By Christine Hendrickson and Nolan R.Theurer
Seyfarth Synopsis: The Ninth Circuit, in an en banc decision following remand from the Supreme Court, held that employers cannot justify pay disparities under the federal Equal Pay Act by showing that those disparities are based on employees’ past earnings. We hope you will join Seyfarth’s Pay Equity Group for an Equal Pay Day 2020 webinar on March 31, 2020, to discuss this case and more about the current state of pay equity law. You can register for the webinar here.
On Thursday, February 27, 2020, the Ninth Circuit, sitting en banc, issued a decision in Rizo v. Yovino, holding the prior salary cannot be used as a “factor other than sex” to justify pay differences under the federal Equal Pay Act. The ruling tracks the earlier Ninth Circuit opinion written by late U.S. Circuit Judge Stephen Reinhardt, which was discarded by the U.S. Supreme Court because Judge Reinhardt died before the decision was published. With the February 27th ruling, the Ninth Circuit joined the Tenth and Eleventh circuits in holding that the Equal Pay Act precludes employers from relying solely on prior salary to justify pay differences. This is in contrast to decisions in the Seventh and Eighth Circuits, which held that such reliance does not by itself violate the Equal Pay Act.
The Facts Underlying The Ninth Circuit Case
The original Ninth Circuit case, Rizo v. Yovino, 854 F.3d 1161 (9th Cir. 2017), was brought by Aileen Rizo who worked as a math consultant for the Fresno County public schools. The County classified management-level employees in salary levels that contain progressive pay steps. New math consultants were placed into Level 1, which contained ten salary steps with compensation ranging from $62,133 to $81,461. To determine the starting salary for a new consultant, the County considered the candidates’ most recent prior salary and added 5% to assign the starting salary step within Level 1.
Rizo previously worked as a middle school math teacher in Arizona. Consistent with the County’s practices, Rizo was to receive a 5% increase over her prior salary. However, doing so would have resulted in a starting salary that was lower than the minimum salary level for new math consultants. The County addressed the issue by setting Rizo’s starting salary at the minimum of the Level 1-Step 1 salary range, along with a slight increase to account for her advanced education.
Several years later, Rizo learned that at least one of her male colleague’s starting salary was set at the Level 1-Step 9 salary range and that the other math consultants, all of whom were male, all earned more than she was paid. After raising internal complaints regarding the disparity between her compensation and that of her male counterparts, Rizo filed suit raising allegations under the federal Equal Pay Act, Title VII, and the California Fair Employment and Housing Act.
The Trial Court Decision
The County moved for summary judgment, arguing that although Rizo earned less than her male colleagues, the pay differences were not based on her sex, but were instead based on her prior salary, a legally-permissible “factor other than sex.” The district court disagreed, holding that, under the Equal Pay Act, prior salary alone can never qualify as a factor other than sex. The district court reasoned that basing one’s starting salary exclusively on prior salary carried too great a risk of perpetuating gender-based wage disparities.
The Court of Appeals’ Original Decisions
The Ninth Circuit Court of Appeals initially reversed the District Court, relying on its prior decision in Kouba v. Allstate Insurance Co., 691 F.2d 873 (9th Cir. 1982). which held that an employer can maintain a pay differential based on prior salary (or any other gender-neutral factor) if it shows that the factor effectuates some business policy and if the employer uses the factor “reasonably in light of the employer’s stated purpose as well as its other practices.” The Ninth Circuit held similar reasoning applied to Title VII claims as well.
However, the Ninth Circuit then granted en banc review “to clarify the law, including the vitality and effect of Kouba.” Rizo v. Yovino, 887 F.3d 453, 459 (2018) (en banc). On April 9, 2018, the Ninth Circuit, sitting en banc, overruled Kouba, holding that prior salary cannot be the sole justification to explain a pay differential between a man and woman under the federal Equal Pay Act. Writing for the majority, Judge Reinhardt wrote that a worker’s salary history can never be a non-sex factor because women have historically earned less than men. He opined that if the law lets employers point to women’s past salaries to justify paying them less, it would “perpetuate that gap ad infinitum.”
The Appeal to The U.S. Supreme Court
Defendant Fresno County Superintendent of Schools Jim Yovino appealed the Ninth Circuit’s ruling to the U.S. Supreme Court, arguing that the en banc opinion relied on Judge Reinhardt’s vote, and should be vacated due to Judge Reinhardt’s death eleven days prior to the date the opinion issued. Agreeing with the Appellant and noting that judges are “appointed for life, not for eternity,” the Supreme Court vacated the Ninth Circuit opinion. Yovino v. Rizo, 139 S.Ct. 706 (2019).
The February 27, 2020 Court of Appeals Decision
This Thursday, the en banc Ninth Circuit echoed Judge Reinhardt’s April 2018 opinion, holding that past salary is not a “factor other than sex” and reviving Rizo’s suit under the Equal Pay Act. Writing for the majority, Judge Morgan Christen wrote that “setting wages based on prior pay risks perpetuating the history of sex-based wage discrimination.” Rizo v. Yovino, No. 16-15372, 2020 WL 946053 (9th Cir. 2020).
“The express purpose of the act was to eradicate the practice of paying women less simply because they are women,” Judge Christen wrote for the majority. Id. at *1. “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.” Id.
In concurring opinions, two judges said their colleagues should have taken the more moderate approach of some other circuits.
In her concurrence, Judge Margaret McKeown said Fresno Schools’ policy did not justify the disparity between Rizo’s pay and that of her male coworkers, but salary history “may provide a lawful benchmark” for setting pay if considered alongside other factors such as education and training. Judge McKeown’s concurrence was joined by Judges Richard Tallman and Mary Murguia. Id. at 14.
Judge Consuelo Callahan also concurred, joined by Judges Tallman and Carlos Bea. She stated that an employer should be permitted to use past salary as a factor in setting pay, as long as its use “does not reflect, perpetuate, or in any way encourage gender discrimination.” Id. at 19.
Implications For Employers
As a result of Thursday’s ruling, there is a clear Circuit court split regarding the use of prior salary to explain pay disparities. Employers should be aware of the split and approach this area with caution. Following this decision, the Ninth, Tenth and Eleventh Circuits have held that the Equal Pay Act precludes employers from relying solely on prior salary, whereas the Seventh and Eighth Circuits, have ruled that such reliance does not by itself violate the Equal Pay Act. Id. at 19.
Employers should also be aware of numerous salary history bans that prohibit employers from seeking and, in some cases, relying on prior pay in setting starting wages.
Careful evaluation of your policies and practices around the use of prior salary is encouraged. Given the maze of federal, state, and local laws that govern the use of wage history, employers should evaluate the laws that apply to their operations to ensure they are not unwittingly running afoul of these potentially conflicting obligations.
Seyfarth’s Pay Equity Group continues to track these developments closely. We hope you will join us for a webinar on March 31, 2020, Equal Pay Day 2020, to hear more about the current state of pay equity law. You can register for the webinar here.