Gender Pay Gap: Prior Pay is No Excuse

It is generally illegal for employers to pay employees differently due to their sex under the federal Equal Pay Act. But does this ban include pay differentials based on prior salary? According to a welcome decision by the Ninth Circuit Court of Appeals, the answer is yes. The court’s ruling is especially notable in that it recognizes the systemic wage disparities that have historically handicapped women in the workforce.

The Ninth Circuit handed down Rizo v. Yovino for a second time on February 27, 2020—the Supreme Court vacated the previous decision because its author died eleven days before the decision was issued. The case was brought by math consultant Aileen Rizo, who was hired by the Fresno County Office of Education in 2009.  Based on Ms. Rizo’s prior salary, she was placed at Step 1, Level 1, for a compensation of $62,133 for 196 days of work, plus $600 because she has a master’s degree. Fresno County calculated this pay according to its policy that applied uniformly to men and women: increasing an employee’s prior wages by 5% and placing the employee on the corresponding pay scale.

Three years later, Ms. Rizo realized she was the only female math consultant in Fresno County, and she earned the lowest pay. She also discovered that a newly-hired male colleague was placed on Level 1, Step 9, a much higher salary than Ms. Rizo earned even after three years working for Fresno County, though Ms. Rizo possessed greater education and experience.

She sued. Fresno County defended that its reliance on past pay was a neutral basis that complied with the Equal Pay Act. The decision was rejected by a federal district court, and the 9th Circuit en banc, in a decision written by Judge Reinhardt. After the Supreme Court vacated the en banc decision because Judge Reinhardt passed away before the 2018 opinion was published, the reconstituted 9th Circuit en banc—with another judge from the circuit replacing Judge Reinhardt—came to the same conclusion, ruling, “Allowing employers to escape liability [under the Equal Pay Act] by relying on employees’ prior pay would defeat the purpose of the Act and perpetuate the very discrimination the EPA aims to eliminate.”

The decision considered the fourth statutory exception to the Equal Pay Act, which allows employers to differentiate employees’ pay using “a differential based on any other factor other than sex.” The Ninth Circuit determined only that job-related factors—such as shift differentials, time of day worked, hours of work, work duties, or experience—satisfy this exception. Rejecting Kouba v. Allstate Insurance Company (9th Cir. 1982) 691 F.2d 873, the court held that reliance on prior pay is by itself insufficient for an employer to show that sex provided no part of the wage difference:

We do not presume that any particular employee’s prior wages were depressed as a result of sex discrimination. But the history of pervasive wage discrimination in the American workforce prevents prior pay from satisfying the employer’s burden to show that sex played no role in wage disparities between employees of the opposite sex.

The Ninth Circuit recognized pervasive gender disparities in pay, especially as it affects minority communities, noting that “[t]hese differences are even more pronounced among women of color…. Women of all races and ethnicities earn less than men of the same group…and economic literature suggests that even after accounting for certain observable characteristics—such as education and experience—an unexplained disparity largely persists.” This observation is especially apt in the digital age, which threatens to enshrine historical bias against women in algorithms.

In another notable aspect of the decision, the Ninth Circuit reiterated that the plaintiff in an Equal Pay Act case need not demonstrate discriminatory intent. Unlike in Title VII claims, a showing of pretext is not required if the employer attempts to establish a defense.

The majority decision also rejected the argument that employers should be able to set employee salaries based on prior pay in conjunction with other valid bases, such as experience and skills, because the valid business reasons alone would be sufficient for an employer to defend against an Equal Pay Act claim. The court conceded that an employer may use prior pay as a basis for negotiating job offers or setting starting salaries, but employers would nonetheless have to defend against Equal Pay Act claims without relying on prior pay. California’s pay privacy law does not allow employers to inquire about past pay. Cal. Lab. Code § 432.3.

If you believe you are being paid less because of your sex, contact Bryan Schwartz Law.