The Battle Over Prior Salary History Continues: Federal Court In Virginia Holds That It Is A Legitimate “Factor Other Than Sex” Justifying Wage Disparity

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Seyfarth Synopsis: On April 5, 2021, in Abe v. Virginia Department of Environmental Quality, the U.S. District Court for the Eastern District of Virginia held that Fourth Circuit precedent supports the use of prior salary by employers as an affirmative defense to an Equal Pay Act claim. In so doing, it rejected the Ninth Circuit’s holding in Rizo v. Yovino, which held that prior salary, by itself, can never justify a pay disparity because allowing that defense would only serve to perpetuate the historical sex-based pay disparity that the Equal Pay Act was meant to rectify. The ruling is a must read for all employers for purposes of compliance strategies on equal pay issues.

Background

One of the most hotly contested issues in Equal Pay Act litigation over the past few years has been the extent to which employers can point to employees’ past salaries to justify a pay disparity among employees who perform “equal work,” as defined by the Equal Pay Act (“EPA”). The issue was framed recently by the Eastern District of Virginia in Abe v. Virginia Department of Environmental Quality, No. 3:20-CV-270 (E.D. Va. Apr. 5, 2021), this way: “Does using prior salary as a factor in setting an employee’s starting salary constitute a per se violation of the Equal Pay Act . . .?” Id. at 1.

The Ninth Circuit recently held in Rizo v, Yovino, 950 F.3 1217 (9th Cir. 2020), that prior salary history can never, by itself, amount to a “factor other than sex” to justify a pay disparity because the use of such salary history would only serve to perpetuate the historical sex-based pay disparity that exists between men and women. According to the Ninth Circuit, this would undermine the purpose of the EPA because that historical pay disparity is the very evil that the EPA was meant to counteract. The Seventh Circuit and other Courts of Appeals have held the opposite, that prior salary history can be a legitimate “factor other than sex” justifying a pay disparity.

In Abe, four named plaintiffs and twenty opt-in plaintiffs alleged that their employer’s “past practice of using pay history to determine new hire’s salary perpetuates the gender wage gap and violates the EPA.” Abe, No. 3:20-CV-00270, at 2. They argued that the Court should adopt the reasoning of the Ninth Circuit and hold that prior salary history can never constitute a “factor other than sex” under the EPA, either alone or in combination with other factors. Id. at 3.

The Court’s Decision

The Court in Abe declined to do so. The Court agreed with plaintiffs that the Fourth Circuit “has not delineated the precise circumstances under which an employer may rely on prior salary as an affirmative defense in an EPA case.” Id. at 4. But it nevertheless held, relying on Spencer v. Virginia State University, 919 F.3d 199, 202-03 (4th Cir. 2019), that the Fourth Circuit “has clearly indicated that it does not prohibit an employer from doing so.” Abe, at 4 (emphasis in original).

The Court in Abe noted that Spencer involved a female sociology professor who alleged that she had been discriminated against in terms of her compensation because she was paid less than two comparable male professors whose salary was set as a percentage of their previous salaries as administrators at the same university. The Fourth Circuit determined that the university’s decision to set starting salaries for those purported comparators in that way established that the alleged pay differential was due to a factor other than sex. The Court in Abe interpreted this to mean that “at minimum, the Fourth Circuit does not prohibit employers from raising prior salary as an affirmative defense in an EPA case.” Id. at 4-5.

The Court further rejected plaintiffs’ argument that the employer should at least have to prove that its use of salary history is job-related, as they argued the Fourth Circuit held in another case, EEOC v. Maryland Insurance Administration, 879 F.3d 114 (4th Cir. 2018). The Court in Abe sidestepped the issue. It opined that it need not resolve that question because it was not necessary to do so to decide the narrow issue before the Court; namely: “May [defendant] raise prior salary as an affirmative defense?” Abe, at 6. Based on the Fourth Circuit’s decision in Spencer, the Court held that it could and denied Plaintiff’s motion to strike the employer’s affirmative defense that was based on prior salary.

Implications For Employers

The use of prior salary history to justify a pay disparity continues to be a hot button issue in Equal Pay Act litigation. As noted above, the Courts of Appeals are divided over this issue. The implications for employers are difficult to overstate. First, employers often rely on prior salary to set starting salaries and, in fact, often argue that they must do so in order to attract top talent to their company. Employees do not often leave their current positions for less money. Second, if the use of prior salary was widespread within a company, that potentially presents a ready-made method to bind claims of putative collective or class action members together, making it easier for plaintiffs and their counsel to certify class or collective actions and to keep them certified through trial. A more in-depth analysis of this issue, and many other issues impacting equal pay litigation, can be found in Seyfarth’s annual publication, Developments in Equal Pay Litigation.

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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