United States: The Ninth Circuit Has Spoken, Again: Salary History Cannot Be Used To Justify Pay Differentials

On April 9, 2018, the eve of Equal Pay Day, the United States Court of Appeals for the Ninth Circuit in Rizo v. Fresno County Office of Education held that under the Equal Pay Act, prior rate of pay is not a "factor other than sex" and only job-related factors may serve as affirmative defenses to Equal Pay Act claims. However, in late February 2019, the United States Supreme Court vacated that decision and directed the Ninth Circuit to reconsider the issue because the opinion had been published days after the death of the its author, the late Judge Stephen Reinhardt. On February 27, 2020, nearly two years after the Ninth Circuit's initial decision in Rizo, and almost one year to the date of the Supreme Court vacating the decision and remanding the case, the Ninth Circuit reached the same conclusion again.

Background

Aileen Rizo was hired as a math consultant by the Fresno County Office of Education in 2009. Rizo's salary upon joining the county was determined in accordance with the county's Standard Operating Procedure 1440 (SOP 1440), which dictates that a new hire's salary is determined by adding 5 percent to their previous salary. Fresno County did not take experience into consideration. 

In 2012, Rizo learned that her male colleagues subsequently had been hired in the same position at higher salaries. Rizo complained about the disparity and was told by the county that all salaries had been set in accordance with SOP 1440. Rizo filed suit, alleging that such a system violates the Equal Pay Act.

The county argued it was justified in paying Rizo less than comparable male employees for the same work because the discrepancy was based on her prior salary. In relevant part, the Equal Pay Act provides that employers can pay men and women differently for the same work only if such a payment is made pursuant to (i) a seniority system; (ii) a merit system; (iii) a system which measures earnings by quantity, quality or production; or (iv) a differential based on any factor other than sex. The county contended that an employee's prior salary constitutes a "factor other than sex." 

The Court's 2020 Decision Echoes Its 2018 Decision

Just as it did in 2018, the Ninth Circuit disagreed with the county's position, holding that prior salary alone or in combination with other factors cannot justify a wage differential. Instead, the court concluded again that "'any 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.

In the Ninth Circuit's most recent decision, the majority acknowledged that prior pay could potentially be viewed "as a proxy" for job-related factors such as education, skills or experience related to an employee's prior job, and that prior pay can be a function of factors related to an employee's prior job. The court held, however, that "prior pay itself is not a factor related to the work an employee is currently performing, nor is it probative of whether sex played any role in establishing an employee's pay."

The court explained: "The express purpose of the act was to eradicate the practice of paying women less simply because they are women. 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."

Two judges partially dissented, arguing that prior salary was a business reality and could be used in certain circumstances, but ultimately agreed that solely relying on prior pay to justify salary differentials violates the Equal Pay Act.

What This Means for Employers

The Second, Eighth, Tenth and Eleventh Circuits all have reached similar conclusions that prior salary alone cannot justify a compensation disparity―consistent with the view of the dissenting judges in the Ninth Circuit's most recent decision in Rizo. However, the Ninth Circuit's decision has taken it a step further in its holding that prior salary alone, or in combination with other factors, cannot justify a wage differential. This holding, which ultimately would preclude employers from even considering past pay as a factor in setting initial wages, is directly at odds with the Seventh Circuit, which has held that prior salary is always a "factor other than sex."

While employers may have gotten a brief reprieve after the Supreme Court vacated the Ninth Circuit's initial decision in early 2019, this case shows that state and federal courts in California continue the trend line of cases that construe longstanding practices in public and private sector employment as unlawful when viewed through a 2020 lens. Coupled with the various salary history ban laws that have been instituted across the country (e.g., New York City, Washington state, Delaware, California, Philadelphia, San Francisco, Massachusetts and Oregon), this decision emphasizes the importance of relying on job-related factors other than an individual's past salary when determining their new pay. The decision also serves as a reminder that employers should conduct pay equity audits to ensure that any differentials have been lawfully made, are currently supportable and are lawful under the Equal Pay Act and state and local law equivalents. In conducting pay equity reviews, employers may want work with counsel so that their review may be conducted under attorney-client privilege.

For Further Information

If you have any questions about this Alert, please contact Christopher D. Durham, Brooke B. Tabshouri, any of the attorneys in our E mployment, Labor, Benefits and Immigration Practice Group or the attorney in the firm with whom you are regularly in contact.

Disclaimer: This Alert has been prepared and published for informational purposes only and is not offered, nor should be construed, as legal advice. For more information, please see the firm's full disclaimer.