KHVPF Insight

Can Prior Pay Be Considered In Equal Pay Act Cases

Can Prior Pay Be Considered In Equal Pay Act Cases

Ever the trailblazing court, the U.S. Court of Appeals for the Ninth Circuit held in an en banc decision that an employee’s prior pay cannot justify a pay gap between genders for equal work. The Equal Pay Act (EPA), passed in 1963, when women were paid fifty-nine cents on the dollar in comparison to men, sought to eliminate gender-based discrimination. At the same time, the legislative history of the EPA evinces Congress’s early recognition that equal pay for men and women was a concept easier said than done, due to the many factors that affect a given employee’s pay.

Congress therefore attempted to create a system that was “meaningful to employers and workers across the broad range of industries covered by the Act,” as the U.S. Supreme Court stated in its only opinion directly interpreting the EPA, Corning Glass Works v. Brennan (1974). The EPA as enacted included four areas that employers could use in determining an employee’s pay without liability: “(i) a seniority system; (ii) a merit system; (iii) a system which measures earnings by quantity or quality of production; or (iv) a differential based on any other factor other than sex.”

The fourth factor was the catch-all, leaving the door open for employers to respond to economic and practical concerns without fear of a discrimination lawsuit, so long as their practices weren’t unfair to one gender over the other. The EPA also provided that no employee’s pay could be reduced in order to comply with gender equality. Since its passage, courts have wrestled with the fourth facto. What about an employee’s negotiating ability? Labor shortages and market conditions? Prior pay in the same workplace?

For the first time, a U.S. Circuit Court of Appeals has definitively ruled out prior pay as an acceptable fourth factor. The Ninth Circuit (with jurisdiction over several western states) held in Aileen Rizo v. Yovino, decided February 27, 2020, that “[b]ecause prior pay may carry with it the effects of sex-based pay discrimination, and because sex-based pay discrimination was the precise target of the EPA, an employer may not rely on prior pay to meet its burden of showing that sex played no part in its
pay decision.” Besides public policy arguments regarding the self-perpetuating cycle of women earning less than men, the court relied on the specific language of the EPA. “Any other factor other than sex,” Judge Morgan Christen wrote, meant that courts should particularly look to the first three factors to interpret the fourth. The opinion went on to say that, even without the extra “other,” the fourth factor should be interpreted in line with the other three under the principle of ejusdem generis—i.e., specific examples should be used to interpret a more general term at the end of a list.

Will other Circuits follow the Ninth Circuit in its broad-based rejection of the prior pay factor, as valid arguments do exist for prior pay as an acceptable, genderneutral part of the wage calculation process. The court’s reliance on the extra “other” seems an over-reliance on one word of repetition. The two “others” could conversely be interpreted to stress that there are myriad “other” valid business reasons for setting one employee’s salary differently than another’s—including prior salary.

Another possible interpretation is that the EPA sought to eliminate sex-based discrimination rather than to address the greater socio-economic factors that underlie the wage gap, so the fourth factor should be broadly interpreted. Judge Christen herself noted: “The EPA did not raise women’s wages nor create remedial education or training opportunities. The Act’s limited goal was to eliminate only the purest form of sex-based wage discrimination: paying women less because they are women.” Prior pay clearly is a factor that, for practical purposes, incorporates a number of acceptable reasons to set one employee’s pay higher than another’s, including an employee’s experience and job performance.

If prior pay cannot be considered in setting an employee’s salary, it stands to follow that, under the Ninth Circuit’s narrow definition of “other factors,” negotiating ability won’t come into play either. Why not? If Robert negotiates $100k/year, and then Roberta comes along six months later and, through techniques she learned from reading a book by a famous hostage negotiator, gets herself $115k/year for the same job, it’s likely that the pay gap will continue over the years if both perform well. However, if Robert and other males all make $100k, the company would have to give them the benefit of Roberta’s deal-making skills, because past pay can’t be used to determine future compensation. Consequently, all the employees would get the benefit of Roberta’s hard-dealing.

Economic conditions at the time of hiring also play into prior salary, and would be eliminated as a determinant of wages under a similar theory. Suppose Robert and Roberta are both tree surgeons hired by a county park. When Robert got hired, the trees were all doing well and didn’t need to go under the knife, so the going rate for a tree surgeon was $100k/year. But by the time Roberta applied for the job, the dogwoods were all suffering from a virulent bark infection and were in need of attention. Meanwhile, there was a nationwide shortage of tree surgeons and a high demand for qualified recruits, so Roberta was offered $115k right off the bat. Under the Ninth Circuit’s analysis in Rizo and depending on the overall gender-pay landscape of its workforce, the county may have to increase Robert’s pay in order to avoid grounds for a lawsuit.

The Ninth Circuit’s approach also fails to take into account nuances of the prior pay factor. Scholars have noted important distinctions between “inside” and “outside” prior salary. While an employee’s outside salary with a prior employer may be more likely to carry with it the effects of past gender-based discrimination, an employer might have good reason to use prior salary within the same employing organization. In Spencer v. Virginia State University (2019), the Fourth Circuit ruled in favor of allowing a prior pay factor. A female professor brought an EPA suit against the university, where several male professors had briefly held administrative positions within the university before returning to teaching. The university cited its salary retention policy as justification for the pay discrepancy. Such a policy would allow the university to briefly promote a professor, for example, to an interim presidency, then entice the professor to step down without a huge drop in pay after a nationwide search brought in a top candidate.

Such policies can also help employers continue to employ persons who develop disabilities, as they can allow the disabled employee to take on a less demanding job while retaining pay comparable to the more demanding position.

For these and other reasons, the Fourth, Seventh, and Eighth Circuits have upheld prior pay as a valid fourth factor. The Eleventh, Tenth, and Sixth Circuits allow prior pay to be considered alongside other factors, without serving as a stand-alone justification for a gender-based wage differential. The U.S. Supreme Court’s stance on this issue? Wait for the next article.

Marianne J. Grano
Winter 2020