In Rizo v. Yovino, 887 F.3d 453 (9^th Cir. 2018), the United States Court of Appeal for the Ninth Circuit was tasked with answering this question: Can an employer justify paying a woman less than a man due to her prior salary history? Its answer: No.

The Facts

The Fresno County Office of Education (the “County”) hired Aileen Rizo in 2009 to work as a math consultant.  Ms. Rizo worked along side male math consultants who performed the same type of work.  Several years into the job, Ms. Rizo learned her male colleagues received greater salaries at the time of hire than she did.  With this news, Ms. Rizo sued the County’s superintendent, Jim Yovino, advancing a variety of sex discrimination-based claims. Notably, Ms. Rizo claimed the County’s sex-based wage discrimination violated the Equal Pay Act of 1963, 29 U.S.C. § 206(d) (the “Act”).

Under the Act, an employer is prohibited from paying a woman less than a man for equal work unless the pay disparity results from one of the following: “(i) a seniority system; (ii) a merit system; (iii) a system which measures earnings by quantity or quality of production; or (iv) a differential based on any other factor other than sex.” (29 U.S.C. § 206(d)(1).)

The County used its standard operating procedure to determine the initial salaries of Ms. Rizo and her male colleagues.  The procedure calculates a new hire’s salary by increasing his or her prior salary figure by 5%.   A new hire’s initial salary dictates his or her placement on the County’s master salary schedule for future raises.

In view of its standard operating procedure, the County argued it had a complete defense to Ms. Rizo’s claim she was wrongfully paid less than her male colleagues. The County argued Ms. Rizo’s salary history qualified as a factor other than sex under the fourth exception to the Act. It moved for summary judgment on this basis.  The district court denied the motion, observing the County’s standard operating procedure for salary determination conflicted with the Act.  Specifically, the district court reasoned the procedure perpetuated sex-based wage discrimination – the very thing the Act sought to destroy.  The County petitioned for an interlocutory appeal. In response, the Ninth Circuit vacated the district court’s denial of the motion for summary judgment. It also directed the district court to consider the reasonableness of the County’s business reasons for using prior salaries to determine employee pay.

The Ruling

Following remand, the Ninth Circuit granted a petition for rehearing en banc to, among other things, clarify the meaning of “any other factor other than sex” in the fourth exception to the Act.  The Court determined this phrase refers to factors that are specifically job related. Importantly, the Court reasoned an employee’s prior salary is not job-related “because it is not a legitimate measure of work experience, ability, performance, or any other job-related quality.” (Id. at 467.) While prior salary may bear some relationship to job-related factors other than sex, the Court observed such relationship is attenuated at best. For all of these reasons, the Court concluded prior salary cannot, on its own or in combination with other factors, justify a wage differential between men and women for equal work.  It also made clear an employer is prohibited from using a new hire’s prior salary history to set his or her initial pay.  To allow otherwise, the Court observed, would only enable past sex-based wage discrimination to continue in contravention of the Act.

Takeaway

While this case is venued in California, the Ninth Circuit’s opinion is not state specific – it speaks to federal law applicable in all states.  Your corporate clients should be mindful of this change in employment law for purposes of risk management with new and existing employees.

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