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Ruling on Use of Prior Salary for Setting Initial Pay

Following remand from the Supreme Court, the Ninth Circuit held that employers cannot justify pay disparities under the federal Equal Pay Act by showing that those disparities are based on employees’ past earnings.

On Thursday, February 27, 2020, the Ninth Circuit, issued a decision (Rizo v. Yovino), indicating that prior salary cannot be used as a factor other than sex to justify pay differences under the federal Equal Pay Act. The Ninth Circuit joined the Tenth and Eleventh Circuits in holding that the Equal Pay Act precludes employers from relying solely on prior salary to justify pay differences. However, this is different from the decisions by the Seventh and Eighth Circuits, which held that such reliance by itself does not violate the Equal Pay Act.

The Facts Underlying the Ninth Circuit Case

The original Ninth Circuit case, Rizo v. Yovino, 854 F.3d 1161 (9th Cir. 2017), was brought by Aileen Rizo who worked as a math consultant for the Fresno County public schools. The County classified management-level employees in salary levels that contain progressive pay steps. New math consultants were placed into Level 1, which contained ten salary steps with compensation ranging from $62,133 to $81,461. To determine the starting salary for a new consultant, the County considered the candidates’ most recent prior salary and added 5% to assign the starting salary step within Level 1. Rizo previously worked as a middle school math teacher in Arizona. Consistent with the County’s practices, Rizo was to receive a 5% increase over her prior salary; however, doing so would have resulted in a starting salary that was lower than the minimum salary level for new math consultants. The County addressed the issue by setting Rizo’s starting salary at the minimum of the Level 1/Step 1 salary range, along with a slight increase to account for her advanced education.

Several years later, Rizo learned that at least one of her male colleague’s starting salary was set at the Level 1/Step 9 salary range and that the other math consultants, all of whom were male, had earned more than she was paid. After raising internal complaints regarding the disparity between her compensation and that of her male counterparts, Rizo filed suit to raise allegations under the federal Equal Pay Act, Title VII and the California Fair Employment and Housing Act.

Interesting comments from the ruling:

  • Writing for the majority, Judge Morgan Christen indicated, “Setting wages based on prior pay risks perpetuating the history of sex-based wage discrimination.” Rizo v. Yovino, No. 16-15372, 2020 WL 946053 (9th Cir. 2020). “The express purpose of the Act was to eradicate the practice of paying women less, simply because they are women…Allowing employers to escape liability by relying on employees’ prior pay would defeat the purpose of the law.”
  • In her concurrence, Judge Margaret McKeown said Fresno Schools’ policy did not justify the disparity between Rizo’s pay and that of her male coworkers, but salary history “may provide a lawful benchmark” for setting pay, if considered alongside other factors such as education and training.

Implications for Employers

As a result of this rule, there is a clear circuit court split regarding the use of prior salary to explain pay disparities. Employers should be aware of the split and approach this area with caution. Following this decision, the Ninth, Tenth, and Eleventh Circuits have held that the Equal Pay Act precludes employers from relying solely on prior salary whereas the Seventh and Eighth Circuits have ruled that such reliance, by itself, does not violate the Equal Pay Act.

These cases and other rulings highlight the need for employers to consider pay equity at all levels of the organization and be aware of numerous salary history bans that prohibit employers from seeking and, in some cases, relying on prior pay in setting starting wages.

For more information on conducting a pay equity review or other compensation matters, please contact us.

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