Prior salary can't justify gender wage gap, appeals court says

A federal appeals court ruled Monday that salary history cannot be used to justify a wage gap between men and women, in a case that employee advocates said highlights a key issue that has institutionalized gender compensation inequities.

The U.S. Court of Appeals for the Ninth Circuit, which heard the case Rizo v. Fresno County Office of Education en banc last year, found that an employee’s prior salary—either alone or in a combination of factors—cannot be used to justify paying women less than men in comparable jobs.

Related: Analytics tech being used to eliminate pay disparities

“The Equal Pay Act stands for a principle as simple as it is just: men and women should receive equal pay for equal work regardless of sex,” Judge Stephen Reinhardt wrote in the opinion. “The question before us is also simple: can an employer justify a wage differential between male and female employees by relying on prior salary? Based on the text, history, and purpose of the Equal Pay Act, the answer is clear: No.”

The courts have moved in different directions on this question. Two federal appeals courts—the Tenth and Eleventh circuits—previously held that prior pay alone cannot be considered as an exemption to equal pay laws. The Seventh Circuit has ruled that previous salary could be considered. The Ninth Circuit on Monday fractured over whether pay history can ever be considered.

Reinhardt, who was widely recognized as one of the country’s most liberal judges, died last week at the age of 87. The ruling noted the voting was complete before his death.

Aileen Rizo, a math consultant in Fresno County, California, filed the suit in 2012 after she discovered she was paid less than male counterparts by as much as $10,000. The county justified the pay differential based on the previous salary she made at a school in Arizona. The three-judge panel of the Ninth Circuit ruled that salary could be used by the county to justify the discrepancy. The case will return to the district court.

In Monday’s ruling overturning the panel decision, Reinhardt wrote, “Salaries speak louder than words.” He noted that the Equal Pay Act prohibits sex-based wage discrimination but prior to this decision the law was unclear on whether an employer could consider prior salary in determining pay scale. The majority ruling found that “to accept the county’s argument would perpetuate rather than eliminate the pervasive discrimination” that the federal law aimed to protect.

“In light of the clear intent and purpose of the Equal Pay Act, it is equally clear that we cannot construe the catchall exception as justifying setting employees’ starting salaries on the basis of their prior pay,” Reinhardt wrote. “At the time of the passage of the act, an employee’s prior pay would have reflected a discriminatory marketplace that valued the equal work of one sex over the other. Congress simply could not have intended to allow employers to rely on these discriminatory wages as a justification for continuing to perpetuate wage differentials.”

Jones Day partner Shay Dvoretzky in Washington argued for the Fresno school district in the Ninth Circuit.

Fresno County intends to petition the Supreme Court to review the Ninth Circuit decision, according to a statement provided by Michael Woods, of counsel to McCormick Barstow LLP, which also represented the district in the appeal.

The Fresno County Superintendent of Schools said the policy that determines salaries was “absolutely gender-neutral, objective and effective in attracting qualified applicants and complied with all applicable laws.”

Several judges expressed concern about the reach and practical implications of the majority’s ruling, which was expressed as a “general rule” that did not touch individualized, negotiated salary discussions.

“Although the majority professes that its decision does not relate to negotiated salaries, the principle of the majority’s holding may reach beyond these state statutes by making it a violation of federal anti-discrimination law to consider prior salary, even when an employee chooses to provide it as a bargaining chip for higher wages,” Judge M. Margaret McKeown, joined by Judge Mary Murguia, wrote in a concurring opinion. “I am concerned about chilling such voluntary discussions. Indeed, the result may disadvantage rather than advantage women.”

The U.S. Equal Employment Opportunity Commission and other women’s rights advocates had urged the court to reconsider the panel decision, saying that any validation of such a practice would institutionalize the gender pay gap. Studies show women make 80 cents on the dollar to their male counterparts and that the disparities are pervasive across industries.

Several cities and states have banned salary history inquiries or have proposals pending, including California, Delaware, Massachusetts, Oregon, New Orleans, Philadelphia, Pittsburgh, New York City and Puerto Rico.

Closely watched gender-pay cases are moving forward in state and federal courts against major U.S. companies, including Google Inc. and Goldman Sachs. In the Google case, as many as 5,000 women across several different job positions comprise the class. The plaintiffs lawyers in that case zeroed in on the tech giant’s company-wide policy that allows for job applicants to divulge their prior salaries.