The Late, Great Judge Reinhardt’s Legacy: Employers can no Longer Consider Prior Salary History in Setting Workers’ Wages

Stephen Reinhardt, known as the “liberal lion” of the Ninth Circuit Court of Appeals since his appointment by President Jimmy Carter in 1980, died last month, after authoring one last decision for the ages.

Yesterday, the Ninth Circuit published posthumously Judge Reinhardt’s final opinion, to combat the gender wage gap, by holding “that prior salary alone or in combination with other factors cannot justify a wage differential.” Rizo v. Yovino, No. 16-15372, Slip Op. at 5 (9th Cir. Apr. 9, 2018), available here. Bryan Schwartz Law previously blogged about the Ninth Circuit’s earlier decision in Rizo here.

            Despite decades of education, litigation, and mobilization to make the promise of equal work for equal pay a reality, the gender wage gap continues to disadvantage millions of women in our country, who earn only 79% of what men earn.[1] Women lose $33 billion per year due to the wage gap.[2] Judge Reinhardt’s words in Rizo will  now be the fulcrum of the national discussion over this stubborn, glaring problem.

In Rizo, the facts are undisputed: a county school district paid a female math consultant less than comparable male workers for the same work. Slip Op. at 6. All things being equal, the county’s decision would be a textbook violation of the federal Equal Pay Act. But, the county attempted to justify its decision by reference to a statutory catch-all exception to the federal Equal Pay Act, which allows for wage differences between male and female employees based on a “factor other than sex.” In particular, the county argued that the female employee’s prior salary history was a factor not rooted in sex, and thus could justify paying the female employee less than comparable male employees for the same work. Id. at 7. The initial three-judge Ninth Circuit panel agreed, citing its past decision in Kouba v. Allstate Ins. Co., 691 F.3d 873, 878 (9th Cir. 1982), in which the court declined to create a strict prohibition against the use of prior salary.

Undeterred, the advocates for pay equality petitioned for the Ninth Circuit to re-hear the case en banc,[3] which the court granted. After a second hearing, the en banc Ninth Circuit court rejected the county’s argument because an employer’s decision to rely on an applicant’s prior salary history to set that applicant’s present salary inevitably imports and thereby perpetuates unlawful disparities in pay from the applicant’s prior position. Id. at 28 (“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. This is true whether prior salary is the sole factor or one of several factors considered in establishing employees’ wages.”).[4] This runs counter to the purpose of the Equal Pay Act, which was enacted to “to put an end to the ‘serious and endemic problem of employment discrimination in private industry’ and to carry out a broad mandate of equal pay for equal work regardless of sex.” Id. at 10 (quoting Corning Glass Works v. Brennan, 417 U.S. 188, 195 (1974)).[5]

Notably, in holding that employers “may not use sex directly or indirectly as a basis for establishing employees’ wages,” including using employees’ salary histories to set wages, the Ninth Circuit overruled its prior decision in Kouba. Id. at 23. This outcome not only paves the way for more effective enforcement of the Equal Pay Act’s mandate – equal pay for equal work, not equal salary histories – but also serves as a reminder that equity can sometimes only be achieved through fearless, persistent advocacy, and jurists like Stephen Reinhardt, who demonstrate the courage to pursue justice.

Bryan Schwartz Law congratulates Jennifer Reisch and Jessica Stender at Equal Rights Advocates, our co-counsel in a prior sex discrimination case, and Mariko Yoshihara of the California Employment Lawyers Association, along with the many other advocates for wage equality who brought about this momentous victory!

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[1] See https://www.equalrights.org/fairpay/

[2] Id.

[3] Most cases reviewed by a federal appellate circuit court are heard by fewer than the full number of judges sitting on a particular circuit court, usually a three-judge panel. However, parties may request that all judges sitting on a given federal circuit court, like the Ninth Circuit, re-hear their case because one or more parties believes the three-judge panel ruled incorrectly.

[4] The en banc court emphasized that the “factor other than sex” exception must be “limited to job-related factors,” not business reasons such as whether an employer could get away with paying a female worker less than male workers because the female worker was paid less at her previous job. Id. at 25 (“[U]sing the word “business” risks conflating a legitimate factor other than sex with any cost-saving mechanism. The Supreme Court and Congress have repeatedly rejected such an interpretation of the fourth exception.”).

[5] The en banc court also supported its decision with the plain text of the statute, and the legislative history of the Equal Pay Act, including specific debates relating to the catch-all exception at issue in Rizo.

New California Laws Expand Parental Leave to Small Employers and Prohibit Questions About Salary History

Last week, Governor Brown signed two bills into law aimed at protecting California families and curtailing gender discrimination. The first, SB 63, expands parental leave for millions of Californians who work for employers with 20 to 49 employees. The second, AB 168, prohibits employers in California from asking job applicants about their prior salary history.

SB 63: New Parent Leave Act

Prior to the enactment of SB 63 (also known as the New Parent Leave Act), the California Family Rights Act (“CFRA”) guaranteed new parents up to 12 weeks of unpaid, job-protected leave to bond with a new child, but only if their employer counted 50 or more employees within a 75-mile radius. SB 63 ensures that workers for employers with at least 20 employees in a 75-mile radius also get 12 weeks of unpaid leave, so long as the worker has been with the employer at least 12 months and has at least 1,250 hours of service during that period.

The leave requirements apply equally to births, adoptions, and foster care placements. Under SB 63, employers are also prohibited from discriminating or retaliating against employees for exercising their right to parental leave.

SB 63 also includes a mediation provision, which permits the employer to compel mediation of any civil action arising under the Act and prevents the employee from filing suit until mediation is completed (the statute of limitations is tolled during the pendency of mediation). Governor Brown declined to sign a similar version of the bill last year because it did not include mediation. The mediation provision is a two-year pilot program, which is set to expire on January 1, 2020.

SB 63’s sponsor, Senator Hannah-Beth Jackson of Santa Barbara, estimated that the bill would expand parental leave protections to 2.7 million parents in California, who were left unprotected by CFRA. The reasons for guaranteeing parents a bare minimum of twelve weeks leave to bond with a new child do not require much explanation. Substantial scientific research indicates that increased bonding time between parents and a new baby creates significant benefits in both the short term – such as reduced infant mortality – and long term – such as positive impacts on brain development.

AB 168: Use of Salary History Prohibited

AB 168 follows in the footsteps of an ordinance passed in San Francisco this past summer (as well as similar measures in New York City, Philadelphia, Delaware, Massachusetts, and Oregon) and aims to combat pay discrimination. The law is based on substantial research indicating that an employer’s reliance on prior salary history to determine compensation has the effect of perpetuating gender-based pay disparities. For instance, a 2013 study by the American Association of University Women concluded that women are paid 6.6% less than men in their first jobs, which could not be explained by factors other than gender. This wage gap only perpetuates and expands over a female worker’s career when a primary determinant of her salary is what she has earned in the past.

Specifically, AB 168 prohibits private and public employers from asking all applicants about their salary history and from relying on salary history to determine what salary to offer the applicant. Employers must also provide applicants with the pay scale for a position, upon request. However, if the applicant voluntarily discloses prior salary history, the employer may rely on that information to determine the applicant’s salary.

The measure complements California’s Fair Pay Act, which was recently amended to prohibit employers from maintaining pay secrecy policies, which have also been shown to perpetuate the gender wage gap.

Both SB 63 and AB 168 go into effect January 1, 2018. If you are an employee in California and you believe that your rights have been violated with respect to parental leave or questions about salary history, please contact Bryan Schwartz Law.

Equal Pay for Equal Work Gets Another Chance at the Ninth Circuit in Rizo v. Yovino

UPDATE (5/21/18): On rehearing, the Ninth Circuit reversed itself, holding "prior salary alone or in combination with other factors cannot justify a wage differential." Read more about this historic decision here. Readers interested in learning more about this topic may wish to review this research paper, explaining the important positive effects of prohibiting employers from relying on past salary history to set workers' wages. 

Can employers rely solely on employees’ prior salaries to justify unequal pay for equal work?

This is the essentially the question the Ninth Circuit addressed earlier this year in Rizo v. Yovino. In the Rizo case, a female math consultant hired by the Fresno County Schools, Aileen Rizo, was underpaid thousands of dollars compared to her male peers solely because Ms. Rizo’s prior salary was comparatively lower than that of her male peers despite her male peers having less experience. To the dismay of advocates for pay equity nationwide, the Ninth Circuit held that the federal Equal Pay Act of 1963 (29 U.S.C. § 206(d)) does not prohibit an employer from relying solely on employees’ past salary histories to set compensation.[1] 854 F.3d 1161, 1167 (9th Cir. 2017).

The primary flaw in the Ninth Circuit’s opinion stemmed from an overbroad interpretation of its precedent, Kouba v. Allstate Insurance Company. 691 F.2d 873, 876 (9th Cir. 1982). In Kouba, the employer paid its employees a minimum guaranteed salary plus commissions based on employees’ sales. Id. at 874. In setting new employees’ minimum salaries, the employer considered “ability, education, experience, and prior salary.” Id. In this context, where the employer did not rely exclusively on prior salary history in setting employee compensation, the Court previously held that “the Equal Pay Act does not impose a strict prohibition against the use of prior salary.” Id. 878. The Court emphasized that an employer who uses prior salary to set compensation “must” provide “business reasons” that “reasonably explain its use of that factor,” and provided the trial court with a non-exhaustive list of fact-specific questions to consider in evaluating the “reasonableness of this practice.” Id. (emph. added).

Unlike in Kouba, the County in Yovino set new employees’ compensation by increasing their most recent prior salaries by 5% without taking into account employees’ experience or skill. Yovino, 854 F.3d at 1164. Applicants with a master’s degree were given a flat $1,200 bump. Id. Because of the well-established fact that women in nearly every occupation are paid less than men even when controlling for a host of possibly explanatory variables[2], the County’s exclusive use of employees’ prior salary perpetuated the gender wage gap in contravention of the purpose of the Equal Pay Act. The Tenth and Eleventh Circuits have come to this same conclusion. See, e.g., Riser v. QEP Energy, 776 F.3d 1191, 1199 (10th Cir. 2015) (“the EPA precludes an employer from relying solely upon a prior salary to justify pay disparity”); Irby v. Bittick, 44 F.3d 949, 955 (11th Cir. 1995) (“prior salary alone cannot justify pay disparity”).

The Ninth Circuit, diverging from two of its sister circuits, failed to give sufficient weight to the context in which Kouba was decided, particularly with respect to the fact that the Kouba employer used sex-neutral factors in addition to prior salary history. Instead, the Court read Kouba as permitting a “salary differential based solely on prior earnings” without “attribut[ing] any significance to [the Kouba employer’s] use of these other factors [i.e., ability, education, and experience].” Yovino, 854 F.3d at 1166.

Fortunately, this is not the end of the story. Last week, the Ninth Circuit granted Ms. Rizo’s request for a rehearing en banc, meaning that all eligible judges serving on the Ninth Circuit will rehear the case.

Fifty four years have passed since the Equal Pay Act was signed into law to end the “serious and endemic problem of employment discrimination in private industry—the fact that the wage structure of ‘many segments of American industry has been based on an ancient but outmoded belief that a man, because of his role in society, should be paid more than a woman even though his duties are the same.’” Corning Glass Works v. Brennan, 417 U.S. 188, 195 (1974). Now, the Ninth Circuit has an opportunity to reconsider its erroneous interpretation of the Equal Pay Act and, in the process, move our country closer to achieving the goal of equal pay for equal work.

[1] California’s state law analog, the Fair Pay Act, expressly prohibits the exclusive use of “[p]rior salary” to “justify any disparity in compensation” with respect to sex, ethnicity, and race. Cal. Lab. Code §§ 1197.5(a)(3), (b)(3).

[2] See Brief for Equal Rights Advocates et al. as Amici Curiae in Support of Plaintiff-Appellee’s Petition for Rehearing and Rehearing En Banc, pp. 12-15, Rizo v. Yovino (9th Cir. 2017) (No. 16-15372), available at https://nwlc.org/wp-content/uploads/2017/05/5.22.17_Final_Rizo-v.-Yovino_Motion-and-Amicus-Brief-ISO-Petition-for-Reharing-and-Rehearing-En-Banc.pdf