You Should Have Good Reasons for Considering Salary History in Determining Compensation

An employer must evaluate the business reasons an employer applies a pay differential based on prior salary history and ensure that the differential is reasonably used, to comply with the Equal Pay Act (EPA).  In Rizo v. Yovino, the United States Court of Appeals for the Ninth Circuit remanded an EPA case to the district court with instructions to further evaluate the business reasons that a school district had for applying a pay differential based on prior salary history that resulted in a female employee being paid less than male colleagues.
 
The female employee, Aileen Rizo, sued under the EPA after learning that male math consultants were paid more for doing the same work that she did.  The school district moved for summary judgment on her claim, arguing that the Equal Pay Act’s affirmative defense applied where the pay differential was based on prior salary, which constituted “any other factor than sex.”  The district court disagreed with the employer, holding instead that where a pay structure is based on prior wages, any pay differentials that result are not based on a factor other than sex.  The court reasoned that applying salary history was so fraught with risk of inherent bias that the affirmative defense would not apply.  In so doing, it recognized that its holding might conflict with Ninth Circuit precedent, however, and certified the question to the appellate court for review.
 
To make a prima facie case of discrimination under the Equal Pay Act, an employee must show that s/he is making different wages for equal work.  Once this is shown, the employer may avoid liability by showing that the wage disparity is permitted under the statute.  Circumstances in which a disparity is permitted include where there is (a) a seniority system; (b) a merit system; (c) a system which measures earnings by quantity or quality of production; or (d) a differential based on any other factor other than sex.  See 29 U.S.C. § 2069(d)(1).
 
Upon review, the Ninth Circuit concluded that the proper standard for analyzing whether prior salary qualifies as “any other factor other than sex” was to determine whether the prior salary “effectuates some business policy” and is used “reasonably in light of [the employer’s] stated purpose as well as its other practices.”  The court noted that, in reaching its conclusion that salary history was not “any other factor other than sex,” the district court failed to evaluate the four reasons the employer offered to justify its pay practices.  The Ninth Circuit therefore remanded the case for further consideration, instructing the district court to evaluate the employer’s explanation that it used this policy because it (1) is objective and not based on subjective opinions regarding a new employee’s value; (2) encourages candidates to leave their current jobs since the employer will always pay 5% more than their current salary; (3) prevents favoritism and ensures consistent application; and (4) is a judicious use of taxpayer money.