Relying on salary history to justify differences in employee pay can be a valid defense under the Equal Pay Act, according to a recent decision by the United States Court of Appeals for the Ninth Circuit. Rizo v. Yovino, 2017 U.S. App. LEXIS 7427 (9th Cit. Apr. 27, 2017).
The Ninth Circuit rejected the District Court’s reasoning and vacated its decision. According to the Ninth Circuit, prior salary alone can be a legitimate factor other than sex warranting dismissal of an EPA/Title VII claim, provided the employer’s use of prior salary effectuates a stated business policy and is reasonable in light of the stated purpose. The ruling adds to an already existing Circuit split – while the Seventh and Eighth Circuits both allow employers to rely on prior pay as an affirmative defense to federal wage discrimination laws, the Tenth and Eleventh Circuits have held that prior pay alone cannot justify a wage disparity (though it can be considered alongside other non-discriminatory factors). Notably, Rizo’s claim arose before California enacted its Fair Pay Act, which states specifically that “[p]rior salary shall not, by itself, justify any disparity in compensation.”
The case serves as a reminder to employers that relying on an employees’ salary history to determine current compensation is increasingly risky. A growing number of states and localities (including recently New York City) have enacted or are in the process of enacting legislation prohibiting employers from inquiring into an applicant’s salary history or otherwise basing employee compensation on prior pay. Employers should review their applicable jurisdiction’s requirements before basing compensation decisions on an employee’s previous compensation.