A recent appeals court decision could signal that the slow march toward pay equity just might be picking up speed.
In Aileen Rizo v. Jim Yovino, Fresno County Superintendent of Schools, the U.S. Court of Appeals for the Ninth Circuit ruled that taking employees’ past compensation into account–either alone or in combination with other factors–is forbidden when determining their current pay.
The court based its opinion on the tenets of the Equal Pay Act, which “stands for a principle as simple as it is just: Men and women should receive equal pay for equal work regardless of sex,” wrote Judge Stephen Reinhardt. “The question before us is … simple: Can an employer justify a wage differential between male and female employees by relying on prior salary? Based on the text, history and purpose of the Equal Pay Act, the answer is clear: No.”
Rizo was hired as a math consultant by the Fresno County Office of Education in October 2009, according to the complaint. She was previously employed as a middle- and high-school math teacher in Arizona’s Maricopa County, where she earned a salary of $50,630 for 206 working days, in addition to an annual educational stipend.
Rizo subsequently learned–during a 2012 lunch with colleagues–that her male peers had been hired at higher salaries, despite having less experience. She filed a complaint about the pay disparity with the County in August 2012, and sued Yovino in his official capacity as superintendent in February 2014.
In stating that salary history isn’t a legitimate factor to justify pay disparity, the Ninth Circuit appeals court went further than other circuits, says Megan Winter, a San Diego-based partner at Fisher Phillips.
In doing so, the court has created a new standard, and opened up employers to a wide range of liability, according to Winter.
“The first step [toward ensuring that compensation is determined fairly] is to audit, audit, audit,” she says. “A privileged pay-equity audit, directed by a qualified attorney, cannot sit at the bottom of the to-do list anymore, because the Ninth Circuit just created a roadmap for a slew of new claims. You can’t mitigate the liability if you don’t know where your weaknesses are.”
The ruling offers employers that rely on past compensation as part of determining pay a reason to reevaluate that decision, says Winter.
“Companies that have traditionally relied on past salary in a factor in setting compensation should assess that practice,” she says, “and determine whether there are other factors that are directly related that should be used instead.”
Indeed, organizations should take a closer look at other variables, says Melissa Goodman, a Dallas-based partner in Haynes and Boone’s Labor and Employment Practice Group.
“As part of an individualized assessment, employers should inquire in more detail about the applicant’s education, job experience, skill set, ability and prior performance; factors the Ninth Circuit considered to be legitimate explanations and ‘not based on sex.’ ”
Employers would be able to point to these factors to show why an employee was paid more or less than a colleague, says Goodman.
“I think HR professionals should implement salary ranges for positions. And they will need to better understand the positions for which they are hiring, the qualifications needed and market salary trends,” she continues, adding that HR should also be involved in the hiring process to ensure “consistent application in evaluating qualifications, setting salaries and justifying pay differences.”
This ruling, while only germane to employers in the Ninth Circuit–which covers Alaska, Arizona, California, Hawaii, Idaho, Montana, Nevada, Oregon and Washington–should ultimately help employers take another step toward achieving pay equity, says Goodman. At least theoretically.
“Even though the ruling only applies in the Ninth Circuit, other states often follow legal developments there. In fact, four states [California, Delaware, Massachusetts, and Oregon] currently prohibit employers from asking an applicant’s salary.”
In the wake of this decision, Ninth Circuit employers cannot justify a new hire’s salary based on his or her prior earnings. This means that employers must perform “an individualized assessment of each new hire’s salary and arguably even salary increases for current employees,” says Goodman, adding that employers should generally have salary ranges for various positions and then assess a new hire’s qualifications to determine a specific salary.
Neoma Ayala, special counsel in the employment law department at Cole Schotz, isn’t so optimistic.
“The rationale behind the Equal Pay Act seems simple: to end gender-based pay discrimination,” says Ayala. “However, the reality of implementing, monitoring and policing such a policy has proved extremely difficult. And I don’t think Rizo v. Yovino fixes that.”
The decision does “bring clarity to states in the Ninth Circuit … that prior salary alone or in combination with other factors cannot justify a wage differential. Thus, it will be significantly harder in those states to justify paying men and women different salaries for the same work, based solely on salary history,” she says, noting that the appeals court “left itself a little wiggle room, acknowledging that it was expressing a general rule in its decision, and recognizing that there might be circumstances where past salary history could play a role in salary negotiation.”
Unfortunately, says Ayala, the court declined to discuss or expand on what those circumstances could be, “leaving HR professionals and lawyers scratching their heads.”
States outside the Ninth Circuit don’t necessarily have to abide by the Rizo decision, of course, “and they can take their lead from decisions in their circuit, some of which allow past salary to be considered as ‘any factor other than sex.’ ”
All that said, relying on past salary history alone can be detrimental to both employers and employees, as Ayala points out.
“These practices echo the gender pay gap, highlight a lack of diversity and assume prior employers paid people fairly and based on market value,” she says.
But as this appeals court opinion notes, “ignoring salary history completely could put people in lock step, and [could] stifle a free market and discourage hard work and motivation. I think the only thing that is certain after Rizo is that the Supreme Court will likely be called upon to decide this issue in the face of the circuit court split highlighted by the recent decision.”