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On April 9, 2018, the Ninth Circuit issued its decision in Rizo v. Yovino and affirmed that prior salary, alone or in combination with other factors, cannot justify a wage differential between male and female employees. Judge Stephen Reinhardt, who died unexpectedly in late March, authored the  ruling. Known as the “Liberal Lion” of the federal judiciary in California, Judge Reinhardt also overturned bans on same-sex marriage and physician-assisted suicide and declared prison overcrowding unconstitutional.

The Federal Equal Pay Act

The federal Equal Pay Act of 1963 requires employers to pay equal wages to men and women who perform jobs that require “substantially equal” skill, effort and responsibility, and that are performed under similar working conditions within the same establishment. To bring a successful claim, the Act places the burden on plaintiffs to show that they are paid less because of their sex but plaintiffs need not prove any discriminatory intent. The law allows employers to pay men and women differently if the disparity is due to one of four exceptions enumerated in the statute. Employers can permissibly pay workers at different rates if they do so based on seniority, merit, the quantity or quality of the employee’s work, or “any other factor other than sex.” Rizo considers the nebulous catch-all exception: a “factor other than sex.”

Rizo v. Yovino

Prior to Rizo, it was unclear whether an employee’s prior salary, either alone or in combination of other factors, could be used as a legal defense to a claim brought under the Equal Pay Act as a legitimate “factor other than sex.” The en banc panel took the case to clarify the law.

It concluded “unhesitatingly” that the catch-all category is limited to job-related factors such as a prospective employee’s experience, educational background, ability, or prior job performance. Judge Reinhardt stated unequivocally that “[i]t 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.” As such, by relying on plaintiff’s previous salary to explain why her male colleagues earned more than her, the defendant in Rizo failed as a matter of law to set forth a valid affirmative defense.

One should observe what the Court did not decide in Rizo. The opinion notes: “Today we express a general rule and do not attempt to resolve its applications under all circumstances. We do not decide, for example, whether or under what circumstances, past salary may play a role in the course of an individualized salary negotiation. We prefer to reserve all questions relating to individualized negotiations for decision in subsequent cases.” With this practical placeholder, it’s reasonable to expect an increase in litigation related to the appropriateness of using salary history during negotiations in district courts in the Ninth Circuit.

Employer Obligations Under the Equal Pay Act and California Law

The reasoning in Rizo (that prior salary may operate to perpetuate wage disparities prohibited under the Act) is also the likely driver behind the recent surge of state and local legislation banning employers from inquiring about applicants’ previous salaries and benefits. California’s salary history ban became effective January 1, 2018.

California’s new law, which added Section 432.3 to the Labor Code, takes the requirements under the Equal Pay Act and California’s Fair Pay Act a step further. While it does not explicitly invoke pay equity, it prohibits employers–and their agents–from seeking salary information about an applicant for employment and requires employers to provide the pay scale for the position to any applicant who reasonably requests such information.

While Section 432.3 does not prohibit employers from considering or relying on salary information that was voluntarily disclosed by an applicant without prompting, gender disparities can no longer be justified by reliance on such information.

To satisfy requirements under both laws, we recommend employers:

  • Remove all salary questions from hiring forms (including job applications, candidate questionnaires and background check forms);
  • Update interviewing and negotiating policies and procedures;
  • Train recruiting, hiring managers and interviewers on the new law to include instructions regarding the importance of ensuring that candidates are not pressured (even indirectly) to disclose salary history and how to respond to requests for pay scale information;
  • Work with counsel to conduct periodic internal pay audits to proactively address any unexplained wage disparities. Employers are well-advised to partner with legal counsel to maximize confidentiality by establishing and maintaining an attorney-client privilege protocol.

For more information, please contact your Baker McKenzie lawyer.