Ninth Circuit Rules That Employer’s Use of Salary History Does Not Justify Wage Gap Between Men and Women

The United States Court of Appeals for the Ninth Circuit fueled renewed focus on the issue of gender pay gaps last week after it ruled that the Equal Pay Act prohibits employers from using an employee’s prior salary, either alone or in combination with other factors, to justify a wage differential between male and female employees. 

In Rizo v. Yovino, a female math consultant sued the superintendent of California’s Fresno County Office of Education after she learned that the County paid her less than comparable male employees based, in part, on her salary at a prior job. The female consultant alleged that her lesser pay violated the Equal Pay Act of 1963, which provides that male and female employees must receive equal pay, regardless of sex, for work performed under similar working conditions and requiring equal skill, effort, and responsibility. The Act only allows employers to maintain a wage differential between male and female employees if the difference is based on: (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.” 29 U.S.C. § 206(d)(1). When the County hired the female math consultant, its policies specified that a newly-hired employee’s salary was primarily determined by taking the individual’s prior salary and then adding five percent. Therefore, the County argued that, although the female consultant was paid less than her male counterparts, the wage differential that resulted was permissible under the Equal Pay Act because it was based on a factor other than sex.

The Ninth Circuit rejected the County’s argument and held that the use of salary history does not constitute a factor other than sex. The Court noted that when Congress passed the Act, “an employee’s prior pay would have reflected a discriminatory marketplace that valued the equal work of one sex over the other.” The Court added that the Act’s reference to “any other factor other than sex” as a justification for wage gaps between male and female employees is limited to legitimate, job-related factors such as a prospective employee’s experience, educational background, ability, or prior job performance. On that basis, the Court concluded that “prior salary alone or in combination with other factors cannot justify a wage differential between male and female employees.”

The Ninth Circuit’s decision follows a trend of newly-enacted laws in various states throughout the country which prohibit employers from asking job applicants about salary histories. And while the Court’s decision provides much needed guidance for many west coast employers, the legal atmosphere remains relatively split on whether salary history may serve as a lawful reason for pay gaps between male and female employees. Other circuit courts, including the Seventh Circuit, have ruled that employers may justify wage differentials based on salary history because it is a factor other than sex, and thus remain in opposition to the Ninth Circuit’s latest ruling. Still other circuits have taken a middle-of-the-road approach and held that salary history may be considered along with other factors. As a result, employers should continue to review their compensation policies and procedures to ensure compliance with their local jurisdiction’s interpretation of the Equal Pay Act and whether salary history may justify wage differentials between male and female employees either alone or in combination with other factors.

• Tyler J. Roth: (414) 277-5765 / tyler.roth@quarles.com