Salary History Ruled Not a Defense in Equal Pay Case

A recent federal court ruling solidifies the prohibition on employers in Alaska, Arizona, California, Hawaii, Idaho, Montana, Nevada, Oregon, and Washington from using salary history as an affirmative defense to an equal pay claim.

On February 27, 2020, the Ninth Circuit Court of Appeals decided Rizo v. Yovino, a decision 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 Equal Pay Act (“EPA”) The County denied wrongdoing and claimed an “affirmative defense” under the EPA.

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 earnings 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 relied on the underlying purpose of the Equal Pay Act—to eliminate gender-based pay disparities. Writing for the majority, Judge Christen wrote:
“The EPA’s fourth exception allows employers to justify wage disparities between employees of the opposite sex based on any job-related factor other than sex. Because prior pay may carry with it the effects of sex-based pay discrimination, and because sex-based pay discrimination was the precise target of the EPA, an employer may not rely on prior pay to meet its burden of showing that sex played no part in its pay decision. For purposes of the fourth exception, we conclude that the wage associated with an employee’s prior job does not qualify as a factor other than sex that can defeat a prima facie EPA claim.”

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.

It may also come as no surprise that states across the country are continuing to enact policies prohibiting employers from inquiring into an employee’s salary history for determining current pay, California along with 17 other states and 21 municipalities have salary history bans in place, and more are expected to pass this year, according to HR Dive.

Salary history bans, as the recent Rizo v Yovino case demonstrates, are effective ways of eliminating the gender wage gap, but they are just one piece of the puzzle to eliminating gender-based pay disparities. Employers also have a role to play in conducting proactive pay equity audits.

A pay equity audit can identify pay differences between employees that cannot be explained due to job-related factors. This type of audit not only identifies problems, but also provides actionable solutions. It gives employers an opportunity to ensure fairness in pay and prevent employee issues. It allows the employer to minimize risk by 1) identifying and remediating unlawful pay disparities and 2) providing the employer with greater resources to prevent claims of discrimination.

Based on our report with the Harvard Business Review’s Analytic Services, 90% of U.S. employers are planning, considering, or already performing internal pay equity audits. It’s not too late for your organization to get started. Contact us to learn about Pay Parity.