The Equal Pay Act (“EPA”) requires payment of equal wages to employees of the opposite sex who perform equal work but recognizes four statutory defenses to a claim for pay discrimination. The last of those defenses is a “catch-all,” which covers pay differences “based on any other factor other than sex.” Breaking with the EEOC’s long-standing interpretation of this defense, the Ninth Circuit Court of Appeals recently held that an employer may rely on an employee’s prior salary to justify a wage differential between men and women performing the same job.

In Rizo v. Yovino, 854 F.3d 1161 (9th Cir. 2017), the defendant employer conceded that it paid the plaintiff less than her male colleagues for the same work but countered that the law permitted its wage practice because it was “based on any other factor other than sex” – namely, each employee’s prior salary. The district court ruled that prior salary alone would not suffice as a “factor other than sex” under the EPA because a pay structure based solely on salary history would simply perpetuate a discriminatory wage disparity between men and women. The Ninth Circuit reversed, concluding that prior salary could qualify as a “factor other than sex,” provided the employer shows its use of prior salary is reasonable and effectuates a business policy.

The Ninth Circuit’s decision highlights a split of authority in the rapidly evolving landscape of equal-pay law in the United States.

• Federal circuit courts are split on the issue of whether prior salary, alone, can constitute “a factor other than sex” under the EPA.
• The EEOC urged the Ninth Circuit to adopt the federal agency’s position in the Rizo case, arguing that when employers set pay by solely considering its employees’ prior salaries, “it perpetuates existing pay disparities and undermines the purpose of the Equal Pay Act.”
• Numerous state and local jurisdictions have recently introduced and/or passed legislation restricting an employer’s ability to inquire about and rely upon an applicant’s prior salary in the hiring and compensation-setting process. Massachusetts, Oregon, Puerto Rico and several major cities have enacted new salary history restrictions. Furthermore, California’s Labor Code provides that “prior salary shall not, by itself, justify any disparity in compensation.”

Prudent employers will monitor closely this area of the law as the rules concerning reliance on prior salary to set employee compensation continue to develop.

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