On April 9, 2018, an en banc panel of the Ninth Circuit Court of Appeals held in Rizo v. Yovivno[i]that “prior salary alone or in combination with other factors cannot justify a wage differential” under the Equal Pay Act. The Court found that allowing an employer to rely on prior salary would essentially allow an employer to justify a sex-based salary differential by using the very sex-based salary differential the Equal Pay Act was intended to address.
Equal Pay Act
The federal Equal Pay Act[ii]prohibits employers from discriminating on the basis of sex by paying wages to employees at a rate less than what is paid to employees of the opposite sex doing equal work on jobs requiring equal skill, effort, and responsibility, and performed under similar working conditions. The statute includes exceptions for payments based on: (i) a seniority system; (ii) a merit system; (iii) a system that measures earnings by quantity or quality of production; or (iv) a differential based on any other factor other than sex. It is this last catchall exception in subsection (iv) that the Court is tasked with interpreting in the present case.
Rizo v. Yovivno
The plaintiff was hired by the Fresno County Office of Education as a math consultant. Her initial salary was determined in accordance with an established procedure that added 5% to her prior salary and then placed her on the corresponding step of a 10-step salary structure. Prior experience was not a factor, and plaintiff was hired at salary step 1. A few years later, she discovered that her male colleagues were hired as math consultants at higher initial salary steps, which the County defended by citing its use of the established procedure.
In her complaint, plaintiff alleged violation of the Equal Pay Act, sex discrimination under both Title VII and the California Fair Employment and Housing Act (“FEHA”), and failure to prevent discrimination under FEHA. The County moved for summary judgment. While the County did not dispute that plaintiff was paid less than her male colleagues for the same work, it contended that the differential was based on her prior salary – a permissible “factor other than sex” under the Equal Pay Act statutory exceptions. The district court denied summary judgment, finding the County’s salary procedure in conflict with the Equal Pay Act because “a pay structure based exclusively on prior wages is so inherently fraught with the risk—indeed, here, the virtual certainty—that it will perpetuate a discriminatory wage disparity between men and women that it cannot stand.”[iii]Because denying summary judgment for the County essentially resolved the matter in favor of the plaintiff, the Court certified the legal question for interlocutory appeal.
A three-judge panel of the Ninth Circuit vacated the summary judgment denial and remanded, concluding that Kouba v. Allstate Insurance Co.[iv]was the controlling precedent and that prior salary alone could constitute a “factor other than sex” under the Equal Pay Act, as long as use of that factor “was reasonable and effectuated some business policy.”
The Ninth Circuit en banc has now overruled Kouba.
In reversing the decision of the three-judge panel, the Ninth Circuit concluded that the catchall exception for “any other factor other than sex” was limited to “legitimate, job-related factors such as a prospective employee’s experience, educational background, ability, or prior job performance.” In interpreting the relevant provision, the Court looked to the purpose and legislative history of the Equal Pay Act – to eliminate endemic sex-based wage disparities. It noted that, at the time the Equal Pay Act was enacted, “an employee’s prior pay would have reflected a discriminatory marketplace that valued the equal work of one sex over the other.” It is not reasonable to conclude that Congress intended to create an exception that would allow the salaries of new hires to be based on those very same disparities the law attempted to eradicate.
The Court also considered the difference between factors that are “job-related” and those that are “business-related” and concluded that it is not enough that the factor simply effectuate some business policy. Adopting “business-related” as the standard runs the risk of including virtually any cost-saving reason, many of which would form an improper basis for gender pay disparity. The factors must be job-related, such as experience, training or ability. Prior salary, regardless of whether it is considered alone or with other factors, is not job-related and therefore cannot be used to justify a wage disparity when equal work is being performed.
While the Rizocase focuses on the federal Equal Pay Act, California has adopted it’s own version known as the Fair Pay Act.[v]The California Fair Pay Act contains many of the same basic provisions as the federal Equal Pay Act. California employers are responsible for compliance with both the state and federal laws.
It prohibits an employer from paying employees wage rates that are less than what it pays employees of the opposite sex for substantially similar work, when viewed as a composite of skill, effort, and responsibility, and performed under similar working conditions. Any such wage differential must be based on: (a) seniority system; (b) a merit system; (c) a system that measures earnings by quantity or quality of production; or (d) a bona fide factor other than sex, such as education, training, or experience. Under subsection (d), the employer must also demonstrate that the factor is not tied to a sex-based differential in compensation, is job related with respect to the position in question, and is consistent with a business necessity. “Business necessity” is further defined as an overriding legitimate business purpose, such that the factor relied upon effectively fulfills the business purpose it is supposed to serve.
California law also specifies that each factor must be applied reasonably, and that the one or more factors relied upon account for the entire wage differential. Prior salary may not, by itself, justify any disparity in compensation.
Rizo v. Yovivno(9thCir., April 9, 2018) U.S. App LEXIS 8882. The Ninth Circuit covers California, Nevada, Alaska, Arizona, Hawaii, Idaho,Montana,Oregonand Washington.
29 U.S.C.S. §206(d)(1).
Rizo v. Yovivno(2015 U.S. Dist. LEXIS 163849).
Kouba v. Allstate Insurance Co.(9th Cir. 1982) 691 F.2d 873.
Calif. Labor Code §1197.5.