Ninth Circuit’s Equal Pay Decision Requires Employers to Reexamine Pay Structures

From NFIB, May 08, 2018

In April 2018, the U.S. Court of Appeals for the Ninth Circuit issued a major blow to employers defending against Equal Pay Act claims. In the case, Rizo v. Yovino, the court determined that the EPA bars employers from relying on past wage or salary history as a justification for pay disparities.

The EPA prohibits employers from paying employees differently for the same work, except where the pay differential is justified by seniority, merit, the quality or quantity of their work product, or some “other factor other than sex.” The Rizo decision shocked many employers since the Ninth Circuit has held since 1982 that reliance on past wage or salary history is permissible as a “factor other than sex.”

As it stands, the Rizo decision conflicts with decisions from other federal courts and only applies to employers in the nine western states (Alaska, Arizona, California, Hawaii, Idaho, Montana, Nevada, Oregon, and Washington). Yet, it may cause employers throughout the nation to reevaluate pay structures and rethink whether it’s prudent to ask about wage and salary history when hiring.

What Does Rizo Mean for New Hires?

California and a handful of other jurisdictions already prohibit employers from inquiring about a job applicant’s wage or salary history. For employers in these jurisdictions, the Rizo decision is of little practical consequence when it comes to new hires because state law requires that employers set salaries without consideration of past wages or salaries. Salary decisions must be based on factors such as the employee’s experience, educational background, ability, or prior job performance.

For employers in other jurisdictions, the Rizo decision should give reason to rethink whether it is prudent to ask an applicant about wage or salary history. Even if operating in a state that still permits questions about salary history, an employee may argue that an EPA violation occurred if salaries differ between male and female employees in the same job. Indeed, given that Rizo requires employers to set wages and salaries in consideration of only legitimate factors (other than past wage and salary history), the decision effectively federalizes California’s prohibition on asking these questions.

What Does Rizo Mean for Existing Employees

Even if an employer no longer asks applicants about wage and salary history, previous pay decisions might have relied on this sort of information. So Rizo should encourage employers to reexamine existing employees’ salaries to ensure that legitimate business reasons – absent information about past wages or salaries – justify any pay differentials. In any event, employers should consult with outside legal counsel to determine whether it makes sense to conduct an internal audit for illegal pay disparities.

For more commentary, check out this article from the National Law Review.