In recent years, wage discrimination has been a hot topic and with it, the question of whether employers may rely on a worker’s salary history to justify a pay disparity between male and female employees. In a 2018 case involving the federal Equal Pay Act (“EPA”), Rizo v. Yovino, (about which we wrote here), the U.S. Court of Appeals for the Ninth Circuit (“Ninth Circuit”) ruled that employers may not rely on prior salary to excuse unequal pay. On petition, the Supreme Court vacated the decision and remanded the case on a technical ground (i.e., because the judge who authored the opinion died before release of the decision). On remand, the Ninth Circuit ruled as it had before. On July 2, 2020, the Court declined review, thereby leaving the Ninth Circuit’s ruling in place.
In so doing, the High Court left an unresolved split among the federal circuit courts as to whether salary history constitutes a legitimate justification for wage disparity between men and women under the EPA. The disagreement among the circuits arises from the last of four listed exceptions to the law’s mandate that employees receive equal pay for equal work, regardless of sex. The four statutory exceptions, which constitute affirmative defenses to an EPA claim, permit a wage disparity based on (i) seniority, (ii) merit, (iii) the quantity or quality of the employee’s work, or, (iv) the catchall of “any other factor other than sex.”
In Yovino, the Ninth Circuit held that the “any factor other than sex” justification for a pay disparity “comprises only job-related factors, not sex,” and that, as a matter of law, salary history is not a job-related factor. In so ruling, the Court concluded that “[t]he equal-pay-for-equal-work mandate would mean little if employers were free to justify paying an employee of one sex less than an employee of the opposite sex for reasons unrelated to their jobs.”
The U.S. Court of Appeals for the Second, Fourth, Sixth, Tenth, and Eleventh Circuits, although not interpreting the law as stringently as the Ninth Circuit, have each held that prior salary standing alone is not sufficient to establish an affirmative defense under the EPA. In contrast, the Seventh and Eighth Circuits have taken a different approach. The Seventh Circuit has held that the factor justifying the wage disparity need only be unrelated to sex and that the factor does not need to be job-related. The Eighth Circuit has resisted an across-the-board adoption of the job-related mandate, holding that whether any proffered reason for a wage disparity is justified should be made on a case-by-case basis.
As such, the Supreme Court’s decision to not decide the issue means that whether an employer may assert salary history as an affirmative defense to a wage disparity claim under the EPA remains dependent on which Circuit Court’s law applies – at least for now.
That said, employers need to be cognizant of applicable state equal pay law. Although these laws may have been modeled on the EPA, many have been recently amended to expressly prohibit an affirmative defense based on salary history and/or to require that the catchall “any factor other than sex” be a job-related factor.
For example, California’s equal pay law, which has been amended several times in the past five years, and bans compensation discrimination based on race or ethnicity, as well as sex, contains the catchall exception (i.e., any factor other than sex, race, or ethnicity), but requires that the factor or factors relied on to justify the wage disparity be job-related. In addition, the law states that “[p]rior salary shall not justify any disparity in compensation,” except that an employer may “make a compensation decision based on a current employee’s existing salary, so long as any wage differential resulting from that compensation decision is justified by one or more of the factors” enumerated in the law (e.g., seniority, merit, training, education, or experience) (emphasis added).
Some other states’ equal pay laws, including Colorado’s (effective January 1, 2021) and Massachusetts’, also expressly prohibit the use of an employee’s salary history as a justification for a wage disparity.
New York’s equal pay law (which was amended last year to, among other things, ban wage disparities based on any protected status—e.g., race, ethnicity, etc.—and not just sex), does not include such an express “salary history” ban, but contains a catchall exception (i.e., “a bona fide factor other than status within one or more protected class or classes”) and requires that such factor be both “job-related with respect to the position in question” and “consistent with business necessity.”
In addition to these amendments to state equal pay laws, several states and municipalities have enacted laws banning the use of prior salary or salary history in determining pay (e.g., New Jersey, Illinois, Washington). As such, the Ninth Circuit’s decision may be seen as consistent with a trend that employers may reasonably expect to continue. Accordingly, employers will need to remain vigilant to ensure that their methodologies for determining compensation remain legally compliant in the federal, state and local jurisdictions where they operate.