Using Prior Salary to Set Pay Violates Federal Law, 9th Cir. Says

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A California school system’s pay structure that factors in employee salary history violates a federal law intended to reduce the gender pay gap, a federal appeals court ruled.

The April 9 decision overrules precedent in which the U.S. Court of Appeals for the Ninth Circuit said prior salary may be a valid basis for setting pay as long as there’s a reasonable business reason, even if it results in a difference in pay between male and female workers.

“Prior salary is not job related and it perpetuates the very gender-based assumptions about the value of work that the Equal Pay Act was designed to end,” Judge Stephen Reinhardt wrote in ruling against the Fresno County, Calif., school system. Reinhardt fully participated in deciding the case and wrote the decision before his death March 29, according to a footnote.

The Ninth Circuit is the largest regional federal appeals court. It establishes precedent for federal courts in California, nine other states and two U.S. territories.

“The relevant inquiry isn’t whether a salary offer is based on salary alone or some stew of prior salary and other issues but makes clear that it shouldn’t be based on prior salary at all,” Emily Martin, general counsel and vice president for workplace justice at the National Women’s Law Center in Washington, told Bloomberg Law April 9. The NWLC and a coalition of civil rights organizations filed a brief urging the court to update its standard for justifying differences in pay under the Equal Pay Act.

“I think it will have a very positive effect on employer efforts to formulate procedures and rationales that they might claim satisfies the fourth exception to the Equal Pay Act,” math consultant Aileen Rizo’s lawyer, Daniel Siegel, told Bloomberg Law. “The decision makes it very clear that in order for an employer explanation to be a defense under the fourth prong it must be job related,” he said. Siegel is with Siegel & Yee in Oakland, Calif.

The fourth exception refers to a provision in the law that allows pay differential based on a factor other than sex. Other exceptions allow differences in pay based on seniority, merit, or quality of work.

“Over the past few years there’s been a lot of policy maker energy around prohibiting employers from requiring job applicants to provide salary history and prohibining relying on salary history in setting salary,” Martin said. “I think the decision today will only increase the momentum.

School System Vows Appeal

“We respectfully disagree with the Ninth Circuit En Banc’s analysis and will petition for review by the United States Supreme Court,” Jim Yovino, superintendent of Fresno County schools, said in an emailed statement. The policy, which was in effect through the end of 2015, “was absolutely gender-neutral, objective and effective in attracting qualified applicants and complied with all applicable laws,” he said.

The Equal Pay Act prohibits employers from paying a woman less than a comparable male employee who performs the same job unless the difference can be attributed to something other than sex.

The decision by a full panel of the Ninth Circuit replaces a ruling that a three-judge panel reached one year earlier. That ruling from last yearsaid an employee’s prior salary may qualify as a factor other than sex.

Judges Sidney R. Thomas, William A. Fletcher, Richard A. Paez, Marsha S. Berzon, and Morgan Christen joined Reinhardt’s opinion. Judge M. Margaret McKeown wrote a concurring opinion in which Judge Mary H. Murguia joined. Judge Consuelo M. Callahan wrote a concurring opinion in which Judge Richard C. Tallman joined. Judge Paul J. Watford wrote a separate concurring opinion.

Michael Woods and Timothy Buchanan of Mccormick, Barstow, Sheppard, Wayte & Carruth LLP in Fresno, Calif., represented the school district.

The case is Rizo v. Yovino, 9th Cir. en banc, No. 16-15372, denial of summary judgment affirmed 4/9/18.