The Equal Pay Pendulum

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Original Publish Date: June 6, 2017

Equal pay has been in the news of late, with marches and other efforts by advocates to raise public awareness of pay inequity between men and women in the workplace. These efforts have focused on strengthening the 1963 Equal Pay Act, which requires employers to pay men and women the same for equal work. Recent developments on the judicial and legislative fronts have addressed pay practices that can impact pay inequality, and these developments may prompt employers to change the way they pay their employees.

Ninth Circuit: Employers Can Pay Men and Women Differently Based on Prior Salary

In Rizo v. Yovino (No. 16-15372, April 27, 2017), the Ninth Circuit held that prior salary can be a “factor other than sex” under the Equal Pay Act for pay differences, provided the employer shows that prior salary “effectuate[s] some business policy” and the employer uses prior salary “reasonably in light of [its] stated purposes as well as other practices.”

Rizo was a math consultant for the Fresno County (Calif.) public school system. She sued the Superintendent under the Equal Pay Act after she discovered she was paid less than her male colleagues holding the same job. The Superintendent argued that its pay schedule was based on the previous salaries of the employees, and the difference in pay between Rizo and her male colleagues was based on a policy of paying 5% more than they received at their previous jobs. Under the Equal Pay Act, employers must pay men and women the same for doing the same work unless their salaries are based on a seniority system, a merit system, a system that measures quantity or quality of production, or another factor other than sex. The Superintendent in Rizo maintained that its policy of utilizing pay from previous jobs was a “factor other than sex.”

The district court found for Rizo and held that prior salary alone can never qualify as a factor other than sex. “[A] pay structure based exclusively on prior wages is so inherently fraught with the risk … that it will perpetuate a discriminatory wage disparity between men and women that it cannot stand, even if motivated by a legitimate non-discriminatory business purpose,” according to the court.

On appeal, the Ninth Circuit reversed. The Court explained that while an employer could “manipulate its use of prior salary to underpay female employees,” the consideration of prior salary isn’t always illegal. The Court noted four reasons supporting the business purpose of the Superintendent’s policy. The policy (1) was objective; (2) encouraged candidates to seek employment with the county because they would receive a 5% pay increase over their current salary; (3) prevented favoritism and ensured consistency in application; and (4) was a judicious use of taxpayer dollars. Though prior salary is not automatically a “factor other than sex,” the court said that an employer can use prior salary if it effectuates a business policy and is reasonable in the context of the employer’s stated purpose and practices.

The Rizo ruling may be headed to the Supreme Court; the decision conflicts with decisions in other federal appellate courts that came to different conclusions.

Conclusion

Despite the Ninth Circuit’s Rizo holding that creates an avenue for employers to consider pay history in its compensation policies, state and local governments are introducing measures to disallow such practices and to mandate other restrictions designed to promote equal pay for equal work. Employers should always have pay policies that are reasonably related to legitimate business purposes. These can include a pay policy or practice that is based on an individual’s prior pay. It remains to be seen if such an approach will survive later Supreme Court review of Rizo if one occurs. Stay tuned.

Matt Lynch is a shareholder with Sebris Busto James. Matt represents private and public sector health care and other employers in all aspects of labor relations, including in collective bargaining, grievances and labor arbitrations. He has handled many cases in front of the NLRB and PERC, and also advises employers on day-to-day and strategic employee relations issues, including discipline and discharge, employee leaves, employment agreements, policy development, handbooks, wage and hour and discrimination. Contact Matt at mlynch@sebrisbusto.com or 425-450-3387.