You may recall that last year, we reported on a Ninth Circuit case, Rizo v. Yovino, wherein the Court of Appeal held that an applicant’s prior salary history is a “factor other than sex” that an employer may rely on, either alone or in combination with other factors, in setting pay rates–even though the use of that factor may result in men and women being paid different rates of pay for similar work. In so holding, the Court of Appeal relied on its own prior precedent (dating back to 1982), Kouba v. Allstate, wherein the Court expressly held that this was permissible and could not support a federal Equal Pay Act violation. Well, after issuing its decision in Rizo v. Yovino last year, the Ninth Circuit granted a petition for en banc review, and yesterday the Court issued a new decision reversing itself and overruling its own prior precedent in Kouba. Now, the Ninth Circuit has newly ruled that an applicant’s prior salary history is not a “factor other than sex” that an employer may rely on, either alone or in combination with other factors (e.g. experience, education), to justify paying an employee differently than an employee of the opposite sex for similar work. Under the new generalized rule announced by the Court, an employer may not rely on prior salary history as a factor in setting a newly hired employee’s wages. If an employer does so, and this results in a pay disparity along gender lines, the affected employees may have a valid Equal Pay Act claim against the employer.

The Ninth Circuit reasoned:
“Prior salary . . . is not a legitimate measure of work experience, ability, performance, or any other job-related quality. It may bear a rough relationship to legitimate factors other than sex, such as training, education, ability, or experience, but the relationship is attenuated. More important, it may well operate to perpetuate the wage disparities prohibited under the Act. Rather than use a second-rate surrogate that likely masks continuing inequities, the employer must instead point directly to the underlying factors for which prior salary is a rough proxy, at best, if it is to prove its wage differential is justified. . . .”

The Court further stated:
“We conclude, unhesitatingly, that “any other factor other than sex” is limited to legitimate, job-related factors such as a prospective employee’s experience, educational background, ability, or prior job performance. It is inconceivable that Congress, in an Act the primary purpose of which was to eliminate long-existing “endemic” sex-based wage disparities, would create an exception for basing new hires’ salaries on those very disparities—disparities that Congress declared are not only related to sex but caused by sex. To accept the County’s argument would be to perpetuate rather than eliminate the pervasive discrimination at which the Act was aimed.”

Based on the Court’s decision, the defendant-employer in the case has to return to district court to face trial on a claim of discriminatory pay practices. It seems fundamentally unfair (and a violation of due process) for the employer to face potential liability for relying on prior salary history when binding decades-old Ninth Circuit precedent clearly held that it was permissible for the employer do to just that. The Ninth Circuit apparently can change its mind, but should that about-face result in liability for the employer who justifiably relied on that decades-old precedent? I’m all for equal pay, but this result is rather clearly unfair.

Bottom line? Equal Pay Act claims (claims for discriminatory pay practices) are getting a lot of attention and press these days, and are almost certain to proliferate in light of recent legislative changes (e.g. California state law expressly barring the use of prior salary history (or even inquiring about it in the hiring process)) and court decisions like the Rizo v. Yovino decision. It would be prudent for employers to audit their pay classifications along gender and racial lines and determine whether any pay disparities are justified by factors other than sex (or prior salary history). This generally means that the disparity should be justified by the employee’s experience, education, ability, and/or performance.

This article was written by: Robin E. Largent and was first published in the California Labor & Employment Blog, April 10, 2018.