The Ninth Circuit Examines Whether Prior Salary Can Justify Wage Discrepancies Under the Equal Pay Act

The Equal Pay Act prohibits employers from paying men and women differently for equal work.  However, is it unlawful for an employer to have a policy that offers its new hires a salary that is five percent higher than their previous salary if the policy results in a female worker getting paid less than all her male colleagues?

In a 1982 decision, Kouba v. Allstate Insurance, the Ninth Circuit held that an employer can take prior salary into account when deciding an employee’s pay rate if the prior salary effectuated a business policy and was reasonable.  691 F.2d 873 (9th Cir. 1982).  In a decision last month, the Ninth Circuit provided further guidance on the extent to which employers can rely on prior salary in determining its employees’ pay.  Rizo v. Yovino, No. 16-15372 (April 27, 2017). 

Aileen Rizo was hired by the public school system in Fresno, California as a math consultant in 2009.  In 2012, she discovered that she was paid less than her male coworkers for the same work and lodged a complaint with the County.  In response, the County told Ms. Rizo that the school system properly set all salaries based on its operating procedures.  The County used a salary schedule to determine the starting salary of its management-level employees like Ms. Rizo.  The schedule for math consultants had twelve levels ranging from $62,133 to $81,461 annually.  New employees received a salary equivalent to their prior salary, plus five percent, as long as the amount was within the salary range.  Based on this formula, Ms. Rizo’s received the lowest salary on the schedule ($62,133) because she had earned $50,630 at her last job in Arizona.

Ms. Rizo decided to file suit against the county superintendent of schools (Defendant) alleging that the pay differential between her and her male colleagues violated the Equal Pay Act.  In response to Ms. Rizo’s lawsuit, Defendant filed a Motion for Summary Judgment, arguing that Ms. Rizo’s salary was based on her prior salary, not on her sex.  Defendant conceded it paid Ms. Rizo less than comparable male employees for the same work, but argued it had done nothing unlawful.

The District Court denied Defendant’s motion on the grounds that an employer cannot justify a pay differential that is based on solely on the employee’s prior salary under the Equal Pay Act.  Defendant appealed.

The Ninth Circuit conceded that an employer could “manipulate its use of prior salary to underpay female employees,” but that was not the case in this situation.  The Ninth Circuit considered the following four business reasons Defendant offered to justify starting salaries that are based primarily on prior salaries:  1)  an objective policy regarding the value of the employee’s previous salary; 2)  the incentive offered to new employees of a five percent increase over their previous salary; 3)  consistent application of the policy; and 4)  the judicious use of taxpayer dollars in applying the policy.

Ms. Rizo argued that considering prior salary alone perpetuates existing disparities in salaries between men and women.  The Ninth Circuit rejected this argument, finding that a pay differential stemming from reliance on prior salary did not violate the Equal Pay Act because the use of prior salary effectuated a business policy and the employee’s salary was reasonably used.

If you feel that your employer pays you less on account of your gender, race or ethnicity, please feel free to call Hunter Pyle Law for a free consultation at (510)-444-4400 or inquire@hunterpylelaw.com.