“So, how much did you make at your last job?” Don’t Ask or Risk Violating the Equal Pay Act
In 2017, 25 states and the District of Columbia are considering legislation that would prohibit employers from asking job candidates about past salaries. The belief is that by setting employees’ salaries based on what they were paid at their last job, employers may be perpetuating gender discrimination that began long ago.
California, Massachusetts, and New York City adopted similar legislation last year in an attempt to close the salary gap between the sexes, and Philadelphia has a comparable ordinance which has been temporarily stayed pending a federal judge’s ruling. Pittsburgh’s mayor and the mayor of New Orleans each signed salary history question bans into law back in January, Puerto Rico’s governor did the same in March, and Oregon’s governor signed the state’s own equal pay bill on June 1.
With the trend among cities and states moving towards gender equality, the question remains: what was the Ninth Circuit thinking this April when it decided Rizo v. Yovino?
Rizo v. Yovino
Aileen Rizo was hired as a math consultant by Fresno County, California in 2009. When she was hired, the County used a salary schedule consisting of twelve “levels,” each with a series of “steps” an employee climbs as the salary increases. Rizo v. Yovino, 854 F.3d 1161, 1163 (9th Cir. 2017). New math consultants like Rizo received starting salaries within level 1, which contains 10 steps, with salaries ranging from $62,133 to $81,461. Id. To determine the step within level 1 on which a new employee will begin, the County took the employee’s most recent prior salary and placed the employee on the step that corresponds to the prior salary, increased by 5%. Id. Considering Rizo’s most recent salary as a middle school math teacher in Arizona, the County started her at the lowest step within level 1. Id, at 1164.
In July 2012, Rizo learned that a male math consultant who had been recently hired started earning on step 9 of level 1. Id. Rizo was the only female math consultant and found out she was also the lowest paid of all of her colleagues. She went to Fresno County seeking answers. When her complaint to the County fell on deaf ears, Rizo filed suit under the Equal Pay Act, 29 U.S.C. § 206(d), Title VII of the Civil Rights Act of 1964, 42 U.S.C. § 2000e-5, and the California Fair Employment and Housing Act, Cal. Gov. Code § 12940. Fresno County moved for summary judgement arguing Rizo’s salary was based on her most recent prior salary, falling into the “any factor other than sex” category as permitted under the Equal Pay Act. Id. The district court ruled that past salary alone can never qualify as a factor “other than sex”, reasoning that it risks perpetuating “a discriminatory wage disparity between men and women” and it “cannot stand even if motivated by a legitimate non-discriminatory business purpose.” Rizo v. Yovino, 2015 U.S. Dist. LEXIS 163849, at 26 (E.D. Cal. Dec. 4, 2015). Fresno County appealed.
In an April 27 decision, a Ninth Circuit appeals panel overturned the district court in holding that the Equal Pay Act did not bar Fresno County from paying Rizo less than her male colleagues based solely on her past salary as long as the superintendent could show a legitimate business reason for the policy. The panel said the district court wrongly disregarded the Ninth Circuit’s 1982 ruling in Kouba v. Allstate, which held that “a factor used to effectuate some business policy is not prohibited simply because a wage differential results” so long as an employer “use[s] the factor reasonably in light of the employer’s stated purpose as well as its other practices.” Kouba v. Allstate Ins. Co., 691 F.2d 873, 876-77 (9th Cir. 1982).
By reversing the district court’s decision, the Ninth Circuit affirmed a 35-year-old decision in a time when the rest of the country is moving to bridge the gender wage equality gap.
The Equal Pay Act of 1963
Enacted as an amendment to the Fair Labor Standards Act in 1963, the Equal Pay Act, 29 U.S.C. § 206 (the “Act”), makes it illegal for an employer to pay different wages to employees of the opposite sex for work which requires equal skill, effort and responsibility and is performed under similar working conditions. Congress designed the Equal Pay Act to remedy what was perceived to be a severe and prevalent problem of employment discrimination – 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).
Although originally enacted as a means of protecting women, the Equal Pay Act also guarantees men the same safeguards as their female counterparts. Under the Act, employers are permitted to pay men and women different rates for substantially equal work so long as the disparity is the result of any of the following:
- A system of seniority;
- A system of merit pay;
- A system measuring earnings based on quantity or quality of production; or
- A differential based on any factor other than sex.
In the more than half a century since the Act was enacted, some courts have interpreted the law aggressively in a manner to address the gender wage gap, but others have not, despite Supreme Court interpretations supporting an aggressive interpretation.
In Corning Glass Works v. Brennan, the Supreme Court rejected the argument that “market forces” such as the substantially different values placed on the work completed by men versus women could be a “factor other than sex” for purposes of the Equal Pay Act. Id. The Court held these forces cannot constitute a “factor other than sex” since the nature of their very foundation is based on gender and the stereotypes associated with the sexes. Despite the strong language from many upper level courts, as Aileen Rizo learned, the application of the “factor other than sex” defense has repeatedly been used to justify the payment of discriminatory wages for a multitude of reasons that seem unrelated to legitimate business needs.
State Efforts to Combat Discrimination based on Salary History
In the five years since Aileen Rizo first filed her case, cities and states across the country have been passing bills prohibiting employers from asking prospective employees about their previous pay rate. The various bills are aimed at remediating the wage gap between the sexes, which, according to the 2013 Census, has women earning about $0.78 for every dollar earned by men. This figure shows a one cent increase from the 2012 estimate, which suggests that efforts to close the gap are working but only modestly.
Generally, these laws prohibit employers from asking applicants about their salary history and set the repercussions that employers may face if they do not comply. However, some states, like California, do not ban the question outright. They merely provide employers may not use salary history as the sole measure by which to set the new employee’s pay rate.
Job applicants who are asked about their past salary in violation of these laws can report the employer to the relevant authorities. Employers not in compliance can face steep fines – as much as $250,000 in New York City – and some may even face jail time. For instance, in Philadelphia, employers violating the salary question ban are fined $2,000 and repeat offenders may face 90 days in jail. Generally, the laws permit employers to rely on salary history if the applicant freely volunteers the information.
While many states seem to be jumping on the equal pay bandwagon, many of these laws have not yet taken effect, so there is little data available by which to measure their effect.
What This Means for Employers
The problem proponents for these laws see with allowing employers to set salaries based solely on a prospective employee’s most recent pay rate is that employers often do so without analyzing whether the prior salary itself was the result of past gender discrimination. An employer using this system to set salaries is relying on the practices of a prior employer, and as a result, could be unknowingly and unintentionally perpetuating a history of discrimination.
Some courts have alleviated this problem by requiring an employer to show that the chosen salary is related in some way to the qualifications, skills or experience needed for the job being offered. Others, like the court in Rizo, have failed to require such an inquiry, instead accepting virtually any rationale from employers. See Sparrock v. Nyp Holdings, 2008 U.S. Dist. LEXIS 125889, at *40 (S.D.N.Y. Mar. 4, 2008)(holding that matching a prior salary is permitted under the Act because it allows an employer to award for experience and to lure talented people from other settings); see also Osborn v. Home Depot U.S.A., Inc., 518 F. Supp. 2d 377, 385 (D. Conn. 2007)(noting that “market forces, previous experience, education, and inducement to hire the best person for the job have been held to be legitimate factors justifying pay differentials” under the Act).
Those opposed to the growing ban on salary history questions argue that it violates an employer’s right to free speech and makes it harder for businesses to attract talented applicants and set competitive and effective wages. They argue that employers often use wage history to identify those applicants they can and cannot afford to hire, and that it allows businesses to ensure the salaries they offer are competitive.
Rizo v. Yovina may be a prime candidate for Supreme Court review, but only time will tell if it will make it that far. On May 10, Aileen Rizo filed a request for a rehearing, stating that the Circuit Court’s approach contradicts the very reason Congress passed the Equal Pay Act. The EEOC filed an amicus brief arguing the decision renders the Act meaningless and runs contrary to decisions recently made in other circuits across the country. Nearly 20 other advocacy groups have come together to submit briefs on Rizo’s behalf.
With so many changes in this area of the law, employers should be sure of the laws in their city or state. If a question about prior salary is banned in their city or state, employers should revise their job applications, interview questions, and other recruiting materials accordingly.
This article first appeared in the August 2017 edition of Corporate Counselor.