Salary History is No Defense to an “Equal Pay Act” Violation, Says Ninth Circuit

By Scott H. DeHart*

On April 9, 2018, the U.S. Court of Appeals for the Ninth Circuit – which covers Alaska, Arizona, California, Hawaii, Idaho, Montana, Nevada, Oregon, and Washington – held that, under the Equal Pay Act of 1963 (“EPA”), employers can no longer rely on an employee’s prior salary to justify different wages paid to male and female employees. The case is Rizo v. Yovino, No. 1:14-cv-00423-MJS, slip op. (9th Cir. April 9, 2018). The Court’s decision came on the eve of “Equal Pay Day,” a symbolic date chosen each year to illustrate how far into the new year women in the U.S. must work to ‘catch up’ to men’s earnings from the prior year.

The female plaintiff, Aileen Rizo, was a math consultant hired by the Fresno County Office of Education. She previously worked as a middle and high-school math teacher. To determine her salary, Fresno County followed its policy of taking Rizo’s prior salary, adding 5%, and placing her in the appropriate “Step” on a 10-step hiring salary schedule. Several years later, Rizo learned that the County placed male colleagues who had been hired after her at higher salary steps. Rizo filed a lawsuit claiming, among other things, that her employer had violated the EPA.

Congress passed the EPA to prohibit sex-based wage discrimination in employment. The core principle of the EPA is that men and women should receive equal pay for doing equal work, regardless of their sex. The EPA contains several exceptions to this anti-discrimination principle, including a catch-all for a wage “differential based on any other factor other than sex.” 29 U.S.C. § 206(d)(1) (emphasis added).

The question before the Ninth Circuit in Rizo was whether an employee’s prior salary was a “factor other than sex” on which an employer could rely to defend different salaries between male and female employees. A three-judge panel of the Ninth Circuit initially answered yes to this question, and held that prior salary was a permissible “factor other than sex” under the EPA, relying on the Ninth Circuit’s 1982 decision in Kouba v. Allstate Insurance Co., 691 F.2d 873 (9th Cir. 1982). In Kouba, the Ninth Circuit had upheld a salary system that calculated employee salaries based on prior salary, along with ability, education, and experience.

After the three-judge panel’s decision, the Ninth Circuit agreed to rehear the case en banc (i.e., all the judges of the court hear the case, not just three). The full Ninth Circuit disagreed with the three-judge panel’s decision and overturned Kouba. The Ninth Circuit held that prior salary (alone, or in combination with other factors) cannot justify a wage differential. The Court explained that allowing employers to defend an EPA lawsuit based on ‘prior salary’ gives employers the ability to “capitalize on the persistence of the wage gap and perpetuate that gap ad infinitum.” That would be contrary to the text and history of the Equal Pay Act, and would undermine the basic principle for which the EPA was passed.

Although the decision is only binding law in the states covered by the Ninth Circuit and not in Ohio, the Rizo decision may have far-reaching impact. In the era of #metoo and #timesup, employers are facing increased scrutiny of policies and practices that negatively impact women in the workforce. Other courts may soon be persuaded by the Ninth Circuit’s reasoning in Rizo and issue similar decisions limiting or prohibiting employer reliance on “prior salary” to justify different salaries for men and women who perform equal work.

Employers should work closely with legal counsel to ensure that their existing wages and compensation policies are consistent with the requirements of the EPA and other federal and state laws.

*Scott H. DeHart is a member of the firm’s Labor and Employment Group and practices out of the firm’s Columbus, Ohio office. Scott has experience defending against equal pay claims. If you have questions about employee pay or any other labor or employment issues, please contact Scott at shd@zrlaw.com or (614) 224-4411.