Federal Appeals Court Says Selective Retention Raises May Discriminate Against Female Employees

Parker Poe Adams & Bernstein LLP

Parker Poe Adams & Bernstein LLP

Employers concerned about losing valuable employees may take the initiative to provide salary increases intended to deter them from seeking alternative employment. A new decision from the Ninth Circuit Court of Appeals cautions employers about the dangers of picking and choosing which comparable employees receive such retention raises. In Freyd v. Univ. of Oregon, a female professor filed a disparate impact sex discrimination lawsuit, alleging that the university paid comparable female professors less than male ones. The district court granted summary judgment to the university on the basis that its reasoning for providing retention raises to some professors was job related and consistent with business necessity.

On appeal, the Ninth Circuit partially reversed the district court and remanded the case for trial. In its decision, the Ninth Circuit noted that female professors made about $15,000 less than male ones on average, and that the use of retention raises to male professors could account for a significant portion of this disparity. The Ninth Circuit agreed that the plaintiff should be able to present a jury with evidence that female professors either were not offered retention raises at the same rate as males, or that they were less successful at negotiating such raises. In addition, the plaintiff will have a chance to argue that the university could retain talent by offering general raises that do not have a disparate impact against women.

This decision should serve as a cautionary tale to employers that provide salary increases among comparable employees based on subjective views of their value to the organization and risk of departure. True merit raises should be based on documented evaluation of clear performance criteria. Retention bonuses should be granted based on a policy that provides for an equitable valuation of comparable people, and that does not leave the amount of the salary increase up to the negotiating skills of individual employees.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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