Employers Can’t Use Salary History to Defend Pay Gap

By Staci Ketay Rotman and Lindsey M. Marcus - Franczek Radelet PC

April 12, 2018

On Monday, April 9, 2018, the day before Equal Pay Day, the Ninth Circuit Court of Appeals held that employers cannot use an employee’s past salary to justify paying women less than men under the federal Equal Pay Act (EPA).  The Ninth Circuit’s decision in Rizo v. Yovino overruled prior holdings in the circuit that past salary is a “factor other than sex” that employers could use to justify a pay gap between men and women under the EPA, concluding that prior salary cannot be used, alone or in combination with other factors, to justify a wage differential.

Enacted in 1963, the EPA prohibits employers from paying men and women differently for the same work.  The intention of the statute is to correct the serious and endemic wage gap between men and women in the workplace.  However, the statute allows employers to pay employees different rates based on seniority, merit, the quantity or quality of the employee’s work, or “any other factor other than sex.”  Prior to Rizo, appellate courts (even the Ninth Circuit) commonly held that salary history could be used alongside other factors, with the Seventh Circuit (the court of appeals covering Illinois, Wisconsin, and Indiana) going so far as to state that salary history was a “factor other than sex.”  With Rizo taking salary history out of the equation, there is now a circuit split between the Ninth Circuit and the Seventh Circuit and other appellate courts that have addressed this issue, which may ultimately land this issue at the Supreme Court.

In Rizo, the plaintiff, a math consultant, sued the Fresno County Superintendent of Schools, Jim Yovino, claiming the district’s policy of paying workers slightly more than what they earned at their last job carried forward existing pay gaps between men and women, and thus violated the EPA.  The Ninth Circuit agreed with Rizo, finding it “inconceivable” that Congress meant to include salary history as a “factor other than sex.”  Instead, the Court reasoned that it is unlikely that Congress intended for salary history to be included in this exception to justify new gaps in pay based on prior or existing gaps.  Doing so would perpetuate the very disparity the EPA was intended to eliminate.

Unfortunately, the Rizo opinion  leaves some ambiguity as to how salary history may be used.  The Ninth Circuit specifically stated that the new rule announced in Rizo did not “resolve its applications in all circumstances,” and states that past salary may play a role in individual salary negotiations.  However, the Court does not provide any further guidance as to how that information may be used by employers.  In light of this unresolved issue, employers in the Ninth Circuit – which includes Alaska, Arizona, California, Hawaii, Idaho, Montana, Nevada, Oregon, and Washington – should consider not using salary history in negotiations until this issue is further fleshed out by the courts. Further, employers in the Ninth Circuit that have policies expressly providing for the use of salary history in determining salary offers for new hires should revise those policies.

The Rizo decision represents a significant development in the law aimed at closing the wage gap. It is also a related component of the proliferation of state and local laws banning inquiries into salary history. At least seven states and cities have passed such laws, though not all have gone into effect. Therefore, while the Rizo ruling is only legally binding on employers in the Ninth Circuit, employers are advised to ensure their pay practices comply with applicable federal, state, and local laws.