Andrea is a recruiter. She hired both Jamal and Vanessa as marketing managers. Jamal and Vanessa started at about the same time and have basically the same level of experience. At their previous companies, Jamal made more than Vanessa. Still, when Andrea worked to develop the offers, she made sure that both Jamal and Vanessa each got $5,000 more than what they earned at their prior employers. No problem, right?
Potential big problem. Yesterday, the Ninth Circuit Court of Appeals issued a highly anticipated decision on whether prior salary history is a “factor other than sex” that an employer could use to escape an Equal Pay Act claim. The divided decision was this: Prior salary history is not a factor other than sex. And employers cannot justify unequal pay for equal work based upon anyone’s prior salary.
Here’s the case: Fresno County, Calif., hired Aileen Rizo as a consultant. Rizo had a great deal of experience and two master’s degrees. Based upon the county’s formula, she was paid $62,733 due to her previous salary history. A male colleague was hired at about the same time in about the same role and earned $79,088. (I’ll do that math for you: That’s a $16,355 difference!)
Rizo sued. And after a whole bunch of procedural issues, including the death of one of the judges, she prevailed.
The Equal Pay Act (EPA) is pretty straightforward. Pay men and women unequally for equal work, and you’re liable unless your pay system falls into one of the four exceptions:
- A seniority system
- A merit system
- A system that pays based upon quantity or quality of production
- “Any other factor other than sex”
If there’s a pay disparity, it can only be justified by these four exceptions. Because the system in Fresno County was not based upon the first three exceptions, the County argued that Rizo’s prior salary history was a factor other than sex.
The Ninth Circuit didn’t buy this, holding that “any other factor other than sex” must be job-related — and a woman’s prior salary history is not job-related. Additionally, and notably, the EPA does not require discriminatory intent. An employer doesn’t have to want to pay women less; the mere fact that a woman is paid less can establish a claim. Here, Rizo was paid a lot less.
What does all this mean for Andrea and her organization? It means that the $5,000 difference between Jamal and Vanessa’s salary must be explained by something other than Vanessa’s sex and her salary history. If Vanessa sues or alerts a state or federal agency (like the Equal Employment Opportunity Commission), the company would have to show a job-related reason why Vanessa makes $5,000 less than Jamal. Typically, such factors look like less experience, education, or skill.
So what does this mean for your organization?
- Stop asking candidates for salary histories, not only because of this recent case or the salary history question bans sweeping the country but because someone’s past pay doesn’t tell you much about the person’s employability.
- Determine salaries based upon market rates and/or business conditions without regard to a particular candidate. Setting your salary scales to the market helps you recruit and retain talent and reduces the risk of an EPA claim.
- Be transparent about pay. The more open you are about pay, the less likely you are to see claims.
- Review employee salaries to see if there is the risk of an EPA claim — but only if your organization is willing to subsequently take action to remedy any disparities.
It’s worth pointing out that the U.S. Courts of Appeal are divided on whether salary history is a factor other than sex under the EPA, setting up a likely appeal to the U.S. Supreme Court. However, it’s best to prepare now for what is likely to come in the future.