April 10, 2018 | Category: Compliance, Employment

The Equal Pay Act (EPA) prohibits businesses from paying employees of one gender less than the other for equal work. There are exceptions to this general mandate: if wages are determined by a merit or seniority system; a system that bases pay on quantity or quality of work; or a differential based on any factor other than sex. This last exception was recently the subject of a lawsuit argued before the 9th U.S. Circuit Court of Appeals.

After hearing the case, the 9th Circuit Court of Appeals ruled that “differential based on any factor other than sex” is limited to legitimate job-related considerations (i.e. experience, education, and prior work performance). Past compensation alone is not a permissible consideration under the EPA. Therefore, employers located within the 9th Circuit, which includes Nevada, cannot rely on salary history alone to determine compensation.

The case, Rizo v. Yovino, involved the Fresno County Office of Education’s (County) hiring system and policy. The hiring system consisted of 10 salary levels, with each level having 10 steps to it. As a policy, the County paid new hires 5% more than their prior salary and placed them on the corresponding step in their salary level. Aileen Rizo was hired as a math consultant in October 2009. Prior to being hired by the County, she worked as a middle and high school math teacher in Arizona where she made an annual salary of $50,630. Pursuant to the aforementioned policy, the County agreed to pay Ms. Rizo $62,133 and place her at step 1, level 1 of the hiring schedule.

During a lunch in 2012, Ms. Rizo learned that some of her male colleagues, who were hired after her, were placed at higher salary steps. The County admitted that Ms. Rizo was paid less than her male colleagues, but argued that it was permissible because it was based on her prior salary and not her sex or gender. The 9th Circuit did not agree stating, “To accept the county’s argument would be to perpetuate rather than eliminate the pervasive discrimination at which the [EPA] was aimed.”

The 9th Circuit is not alone. The 10th Circuit, which covers Colorado, Kansas, New Mexico, Oklahoma, Utah and Wyoming, and the 11th Circuit, which covers Alabama, Florida, and Georgia, have also ruled that prior salary history alone cannot be used to justify pay discrepancies. However, the 7th Circuit, which covers Illinois, Indiana, and Wisconsin, has found past earnings to be a permissible basis for a pay differential so long as there is no evidence of discrimination.

So what’s next? What should you do? Employers, especially those within the 9th Circuit, should consider eliminating salary history from the application process to eliminate any potential issues. Salary determinations should be based on other factors, like the applicant’s experience, education, and prior work performance. It’s also advisable for employers to conduct an audit of employee compensation to ensure any pay differentials that exist are due to permissible factors.