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April 9, 2018
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In April 2017, the Ninth Circuit previously confirmed that employers could consider an individual’s prior salary history when justifying a wage differential. Now, a year later, the circuit court has reversed its own decision, stating that prior salary history cannot be used to justify pay disparities prohibited by the federal Equal Pay Act.
This decision arose from an en banc hearing of Rizo v. Yovino. The Fresno County Office of Education hired Aileen Rizo as a consultant, and in accordance with their standard compensation procedures, gave Rizo a 5% increase in compensation from her previous job and placed her into a structured salary schedule. Rizo later brought a wage inequality claim after discovering that she was paid less than her male colleagues, who earned a higher rate at their previous employers and therefore received a higher rate of pay upon hire with Fresno County.
The federal Equal Pay Act (“EPA”) permits wage differentials under certain conditions, such as under a seniority or merit system. Fresno County argued that the male colleagues’ greater compensation, based on their prior salary history, qualified under the broadly sweeping fourth exception, “a differential based on any other factor other than sex.”
The circuit court rejected this argument, stating that an exception permitting employers to simply perpetuate an existing wage gap would be contrary to the very purpose of the Equal Pay Act. Instead, the court indicated that the “any factor other than sex” exception should be limited to job-related factors such as an employee’s experience, educational background, ability, or prior job performance. With the reversed decision in Rizo, employers in Ninth Circuit states may not consider prior salary history as job-related when justifying wage differentials. Notably, in states such as California and Oregon, inquiring into prior salary history to establish compensation rates is prohibited altogether by state-level laws.
The Ninth Circuit’s new ruling is just one of a few other circuits that have limited the “catch-all” exception to the EPA. The Second, Tenth, and Eleventh Circuit courts have made similar decisions when interpreting the “factor other than sex” exception, whereas the Seventh and Eighth Circuits have avoided making such interpretations of the law. Though equal pay legislation continues to crop up on the local level, the potential split in authority among circuit courts could point to eventual Supreme Court review. For the time being, Rizo affirms the need for employers to review their pay classification and compensation practices for compliance with the EPA.
- Review the full text of Rizo v. Yovino here.
- Have a compensation audit performed with legal counsel to identify wage differentials, if any, and determine if such gaps are justifiable.
- Have managers who set compensation rates trained on legitimate job-related factors that may justify wage differentials.
- Subscribers can call our HR On-Call Hotline at (888) 378-2456 for further assistance.
Disclaimer: This document is designed to provide general information and guidance concerning employment-related issues. It is presented with the understanding that ManagEase is not engaged in rendering any legal opinions. If a legal opinion is needed, please contact the services of your own legal adviser.
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