8 minute read | March.04.2020
In yet another development in the closely watched case of Rizo v. Yovino, the en banc Ninth Circuit ruled that employers may not defeat a plaintiff’s prima facie case under the Equal Pay Act (EPA) by arguing prior pay is a “factor other than sex” within the meaning of the statute. By doing so, the Ninth Circuit reaches the same result as the previous opinion penned by the late Judge Stephen Reinhardt before his passing in 2018, including overruling Kouba v. Allstate, a prior Ninth Circuit opinion that held that prior pay could justify pay differentials in combination with other factors, and if relied upon reasonably and to effectuate a business policy. The majority opinion further holds that as a matter of statutory interpretation, a “factor other than sex” within the meaning of the EPA must be “job related,” yet it also makes clear that the EPA does not prohibit employers from considering prior pay in making starting pay offers (and in this regard differentiates the opinion from California’s salary history ban). Two separate concurring opinions agree with the result, but they criticize the majority opinion for giving too narrow a reading of the EPA’s fourth “catch all” defense and for embracing a view of prior pay that puts the Ninth Circuit at odds with other circuits and guidance from the U.S. Equal Employment Opportunity Commission (EEOC).
The full implications of the decision remain to be seen. For several employers, the impact may be minimal. For example, in order to comply with salary history bans in California, New York, and around the country, many employers no longer inquire about or rely upon prior pay to set starting pay in any event. Most salary history bans also contain an exception, however, if the applicant volunteers his or her current or prior pay. In light of the Rizo decision, employers may want to determine if relying on prior pay – even if volunteered – creates any pay disparities among incumbent employees who perform equal work. Employers who previously relied upon prior pay before salary history bans took effect may also want to assess whether that prior practice contributes to current pay disparities.
One thing is certain, though: courts and legislatures continue to narrow the ways in which employers may use prior pay in setting compensation and in litigation, thereby heightening the need for all employers to continually review their compensation practices and to conduct proactive, privileged pay audits on an ongoing basis.
Background
In Rizo, the Fresno County school district employed plaintiff Aileen Rizo as a math consultant. In 2012, she learned that the school district paid a newly hired male math consultant a higher salary than her, and she soon discovered that the school district paid other male math consultants more than her in general. When she complained, the school district 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 sued, alleging the policy resulted in impermissible sex discrimination under the EPA. While the school district conceded that Rizo was in fact paid less than men doing the same job, it nevertheless moved for summary judgment on the grounds that the pay differential was based on a “factor other than sex,” i.e., Rizo and her male comparator’s prior salaries, and thus was permissible under the EPA. The school district 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 school district; (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 school district’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. However, 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 the 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, and in its 2018 decision, written by the late Judge Reinhardt, the Ninth Circuit overruled Kouba v. Allstate and rejected the school district’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.” In doing so, the majority appeared to cabin its holding to the facts of the case before it in which the school district had an express policy of relying on prior salary for all teaching positions.
Then, at the urging of the school district and interested business groups, the U.S. Supreme Court granted certiorari to review the case. In 2019, the Supreme Court vacated the Ninth Circuit’s decision, reasoning that the appellate court should not have counted Judge Reinhardt’s vote because he passed away before the decision was issued. Without Judge Reinhardt’s vote, only 5 of the other 10 members of the panel would have approved his opinion. Therefore, there was no true majority opinion absent Reinhardt’s vote, and the Ninth Circuit erred in releasing the opinion.
The Ninth Circuit Re-Examines the Issue
On remand, the Ninth Circuit continues to agree with Judge Reinhardt’s vacated opinion. Writing for the majority, Judge Morgan Christen first concludes that the EPA’s fourth “catch-all” defense of a “factor other than sex” must be job-related. She then reasons that an employee’s prior pay at a different job is not related to her current job. She explains, “The express purpose of the [EPA] 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 act and perpetuate the very discrimination the EPA aims to eliminate.” Furthermore, the majority reasons that “setting wages based on prior pay risks perpetuating the history of sex-based wage discrimination.” As a result, the court has revived Rizo’s lawsuit and allowed it to proceed further.
Not all of the Ninth Circuit’s judges agree with the rationale behind this result, however, further muddying the decision’s instructive value. Judge Margret McKeown, joined by Judges Richard Tallman and Mary Murguia, criticizes the majority in her concurrence for “embrac[ing] a rule not adopted by any other circuit—prior salary may never be used, even in combination with other factors, as a defense under the Equal Pay Act.” Judge McKeown notes that the circuits that have considered this issue have either outright rejected the majority’s approach or declined to adopt it. Furthermore, she criticizes the majority’s position for being at odds with guidance from the EEOC, which provides in its Compliance Manual: “Using prior salary along with valid job-related factors such as education, past performance and training may provide a lawful benchmark for starting salary in appropriate cases.” Lastly, Judge McKeown chastises the majority for failing to account for “the realities of today’s dynamic workforce, choosing instead to view the workplace in a vacuum.”
Judge Consuelo Callahan also provides a separate concurrence, joined by Judges Tallman and Carolos Bea. In her concurrence, she states that in holding that wages associated with an employee’s prior job can never be considered as a factor in determining pay, the majority “fails to appreciate Supreme Court precedent and creates an amorphous and unnecessary new standard for interpreting that subsection [of the EPA], which ignores the realities and dynamic nature of business.” Judge Callahan fears that by doing so, the majority may inadvertently “hinder rather than promote equal pay for equal work.” Instead, Judge Callahan would have adopted the approach used in other circuit courts finding that when employers establish salary based on a multifactor salary system that includes prior salary, employers may rebut the presumption that the system is based on gender.
Implications of the Decision
As noted above, the implications of the decision remain to be seen. Given that it puts the Ninth Circuit at odds with some of its sister circuits in terms of its interpretation of the EPA and determination that even if in conjunction with other factors, prior pay cannot justify pay differentials under the statute, the case may be heading to the Supreme Court a second time. Stay tuned for updates.