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Ninth Circuit Eliminates Salary History as Defense Under Federal Equal Pay Act

by D. Gregory Valenza | | April 11, 2018

Circuit Judge Stephen Reinhardt recently passed away after a long career on the 9th Circuit. (President Carter appointed him).  He left a significant legacy of decisions that shaped the law. He took a special interest in influencing employment law.  And by influencing, I mean ruling in favor of plaintiffs. A lot. Rest in peace, Judge Reinhardt.  I don’t agree with you on much, certainly not on your employment law jurisprudence, but I respect your service.  

Before Judge Reinhardt left us, though, he authored one last opinion, on behalf of an “en banc” panel of the Ninth Circuit. He passed away before publication, as the opinion in Rizo v. Ovino notes.  And it’s a doozy. 

With that introduction, Rizo is about the Fresno County Dept. of Education and its employee Aileen Rizo.  Rizo worked in Arizona for Maricopa County before joining Fresno County.  She earned a salary of $50,630 and a stipend while in Arizona

Fresno County set initial salaries of new employees by adding 5% to the employee’s former salary, and then placing the employee on a compensation schedule. Fresno used this formula regardless of sex. 

As a result, Fresno County paid Rizo $62,133 as a starting salary. Rizo found out some of her male co-workers were paid more for the same work. Their initial salaries were set based on the same formula, but the co-workers’ previous salaries apparently were higher.  Rizo sued under the federal Equal Pay Act.

The Equal Pay Act is different from Title VII of the Civil Rights Act of 1964.  The employee does not have to prove an intent to discriminate. She has to prove only that she is paid less for “equal” work, rather than go through the prima face case of discrimination.  The employer then has the burden of proving one of four defenses:

(i) a seniority system;

(ii) a merit system;

(iii) a system which measures earnings by quantity or quality of production; or

(iv) a differential based on any other factor other than sex. 

The County relied on the fourth factor, arguing that its compensation system was not based on sex, but merely prior salary, applicable to both sexes. That, the County argued, was a “factor other than sex.”

Why would Fresno County think prior salary is a legitimate “factor other than sex”? Turns out the Ninth Circuit previously had held just that, in Kouba v. Allstate Insurance Co., 691 F.2d 873 (9th Cir. 1982).  The court there held: “the Equal Pay Act does not impose a strict prohibition against the use of prior salary.” Id. at 878.”

The en banc Court overruled Kouba in no uncertain terms:

Because Kouba, however construed, is inconsistent with the rule that we have announced in this opinion, it must be overruled. First, a factor other than sex must be one that is job related, rather than one that “effectuates some business policy.” Second, it is impermissible to rely on prior salary to set initial wages. Prior salary is not job related and it perpetuates the very gender-based assumptions about the value of work that the Equal Pay Act was designed to end. This is true whether prior salary is the sole factor or one of several factors considered in establishing employees’ wages. Although some federal courts of appeals allow reliance on prior salary along with other factors while barring reliance on prior salary alone, see, e.g., Glenn, 841 F.2d at 1571 & n.9, this is a distinction without reason: we cannot reconcile this distinction with the text or purpose of the Equal Pay Act.. 

The Court also limited the Equal Pay Act’s “catch-all” defense further: 

Prior 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. 

That is farther than other courts and the EEOC are willing to go. That is, other courts and the EEOC allow consideration of prior salary along with other factors without violating the Equal Pay act. The Court here simply holds that prior salary must not be considered – at all.   The Court’s decision on this point drew four “concurrences” from judges who agreed that the County’s compensation system was unlawful by relying exclusively on prior salary.  However, they also believed employers should be able to take prior salary into account along with other business-related considerations. 

The Court also noted that to qualify as a “factor other than sex,” the employer must demonstrate a job-related reason (job skills acquired at a former job, for example).  Any reason for a wage disparity that is not “job-related” is going to fail the test the Court set out. So, for example, what if you pay a child of the CEO more than someone else of the opposite sex for the same job?  Is that “job-related” under the new standard? Maybe not. What counts as “job related,” will be the subject of more litigation.  

I will leave you to read the opinion for the rest of the analysis.  

Now, what about California law? The Ninth Circuit’s decision goes even farther than Labor Code section 432.3 available here.  The California law provides: 

(a) An employer shall not rely on the salary history information of an applicant for employment as a factor in determining whether to offer employment to an applicant or what salary to offer an applicant.
(b) An employer shall not, orally or in writing, personally or through an agent, seek salary history information, including compensation and benefits, about an applicant for employment.
(c) An employer, upon reasonable request, shall provide the pay scale for a position to an applicant applying for employment.
(d) Section 433 does not apply to this section.
(e) This section shall not apply to salary history information disclosable to the public pursuant to federal or state law, including the California Public Records Act (Chapter 3.5 (commencing with Section 6250) of Division 7 of Title 1 of the Government Code) or the federal Freedom of Information Act (Section 552 of Title 5 of the United States Code).
(f) This section applies to all employers, including state and local government employers and the Legislature.
(g) Nothing in this section shall prohibit an applicant from voluntarily and without prompting disclosing salary history information to a prospective employer.
(h) If an applicant voluntarily and without prompting discloses salary history information to a prospective employer, nothing in this section shall prohibit that employer from considering or relying on that voluntarily disclosed salary history information in determining the salary for that applicant.
(i) Consistent with Section 1197.5, nothing in this section shall be construed to allow prior salary, by itself, to justify any disparity in compensation.
The subsections I bolded no longer will be available to California employers as a practical matter. That is because the federal Equal Pay Act applies in California too.  So, although section 432.3 permits an employer to rely on salary history if “voluntarily disclosed,” that is not so under the Ninth Circuit’s decision.  And the Ninth Circuit does not permit any consideration of salary history, at all.  The concurring judges would have allowed salary history to be one of the factors employers consider, but not the only factor. as provided in subsection (I).
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