equal Pay Act Also Prohibits Using Prior Salary to Justify Gender Pay Disparities

Category: Client Update
Date: May 9, 2018 04:04 PM

The U.S. Court of Appeals for the Ninth Circuit announced in Rizo v. Yovino that under the Federal Equal Pay Act (EPA), employers cannot defend pay disparities between male and female employees by asserting that the disparity is caused by differentials in the employee’s prior salary.  This decision brings Ninth Circuit federal EPA standards in line with California’s Equal Pay Act and reverses earlier Ninth Circuit’s decisions to the contrary.

This case involved Eileen Rizo, a woman who applied to and was hired as a math consultant in County of Fresno Public Schools in 2009.  The County set a new employee’s starting pay by using its Standard Operation Procedure 1440. SOP 1440 was a salary schedule that consisted of levels, and “steps” within each level.  SOP 1440 required that new employee salaries be set at one of 12 steps within Level 1 of the salary schedule.  The new employee was placed on a step that added 5% to the employee’s most recent prior salary.  The County hired Rizo at Step 1 of the salary schedule because even with the 5% add-on, her salary would have fallen below Step 1.

In 2012, Rizo learned that her male colleagues, all of whom were also math consultants, were paid more.  For example, three of Rizo’s male colleagues were hired at steps 7 or 9 within Level 1.  Rizo sued the County, claiming violations of the Federal EPA.  It was undisputed that all four jobs required substantially equal skills and responsibilities.

The County agreed that using SOP 1440 resulted in male-female pay differentials but asserted the affirmative defense that the pay differential was based on “any other factor other than sex,” namely Rizo’s prior salary.   The County noted that it used SOP 1440 consistently with four legitimate business reasons: (1) SOP 1440 uses objective factors rather than subjective opinions to determine salaries; (2) adding 5% to starting salary induces employees to leave their jobs and work for the County; (3) using prior salary prevents favoritism and ensures consistency; and (4) using prior salary prevents waste of taxpayer dollars.

Under the Federal Equal Pay Act:

No employer … shall discriminate …  between employees on the basis of sex by paying wages to employees . . . at a rate less than the rate at which he pays wages to employees of the opposite sex . . .  for equal work on jobs the performance of which requires equal skill, effort, and responsibility, and which are performed under similar working conditions.

29 U.S.C. § 206(d)(1).   The exceptions to the Act  include:

… where such payment is made pursuant to (i) a seniority system; (ii) a merit system; (iii) a system which measures earnings by quantity or quality of production; or (iv) a differential based on any other factor other than sex.

29 U.S.C. § 206(d)(1).

Rizo initially prevailed on a motion for summary judgment at the trial court level. On the County’s appeal, the Ninth Circuit initially disagreed with the district court determination that prior salary alone can never be a factor other than sex, and remanded the case back to the district court for further consideration of this issue.  However, in its most recent April 2018 decision, the full court of the Ninth Circuit reversed itself and found that under the Federal EPA:

“'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. To accept the County’s argument would be to perpetuate rather than eliminate the pervasive discrimination at which the Act was aimed.”

The decision makes clear that employers will not be able to defend Federal EPA wage disparity claims merely by asserting that a gendered wage differential is caused by disparities in employee’s prior salaries.

The Ninth Circuit’s 2018 holding also overturns its earlier precedents on this issue and brings the Ninth Circuit’s application of the Federal EPA more in line with California law.   Under the California Equal Pay Act, employers must not pay an employee at a wage rate less than the rate paid to employees of the opposite sex, or of another race or ethnicity for substantially similar work, when viewed as a composite of skill, effort, and responsibility and performed under similar working conditions. (Cal. Labor Code § 1197.5 (a).) The California law explicitly states, “[p]rior salary shall not, by itself, justify any disparity in compensation.” Cal. Labor Code § 1197.5 (a)(3).

Rizo v. Yovino, No. 16-15372 (9th Cir. April 9, 2018), slip op. overturning Rizo v. Yovino (9th Cir. 2017) 854 F.3d 1161, 1165, reh’g en banc granted (9th Cir. 2017) 869 F.3d 1004.

Note:

LCW’s wage and hour attorneys are available to assist agencies in bringing their hiring and pay policies into compliance with state and federal equal pay standards, and agencies are encouraged to reach out for advice in this area.  Additional discussion of the decision is available here: https://www.calpublicagencylaboremploymentblog.com/wage-and-hour-2/not-so-fast-the-ninth-circuit-reverses-itself-and-rules-employers-cannot-consider-applicants-prior-salary-in-setting-rate-of-pay/

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