A recent ruling by U.S. Court of Appeals for the Ninth Circuit has lent further support to efforts to prevent the use of salary history in determining a person’s compensation as a new hire.

On April 9, an 11-judge panel came to the consensus that an employee’s prior earnings do not constitute a factor outside of sex when determining a person’s current salary under the Equal Pay Act (EPA). The 9th Circuit Court of Appeals stated, “Allowing an employer to justify a wage differential between men and women on the basis of prior salary is wholly inconsistent with the provisions of the Equal Pay Act.” Essentially, the argument was made that the disparity of pay between men and women could not continue based on factors relating to prior pay.

The ruling was prompted by the case of Aileen Rizo, a math consultant employed by the Fresno County Office of Education. The Fresno County Office of Education’s policy for determining new hire’s salaries was based primarily on the new employee’s prior salary. The exact salary determination was made using the following concept: prior salary, adding 5%, and placing the employee on the corresponding step of the salary schedule. It came to Rizo’s attention during lunch one day that a new hire, a man, with the same job, was receiving a significantly larger pay than she was. Investigating further, she realized that several other male counterparts were receiving higher pay for the same job. As a result, Rizo sued Fresno County for pay discrimination under the EPA.

During the court hearing, the county did not deny that Rizo was paid less than her male coworkers. In fact, the county attempted to justify the pay differences, claiming that the wage differential was legitimate under the EPA and that the use of prior salary to determine a new employee’s compensation was permitted under the EPA as a “factor other than sex.”

While the U.S. Equal Employment Opportunity Commission (EEOC) requires that men and women be given equal pay for equal work in the same establishment, employers have four options they can claim to defend their reasoning for paying employees with the same job differently. These are called affirmative defenses and are as follows:

  • A seniority-based pay system
  • A merit-based pay system
  • A pay system which measures earning by quantity or quality of production
  • A pay differential based on a factor other than sex (the “catchall defense”)

In the Rizo case, the court had a different interpretation of the defense claimed by the county. It ruled that a “factor other than sex” defense is limited to job-related factors like experience, educational background, ability, or prior job performance. It has nothing to do with past salary history.

As a result of the case, employers within the Ninth district are prohibited from using prior salary either solely or in combination with another factor for determining an employee’s salary. Previous factors, such as educational background, work experience, ability, and prior job performance, still are considered to be legitimate factors for pay differences between men and women. It is reasonable to assume that the precedent set by this ruling will influence other court cases across the country.

Almost a third of the US states are considering or have already removed the prior salary inquiry from their pay determination inquiry, including California. With more and more states passing laws banning the use of past salary history in determining a new employees’ compensation, employers may want to seek out professional assistance in make sure their HR departments are current on pay equity laws within their states and to conduct audits on the pay disparities that may be present in their organizations based on past practices used in determining salaries.

As states continue to enact stricter laws around the Equal Pay Act (EPA), organizations should be prepared to support their reasons for pay disparity between men and women employees. Recent changes in state and local legislation surrounding the EPA indicate more stringent implications for failing to comply with the law, such as class-action lawsuits and liquidated damages.

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