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Supreme Court Strikes Down Pay-Equity Case

The high court reversed a landmark pay-equity ruling for a very unusual reason.
By: | February 26, 2019 • 3 min read
pay equity

A recent Supreme Court decision triggered by an untimely judicial death now plunges employers back into a state of uncertainty regarding a controversial pay-equity practice.

That’s according to a new legal alert by Fisher Phillips’ pay-equity practice group, which details how the Supreme Court just vacated a 2018 federal appeals court decision because one of the judges counted in the majority was deceased by the time the decision was published.

According to the alert, the high court’s decision ultimately reverses a landmark pay-equity ruling that concluded employers could not justify wage differentials between men and women by relying on prior salary.

The case reportedly began after Aileen Rizo was hired as a math consultant by the Fresno County Office of Education in 2009. The county’s Standard Operating Procedure for determining salary dictated that new employees would be given a 5 percent raise from whatever their salaries had been at their previous job and then placed into a structured salary schedule. Rizo was earning a little over $50,000 at her previous post in Arizona before joining Fresno County, so she was slotted into the appropriate step as dictated solely by that previous salary. The county did not take prior experience or any other factors into account when setting Rizo’s salary.

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A few years later, Rizo learned that male colleagues subsequently hired in similar roles had been placed into higher salary steps—assumedly because their salaries at previous employers had been higher than her previous salary. An internal complaint did not resolve the matter to her satisfaction, so she filed an Equal Pay Act claim against the county in 2014.

Although Rizo received a favorable ruling from a lower federal court, which would have allowed her case to proceed to trial, a three-judge panel of the 9th Circuit Court of Appeals reversed that decision in 2017 and ruled in the county’s favor. Because this matter was deemed sufficiently significant, however, the 9th Circuit heard the matter en banc—meaning a full complement of 11 judges ruled on the matter, setting controlling law for all employers in its jurisdiction (which includes those in California, Washington, Nevada, Arizona, Oregon, Alaska, Hawaii, Idaho and Montana).

On April 9, 2018, the 9th Circuit’s en banc panel made history by becoming the first federal appeals court to so explicitly reject the employer’s contention that salary history could serve as a legitimate justification for a pay disparity under the EPA. While other circuit courts had already reached similar conclusions, none had done so in such a clear-cut and explicit manner. The employer had relied on the catch-all provision of the statute that reads:

No employer…shall discriminate…between employees on the basis of sex by paying wages to employees in such establishment at a rate less than the rate at which he pays wages to employees of the opposite sex in such establishment for equal work on jobs the performance of which requires equal skill, effort, and responsibility, and which are performed under similar working conditions, except where such payment is made pursuant to (i) a seniority system; (ii) a merit system; (iii) a system which measures earnings by quantity or quality of production; or (iv) a differential based on any other factor other than sex.

Because salary history is, technically, a factor “other than sex,” the employer argued that it should be permitted to use it to justify any disparity. The en banc panel rejected the employer’s argument, ruling that “prior salary alone or in combination with other factors cannot justify a wage differential. To hold otherwise—to allow employers to capitalize on the persistence of the wage gap and perpetuate that gap ad infinitum—would be contrary to the text and history of the Equal Pay Act, and would vitiate the very purpose for which the Act stands.”

After the county asked the Supreme Court to examine the ruling, hoping for a last-ditch victory, it not only granted the county’s request to hear the case, but also issued an unsigned opinion striking down the 9th Circuit’s decision.

The reason for its ruling, however, had nothing to do with the merits of the case; the brief decision mentions nothing about pay equity at all. Instead, the reasoning behind the decision stems from the fact that one of the 9th Circuit judges listed in the majority of the en banc ruling died 11 days before the case was issued.

In its ruling on Monday, the Supreme Court gently slapped the 9th Circuit’s judicial wrist, ruling that it had erred by counting Judge Reinhardt as a member of the majority. “That practice,” it said, “effectively allowed a deceased judge to exercise the judicial power of the United States after his death. But federal judges are appointed for life, not for eternity.

What’s Next for Employers

Fisher Phillips notes that, in light of this controversy, employers across the country—and especially those on the West Coast—must determine whether they should eliminate questions about salary history during the application process and during compensation finalization. While California and Oregon both have state laws barring employers from making such inquiries and using past salary history to establish compensation, what should employers in other states do?

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Employers should begin by working with their counsel to conduct a privileged pay audit to determine if the company has compensation gaps, it advises.

If any are identified, companies should work with their counsel to ascertain whether any are justifiable—perhaps because of differences in experience, education, ability, job performance, seniority, quality of work, quantity or another merit-based factor. Even in those states that have enacted salary-inquiry bans, liability from past inquiries may be lingering. In some states, undertaking such an internal audit and then acting to remedy the situation will create a safe harbor shielding you from pay-equity claims or damages.

“You might also consider eliminating questions relating to salary history from your interview protocol and job applications,” the alert advises. “Instead, many employers now request an applicant’s salary expectations at this stage in the process as a way to help negotiate a fair salary. You will also need to inform third-party reference-check businesses operating at your command, and your hiring managers conducting job interviews, about any changes in your practice.”

Web Editor Michael J. O’Brien has been with HRE for more than a decade and holds a degree in economics from Boston College. He can be reached at [email protected]

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