Supreme Court Asked to Decide Prior Salary/Equal Pay Act Issue

The Fresno County Office of Education has requested the Supreme Court to hear an appeal from an en banc decision of the Ninth Circuit Court of Appeals holding that the Equal Pay Act (“the EPA”) prohibits an employer when setting the compensation of a female employee from considering her compensation at her prior job. If the Supreme Court agrees to hear the County’s appeal, it will be the second time the case will come before the Supreme Court. Previously, the Supreme Court vacated the Ninth Circuit’s decision because one of the appellate court judges who considered Fresno County’s appeal passed away, and was not replaced before the Ninth Circuit issued its opinion. Given that there is now a properly issued Ninth Circuit opinion, and given a split among the Courts of Appeals over whether and under what circumstances the EPA permits a new employer’s consideration of a woman’s prior salary when setting compensation, it seems likely that the Supreme Court will take up the case.

Background

After teaching middle school for a number of years, Aileen Rizo was hired by Fresno County as a math consultant. The county employed a twelve-level job classification system and each level was comprised of a ten-step salary schedule. In accordance with its standard operating procedures, the County determined Rizo’s salary by increasing her prior salary by five percent, which placed her on Level 1 Step 1 at a salary of $62,113. About three years later, Rizo learned that a newly hired math consultant was placed on Level 1 Step 9 with a starting salary of $79,088, significantly more than Rizo was paid after working three years for the County.

Rizo sued the County in state court alleging a violation of the EPA. The County removed the case to federal district court and moved for summary judgment, arguing the EPA by its express terms allows for “a differential [in compensation] based on any other factor other than sex” and Rizo’s prior salary constituted such “other factor.” The district court denied the County’s motion, reasoning that “a pay structure based exclusively on prior wages is so inherently fraught with the risk . . . that it will perpetuate a discriminatory wage disparity between men and women that it cannot stand, even if motivated by a legitimate non-discriminatory business purpose.”

The Ninth Circuit’s Opinion

The Ninth Circuit began its analysis by recognizing that an employee bears the burden of establishing a prima facie case of wage discrimination by showing that the employer pays different wages to employees of the opposite sex for substantially equal work. As Rizo had established a prima facie case, the burden shifted to her employer to show that the differential is in fact explained by one of the EPA’s four exceptions: (1) a seniority system, (2) a merit system, (3) quality or quantity of work, or (4) any other factor other than sex. The County contended that the fourth exception allows an employer in setting compensation to consider any factor that is not sex. The Ninth Circuit rejected this argument, holding that the “other factor,” like the first three exceptions, must be job related. The court also noted the majority of circuits considering the issue had so held.

Critically, the Ninth Circuit ruled that an employee’s prior salary can never satisfy the “other factor” exception. Although the court would not presume that any particular employee’s prior wages were depressed as a result of sex discrimination, in the court’s view (1) “the history of pervasive wage discrimination in the American workforce prevents prior pay from satisfying the employer’s burden to show that sex played no role in wage disparities between employees of the opposite sex, (2) “prior pay itself is not a factor related to the work an employee is currently performing,” and (3) “using the heuristic of an employee’s prior pay, rather than relying on job-related factors actually associated with an employee’s present position, does not suffice to defeat an EPA claim.”

The Ninth Circuit recognized cases in other circuits have held that employers who considered prior salary as one of several factors in setting compensation met the EPA’s fourth exception. The court, however, read these employer-favorable decisions as based on factors exclusive of the employee’s prior salary. Thus, the court rejected the argument that prior salary can be considered to some extent if other job-related factors are presented.

Interestingly, the court noted the EPA does not prevent employers from considering prior pay for other purposes. “For example, it is not unusual for employers and prospective employees to discuss prior pay in the course of negotiating job offers, and the EPA does not prohibit this practice.” In this regard, however, employers must be careful not to run afoul of state laws that prohibit employers from asking job applicants about prior salary.

Conclusion

It can be hoped that the Supreme Court will agree to hear Fresno County’s appeal and finally resolve the extent to which the EPA allows employers to consider prior salary in setting compensation. In setting and reviewing compensation, employers should also be mindful of local and state equal pay laws, which, in many instances, apply standards that are move favorable to employees than those under federal law.

In the meantime, given the differing approaches taken by the courts on this issue, employers should seek the advice of counsel as to the state of the law in any given jurisdiction.

If you have questions about this blog, feel free to contact an attorney in the Gibbons Employment & Labor Law Department.