SALARIES SPEAK LOUDER THAN WORDS: THE NINTH CIRCUIT ELIMINATES EMPLOYER USE OF PRIOR SALARY HISTORY AS A JUSTIFICATION FOR LOWER PAY

By Jordan R. Turner | Associate, Brown Law Group

Practice Tips

  • Avoid all inquiries into a candidate for hire’s salary history;
  • Do not rely on an applicant’s salary history unless it was voluntarily disclosed; and
  • In setting a new hire’s salary, encourage and elicit the individual’s salary preferences.

I. The gender pay gap is real.

The numbers on the gender pay gap are sobering. On average, women are paid about 80% of what men make. The gap widens on racial lines. At its current pace, the gender pay gap won’t close until at least the year 2119.

Recently, the U.S. Court of Appeals for the Ninth Circuit handed down an employee-friendly ruling in the area of federal equal pay law. The case, Rizo v. Yovino, involved a math consultant for the Fresno County Office of Education who was paid a lower salary than comparable male employees for the same work, based on the County’s pay scale that expressly relied on prior salary history.

The Court, sitting en banc, addressed a question that has divided federal courts across the country: “can an employer justify a wage differential between male and female employees by relying on prior salary?”  The answer: No.

II. The Ninth Circuit held that prior salary is not a proper justification for sex-based wage differentials.

The question of whether prior salary history may justify wage and salary differentials strikes at the heart of the Equal Pay Act (“EPA”), the federal law that mandates that men and women receive equal pay for equal work, regardless of sex. In answering the prior salary history question, the late Judge Stephen Reinhardt, writing for the majority, held that prior salary alone or in combination with other factors cannot justify a wage differential between male and female employees.

At issue was whether prior salary history constituted a “factor other than sex” within the meaning of the EPA, and thus could be asserted as an affirmative defense by employers in unlawful pay discrimination cases. The Court quickly dispatched with this objective, noting that the language “any other factor other than sex” is restricted to “legitimate, job-related factors,” such as a job applicant’s experience, education, competency, or prior job performance, not illegitimate factors such as past salary.

The Court called it “inconceivable” that Congress would allow the EPA’s primary purpose, which was to eliminate “endemic” sex-based wage disparities, to be subverted by an exception that actually perpetuates such disparities. Put simply, the Court proclaimed that to allow an employer to justify sex-based compensation disparities on the basis of prior salary would be “wholly inconsistent” with both the text and the spirit of the EPA.

III. California law already prohibits employers from taking into account prior salary history.

For employers in states other than California under the Ninth Circuit’s jurisdiction, this decision may have grand implications for how they set the salary and wages of prospective job applicants. For California employers, however, the Ninth Court’s ruling in Rizo is not likely to have any real effect.

As is the case in most areas of labor and employment law, when it comes to pay equity, the state of California provides greater protections for employees than federal law does, and is more restrictive against employers than federal law is. In 2015, California enacted SB-358, also known as the California Fair Pay Act. Among other things, SB-358 prohibited employers from paying its employees less than employees of the opposite sex for “substantially similar work.”

In 2016, the California legislature amended its equal pay law to add race and ethnicity as protected categories, and prohibited employers from justifying gender and race-based pay disparities solely on the grounds of prior salary. Finally, in 2017, the state of California enacted AB-168, which outlawed the practice of relying on an applicant’s prior salary history as a factor in determining whether to offer the applicant employment, or a particular salary or wage. AB-168 also prohibits employers from eliciting or inquiring about prior salary information from an applicant—whether verbally or in writing.

Thus, effective January 1, 2018, all employers in California, regardless of size, are prohibited from seeking salary history information from job applicants, and may not rely on such information in deciding to hire the applicant, or in setting the applicant’s wage or salary, unless such information is voluntarily disclosed by the applicant.

IV. California employers should take heed to the increased emphasis on pay disparities.

Although the Ninth Circuit’s ruling in Rizo v. Yovino does not affect California employers, such employers would be wise to keep a watchful eye on the changing tide of pay equity law. First, the “Me Too” movement has driven a massive wedge into the status quo of American workplaces. This movement has had a major effect on pay equity, as reflected by the recent high profile pay equity lawsuits brought against many large and reputable companies.

Second, although California law expressly restricts employers’ use of prior salary history, other states under the jurisdiction of the Ninth Circuit do not. Thus, California employers that operate in other states in the Ninth Circuit (Oregon, Washington, Idaho, Montana, Nevada, Arizona, Alaska, and Hawaii) may wish to review their hiring practices in order to ensure that salary history is not being assessed in the decision to set an applicant’s salary.

V. Employers should strongly consider taking proactive action against unlawful pay disparities.

Employers doing business in California and other states under the jurisdiction of the Ninth Circuit should take proactive steps to combat pay disparities. A highly effective first-step would be to conduct a pay equity audit. For more information on how to conduct a pay equity audit, feel free to contact the employment lawyers at Brown Law Group.

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