The Ninth Circuit Court of Appeals ruled this week that employers may not justify pay differences between women and men by relying on prior salary. The Rizo v. Yovino decision concerned the Equal Pay Act, which prohibits employers from paying male and female employees different wages for substantially equal work, unless the wage difference is the result of (1) a seniority system; (2) a merit system; (3) a system that measures earnings by quantity or quality; or (4) a differential based on “any factor other than sex.”
In Rizo, the court held that consideration of an employee’s past salary—whether considered alone or together with other factors—is not a permissible factor other than sex that can justify a difference in pay. As a result, the court held that the employer’s (the Fresno County Office of Education) reliance on operating procedures that looked to past salary to set a new hire’s salary did not excuse the pay gap between women’s and men’s salaries.
Companies with employees on the West Coast should immediately assess whether they set pay based in part on an applicant’s or employee’s salary history. To minimize exposure to Equal Pay Act liability, all employers should focus on “legitimate, job-related factors such as . . . experience, educational background, ability, or prior job experience” when determining employees’ salaries or wages.
1 The Ninth Circuit Court of Appeals, the largest of the U.S. courts of appeals, hears appeals from federal courts in Alaska, Arizona, California, Hawaii, Idaho, Montana, Nevada, Oregon, Washington, Guam, and the Northern Mariana Islands.
2 Rizo v. Yovino, --- F.3d ----, 2018 WL 1702982, at *1 (9th Cir. Apr. 9, 2018).
3 29 U.S.C. § 206(d)(1). The Equal Pay Act applies to all employers, regardless of size.
4 According to the court, reliance on pay history would perpetuate the very sex-based wage disparities that the Equal Pay Act prohibits. Rizo, 2018 WL 1702982, at *5.
5 Rizo, 2018 WL 1702982, at *5.
6 The court in Rizo noted that its decision did not resolve whether past salary may play a role during individualized salary negotiations. Rizo, 2018 WL 1702982, at *6. However, given the strong language and policy considerations set forth in Rizo, we anticipate courts in the Ninth Circuit will reject consideration of past wages even in individualized pay negotiations. Employers may, of course, base decisions on experience, educational background, ability, and prior job experience.