As previously reported in EmployNews, a number of states and municipalities have tried to address gender-based pay gaps by adopting legislation that prohibits employers from asking about pay history or setting starting salaries based on pay at former jobs. Even for employers outside these jurisdictions, using pay history to set current compensation may run afoul of the Equal Pay Act’s sex discrimination prohibitions. On February 27, in an en banc decision, the Ninth Circuit Court of Appeals recognized that such practices can constitute sex discrimination.
In Rizo v. Yovino, a county government set a teacher’s starting salary based in part on her most recent salary. She filed suit under the EPA after determining that similarly situated male teachers received higher starting pay based on their salaries at prior jobs. The employer contended that the use of prior salary history was a factor other than sex that removed the claim from the EPA’s protections. A federal district court agreed with the plaintiff, but the U.S. Supreme Court vacated the decision because that federal judge had died several days before the opinion was published.
On remand, the full Ninth Circuit agreed with the original district court decision. It interpreted the EPA’s “other than sex” defense to apply only to those factors that are job-related. An employee’s pay history has nothing to do with their ability to perform the current job. In addition, the Ninth Circuit noted that the EPA does not require plaintiffs to demonstrate the defendant’s intent to pay less based on gender, meaning that the effect of this policy – and not the reasons behind it – determined its legality.
Based on this decision, employers that use salary history to determine starting pay run the risk of sex discrimination claims if women are paid less as the result of the policy. Employers should carefully consider and document the business reasons for establishing starting wages as well as wage increases. For some jobs, pay should be based on an across-the-board salary for all employees in that position. Where business reasons determine salary differentials (such as experience, education, skill set), those justifications need to be clearly articulated and consistently applied across all employees.