En Banc Ninth Circuit Throws In Its Two Cents Regarding Use of Prior Salary Information To Justify Pay Differentials

Last year, we covered a Ninth Circuit panel decision which concluded that an employer may rely on prior salary information as an affirmative defense to claims under the federal Equal Pay Act (“EPA”) if “it show[s] that the factor ‘effectuate[s] some business policy’ and that the employer ‘use[s] the factor reasonably in light of the employer’s stated purpose as well as other practices.’” An en banc Ninth Circuit has now reversed the panel’s prior opinion.

In the case Rizo v. Yovino, the Fresno County school district (“County”) employed plaintiff Aileen Rizo as a math consultant. In 2012, she learned that the County paid a recently hired male math consultant a higher salary than her, and she soon discovered that the County paid other male math consultants more than her, too. When she complained, the County explained that it determined all starting salaries for teachers based on the person’s most recent prior salary plus an automatic five percent increase.

Rizo alleged the policy resulted in impermissible sex discrimination under (inter alia) the EPA. The County conceded that Rizo was in fact paid less than men doing the same job, and thus did not challenge whether she had satisfied the exacting “equal work” standard of the EPA. Nonetheless, it moved for summary judgment on the grounds that the pay differential was based a “factor other than sex,” i.e., Rizo and her male comparator’s prior salaries, and thus was permissible under the EPA. The County asserted four business reasons for following the standard operating procedure that relied on prior pay: (1) it was objective; (2) it encouraged candidates to leave their current jobs for employment with the County; (3) it prevented favoritism and encouraged consistency in its application; and (4) it was a “judicious use of taxpayer dollars.” The district court denied the County’s motion, holding that prior pay does not qualify as a factor other than sex under the EPA because it can perpetuate a discriminatory wage disparity between men and women. It certified an interlocutory appeal on the question of whether “as a matter of law under the EPA, 29 U.S.C. § 206(d), an employer subject to the EPA may rely on prior salary alone when setting an employee’s starting salary.”

On appeal, a panel of Ninth Circuit reaffirmed its previous 1982 decision, Kouba v. Allstate, and held that an employer may rely on prior salary if it “show[s] that the factor ‘effectuate[s] some business policy’” and that the employer “use[s] the factor reasonably in light of the employer’s stated purpose as well as other practices.’” The full Ninth Circuit in turn granted en banc review. In its en banc decision – written by the late Judge Reinhardt – the Ninth Circuit overruled Kouba v. Allstate and rejected the County’s defense. In his opinion, Judge Reinhardt wrote: “The question before us is … simple: can an employer justify a wage differential between male and female employees by relying on prior salary? … Based on the text, history and purpose of the Equal Pay Act, the answer is clear: No.” Judge Reinhardt reasoned that “[t]o hold otherwise—to allow employers to capitalize on the persistence of the wage gap and perpetuate that gap ad infinitum—would be contrary to the text and history of the Equal Pay Act, and would vitiate the very purpose for which the Act stands.” Instead, the Ninth Circuit concluded that the “factor other than sex” defense is limited to “legitimate, job-related factors such as a prospective employee’s experience, educational background, ability, or prior job performance.”

Of note, however, the majority appeared to cabin its holding to the facts of the case before it, in which the County had an express policy of relying on prior salary across the board. For example, the court expressly declined to offer any opinion on “whether or under what circumstances, past salary may play a role in the course of an individualized salary negotiation.” The Ninth Circuit’s decision is thus silent on the viability of the “factor other than sex” defense where, for example, an applicant volunteers his or her prior salary in negotiating for starting pay, or an individual applicant’s prior pay is discussed in the context of how it reflects the skills and abilities that he or she brings to the position.

Moreover, nearly half of the judges wrote or joined concurring opinions in the case, highlighting internal disagreement regarding the breadth and application of the Court’s approach. Judge McKeown, joined by Judge Murguia, agreed that past salary can reflect historical sex discrimination but believed the majority went too far in holding that any consideration of prior pay is impermissible under the EPA, even when assessed with other job-related factors. Judge Callahan, joined by Judge Tallman, argued that in holding that employers can never consider prior salary, the majority ignored the realities of business in such a way that it might actually hinder efforts to achieve equal pay for equal work. Finally, Judge Watford reasoned in his concurrence that past pay should be able to constitute a “factor other than sex” provided that the employee’s past pay is not itself a reflection of sex discrimination.

The Ninth Circuit’s en banc decision sets up a conflict with rulings in other circuit courts of appeal that have allowed the use of prior pay as a defense to claims under the EPA, including the Seventh and Eighth Circuits. The Ninth Circuit joins the Fifth, Tenth and Eleventh Circuits in expressly rejecting a policy of reliance on prior pay as a valid defense to an EPA claim. As a result, the issue may be now be even more ripe for Supreme Court review.