Despite the Equal Pay Act being enacted more than 50 years ago, women still earn only 80 percent of what men earn for equivalent jobs. This pay disparity is perpetuated when a woman is paid less than her male co-worker performing the same job solely because she earned less at her previous job. Recognizing that salary histories play a role in perpetuating salary differences between the sexes, numerous legislatures and courts have begun to limit an employer’s ability to use past salary in setting compensation levels, or even to ask for an applicant’s salary history at all.

In a case decided the day before Equal Pay Day, the Ninth Circuit Court of Appeals ruled that, in a claim for violation of the Equal Pay Act, salary history is not a defense to a claim of gender discrimination when a female employee complains that her salary is lower than that of  her male counterpart.

The Equal Pay Act of 1963 requires employers to pay equal pay for equal work on jobs that require equal skill, effort and responsibility, and that are performed under similar working conditions. The Act has four exceptions, however, allowing for differences in wages when the payment is made pursuant to (i) a seniority system, (ii) a merit system, (iii) a system that measures earnings by quantity or quality of production, or (iv) a differential based on any other factor other than sex.

In Rizo v. Yovino, No. 16-15372 (9th Cir. Apr. 9, 2018), Aileen Rizo, a math consultant, sued the Fresno County Office of Education, claiming that she was paid less than men performing the same job. The county admitted that it paid Rizo less than her male counterparts, but claimed that the discrepancy was based on Rizo’s prior salary. It moved for summary judgment, arguing that the decision to base Rizo’s salary on her salary history was a factor “other than sex” and provided a complete defense to Rizo’s claim.

The district court denied the county’s summary judgment motion, reasoning that “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.” The Ninth Circuit Court of Appeals granted an interlocutory appeal, and a three-judge panel reversed the district court’s opinion, finding that the Ninth Circuit’s prior opinion in Kouba v. AllState Ins. Co., 691 F.2d 873 (9th Cir. 1982), was controlling. In Kouba, the Ninth Circuit concluded that salary history fell within the “factor other than sex” defense when it was considered along with other factors, such as ability, education and experience.

On rehearing before the full court of 12 judges, the Ninth Circuit reversed the three-judge panel’s opinion, and affirmed the district court opinion. In doing so, the Ninth Circuit limited the Equal Pay Act’s affirmative defense for “any other factor other than sex” to “legitimate, job-related factors such as a prospective employee’s experience, educational background, ability, or prior job performance.” According to the court, “It is inconceivable that Congress, in an Act the primary purpose of which was to eliminate long-existing ‘endemic’ sex-based wage disparities, would create an exception for basing new hires’ salaries on those very disparities—disparities that Congress declared are not only related to sex but caused by sex.” The court stated further that “[p]rior salary does not fit within the catchall exception because it is not a legitimate measure of work experience, ability, performance, or any other job-related quality . . . it may well operate to perpetuate the wage disparities prohibited under the Act. Rather than use a second-rate surrogate that likely masks continuing inequities, the employer must instead point directly to the underlying factors for which prior salary is a rough proxy, at best, if it is to prove its wage differential is justified under the catchall exception.” The court concluded that “[p]rior salary, whether considered alone or with other factors, is not job related and thus does not fall within an exception to the Act that allows employers to pay disparate wages.”

This opinion puts the Ninth Circuit at one extreme of the debate on this issue. It rejected a middle ground accepted by four other circuit courts as well as the Equal Employment Opportunity Commission (EEOC). Several concurring opinions (five judges in all) argued that the court should accept the position adopted by decisions in the Second, Sixth, Tenth and Eleventh Circuits, as well as the opinion of the EEOC, which permit consideration of prior salary along with other factors. The reasoning in the various concurring opinions is highlighted as follows:

• “[E]mployers do not necessarily violate the Equal Pay Act when they consider prior salary among other factors when setting initial wages. To the extent salary is considered with other factors, the burden is on the employer to show any pay differential is based on a valid job-related factor other than sex.”

• A total ban on considering salary history is “unsupported by the statute, is unrealistic, and may work to women’s disadvantage.”

• “[B]asing initial salary upon previous salary, plus other factors such as experience and education, encourages hard work and rewards applicants who have stellar credentials.”

• Ignoring prior salary history “stifles these economic incentives with a flat prohibition on ever considering prior salary, no matter how enlightened or non-discriminatory it may have been.”

• Past pay may be considered but only “if it is not itself a reflection of sex discrimination.”

The Seventh Circuit has taken the opposite extreme position on this issue and has decided that prior salary is always a “factor other than sex.”

What This Means for Employers

Given the wide circuit court split, it is likely that the U.S. Supreme Court will consider this issue in the future. In the meantime, numerous state and local jurisdictions, including Delaware and New York City, have enacted legislation prohibiting employers from inquiring about salary histories of applicants for employment. Philadelphia also enacted legislation banning salary history inquiries, but the statute was temporarily enjoined pending resolution of a lawsuit filed by the Chamber of Commerce. In California, Oregon, Washington and Massachusetts (effective July 2018), the state laws have gone even further, prohibiting employers from basing pay on an employee’s prior salary. New Jersey has legislation, currently awaiting signature from the governor, that would go even further than these four states, prohibiting employers from basing pay on any protected category of an employee, including sex.

Employers that continue to request salary histories must be mindful of this evolving area of the law and ensure that they are doing so only in jurisdictions where such questions are permitted. Moreover, employers in the Ninth Circuit (which covers California, Alaska, Arizona, Hawaii, Idaho, Montana, Nevada, Oregon and Washington) should audit their existing workforce to ensure that any gaps in pay are not based on salary history.