An employer cannot consider an employee’s prior salary history to justify a wage differential under the Equal Pay Act, according to a recent Ninth Circuit decision.  To determine how your organization can best respond to this ruling, it is important to understand the decision and consider taking several actions, as recommended below. 

     A Brief Summary of Rizo v. Yovino

In Rizo v. Yovino, the United States Court of Appeals for the Ninth Circuit affirmed a decision denying a school district employer summary judgment on an Equal Pay Act claim raised by a math consultant employee named Aileen Rizo.

Rizo was hired as a math consultant for the Fresno County Office of Education in 2009.  To determine her starting salary, the district applied a formula used to set starting salary for all hires.  The formula took the new hire’s prior salary, added five percent to it, and placed it on the corresponding step of the district’s existing salary schedule.  While Rizo did not question this procedure when she was hired, she raised concerns after learning sometime later that she was being paid less than male math consultants doing the same work.  She first complained to the district and ultimately filed suit against it alleging that her pay differential violated the Equal Pay Act. 

The Act requires employers to provide men and women with equal pay for equal work, unless certain exceptions apply.  Scenarios in which a wage differential is not impermissible, and can be offered as an affirmative defense to an Equal Pay Act claim, include where there is

• a seniority system;
• a merit system;
• a system that measures earnings by quantity or quality of production; or
• a differential based on “any factor other than sex.”

At issue in this case is the fourth scenario above, where a differential is based on “any factor other than sex.”  The Ninth Circuit previously held that consideration of prior salary history constitutes a “factor other than sex” to justify a pay differential. See Kouba v. Allstate Insurance Co., 691 F.2d 873 (9th Cir. 1982).  In an en banc review in Rizo, however, the court reached a different conclusion and overturned the Kouba holding. 

In Rizo, the Ninth Circuit held that prior salary, considered either alone or in combination with other factors, cannot justify a wage differential between male and female employees.  Instead, to apply the affirmative defense that a differential is based on “any factor other than sex” an employer must show that the factors considered were legitimate and job-related (e.g., a prospective employee’s experience, educational history, ability, prior performance, etc.). 

To support its decision, the court reasoned that it was “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.”  An employee’s past pay may be based on a prior employer’s intentional discrimination or exist as a remnant of earlier pay discrimination.  As such, the court concluded, consideration of prior salary cannot be used as an affirmative defense to justify a wage differential that would otherwise violate the Equal Pay Act.  

     Recommended Employer Actions

Employers should take several steps to ensure that they remain compliant with the Ninth Circuit’s prohibition against considering pay history to justify a wage differential under the Equal Pay Act. 

• Review Job Application: Over the years, it is has not been uncommon for employers to solicit information on salary history on job application forms.  The court’s holding in the Rizo decision necessitates the updating of all job applications to remove these information requests.  HEC has sample job application forms available for member use on the website.    
• Train Hiring Managers: In addition to discontinuing the practice of obtaining prior salary information on a job application, employers should also train hiring managers to avoid making salary history inquiries during the application process.  As the Rizo decision explains, this information is irrelevant to any determination of starting salary.
• Audit Compensation Practices: Employers should also audit their compensation practices to ensure that employee pay is based on internal equity and market practices as opposed to employees’ salary history.  Any employers who have heretofore considered prior salary in determining employee compensation should immediately discontinue that practice.