Korty v Indiana: The Impact on Pay Equity & Reverse Discrimination

The recent pay discrimination case of Korty v Indiana University Health offers an alternative perspective on pay equity and highlights why employers must ensure salary ranges are set without regard to sex or gender.  

In this article, we highlight some key points from the court ruling, the potential for reverse discrimination in determining pay, and the importance of using pay equity software that complies with employment law, EEOC Title VII, and helps to ensure workplace fairness and transparency in compensation practices.  

Case summary

In the case of Korty v. Indiana University Health, the court ruled in favor of the employer.  

The defendant, Indiana University of Health (“IUH”) had internal guidelines for staff to follow in making compensation offers. Those guidelines encompassed salary range, internal equity, prior relevant work experience, and budget. 

After Plaintiff Laura Korty (“Korty”) resigned from IUH, a decision was made to hire Justin Reagin, an internal candidate, to replace her. Due to Reagin’s current salary, IUH made a compensation offer that was higher in pay than Korty’s earnings. Korty subsequently made a claim under the Equal Pay Act.

IUH was required to prove that the pay differential was based on factors other than sex, and evidenced three criteria to justify the wage gap and prove workplace fairness. These factors were market range/prior salary, internal equity, and knowledge, skills, and experience.  

Highlights for employers regarding pay equity and equal pay law

• The court reviewed the practice of evaluating compensation rates for new hires against the pay rates of incumbent employees to ensure current and new employees in the same job code enjoy consistent rates of pay. 
• IUH considered Reagin’s previous salary in determining both the initial offer, and their final offer. 
• In determining Reagin’s pay, IUH reviewed the pay rates of ten other coordinators across their South Central and East Central regions to compare internal equity. The results enabled the hospital to increase their initial offer to Reagin, stating “one thing IU Health really focuses on is internal equity with other team members in the role.” 
• In addition, due to Reagin’s prior experience and skill set, IUH was  able to increase their first offer, while staying consistent with internal equity. 
• The court held that internal equity was considered in determining Reagin’s salary. Evidence was clear that there were multiple factors, excluding sex/gender, that legitimized the wage gap between Korty and Reagin. This meant the pay differential in this case was not due to sex/gender.
• No evidence was provided to demonstrate that Reagin’s previous salary was artificially inflated due to gender. Reagin’s increased final offer was still in line with the average pay of IUH’s clinical nurse quality coordinators, and below that of the highest earner in that position, who was female, indicating gender equality.  
• In the Seventh Circuit, prior salary is permitted as a valid reason “other than sex” to explain a compensation disparity. Employers based in other circuits should review pay discrimination laws in their state and not rely on prior salary to justify pay differentials. In 2020, the Ninth Circuit, for example, confirmed that salary history could not be used to justify pay disparities, an interpretation of the Equal Pay Act shared by the Second, Fourth, Sixth, Tenth, and Eleventh Circuits.

Recommendations to ensure equal pay

In summary, employers should note that:

• Including sex as a determining factor to establish pay would have resulted in pay discrimination and violation of employment law. 
• The employer won the case because the salary range was set without reference to or taking into consideration sex. 

What is reverse discrimination?

Reverse discrimination is the unfair treatment of employees in a majority group based on race, gender, and so on. It can often arise from legislation intended to address discrimination against minorities and marginalized groups, such as women and LGBTQIA+ people. Examples of reverse discrimination include: 

• Hiring or promoting female employees over more qualified males based on gender alone, or giving women more favorable treatment at work due to gender. 
• Discriminating against a white employee in favor of a racial minority.
• Making recruitment or promotion decisions in favor of minority groups, despite the experience or seniority of majority job applicants, such as white males.

In October, 2021, a jury in the US District Court for the Western District of North Carolina awarded a white male former employee $10 million in a reverse discrimination lawsuit against Novant Health.  That was later reduced on appeal due to a federal law that limits damages in Title VII workplace discrimination cases at $300,000. However, the employer was still required to pay $4 million in damages, lost pay and interest, in what was described as one of the largest employment law judgments in the state’s history. 

Equal Pay Laws

The primary federal employment laws which affect equal pay include:

• Equal Pay Act of 1963; which amends the Fair Labor Standards Act and protects against wage discrimination based on sex
• Title VII of the Civil Rights Act of 1964 (Title VII) which prohibits employment discrimination based on race, color, religion, sex and national origin 
• Age Discrimination in Employment Act of 1967; which is enforced by the EEOC 
• Americans with Disabilities Act (ADA) of 1990 

Choosing the right pay equity software provider enables your company to comply with federal and state pay equity legislation and equal pay law. 

Partner with a pay equity software provider you can trust

Korty v. Indiana reinforces the need to justify pay differentials or any apparent compensation disparity to ensure workplace fairness and avoid violating equal pay law. 

Employers can achieve this by implementing a policy of pay equity, which includes the following:

Set fair, explainable, and equitable salary ranges: An explainable salary range is one that employers can demonstrate ensures workplace fairness. It also means that in the event of an inquiry, employers can clearly show how the salary range was identified. It is estimated that one in four US workers is now covered by a law that requires organizations to post salary ranges in job listings.

Adopt a policy of internal equity: Internal equity refers to the practice of ensuring fair and equal compensation is paid to employees in the same position in a specific field of work when each has the same skill set and duration of employment. In the above, IUH referred to “internal equity” to review the pay of current employees in determining where to fit their new hire. Their internal equity policy permits pay differences between individuals in the same job based on relevant work experience, performance, or seniority”. IUH also adopted a policy of avoiding new hire rates that are higher than incumbent pay, while acknowledging that “exceptions may occur”.

Avoid discrimination: Ensure your Pay equity software does not violate EEOC Title VII guidance. That  guidance makes it clear that employers cannot delegate responsibility for pay discrimination or AI bias to their software vendor, nor rely on their vendor’s assurance that its software is Title VII compliant. If pay equity software violates workplace laws, you, as an employer, may be held liable. 

Partner with a pay equity software that doesn’t discriminate. Speak to one of our experts.