The Ninth Circuit Court of Appeals issued an important decision last week in Rizo v. Yovino, holding that an employer may not use an employee's prior salary history to justify gender pay disparity under the federal Equal Pay Act.
Aileen Rizo was hired as a school teacher in Fresno County in 2009. In her prior position, Rizo had earned a salary of just over $50,000 per year. The County set Rizo's new salary pursuant to its Standard Operating Procedure No. 1440 ("SOP 1440"), which implemented a 10-level salary scale. SOP 1440 determined a new hire's salary by taking the individual's prior salary, adding 5%, and placing the new employee in the corresponding step of the salary schedule. SOP 1440 placed Rizo in the lowest salary tier, earning $62,133 per year.
In discussions with colleagues, Rizo discovered 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 Court reviewed the history of the EPA, paying specific attention to the legislative intent behind the law. The Court's decision 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 Court's decision expressly overruled its 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."
Lest the reader come away with a sense of new black-letter law, the Court issued 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." That is to say—Rizo is best viewed as a ruling on a company policy that uses prior salary to set an employee's new salary; not necessarily a ruling that bars consideration of prior salary in every circumstance.
Employers should exercise extreme caution when using prior salary history to make hiring decisions. In California, recently-enacted Labor Code 432.3 issues severe restrictions on the use of such information, as do laws in Massachusetts, New York City, and Delaware. This ruling both clarifies a facet of the existing EPA, and demonstrates the legal system's increasing disfavor in the application of prior salary history to any hiring or compensation decision.
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