“Past Salary Is Losing Steam as Sex-Based Pay Gap Excuse,” Law360

October 28, 2020

By Christine E. Webber, Partner, Cohen Milstein’s Civil Rights & Employment practice

Rizo v. Yovino,[1] has finally reached a conclusion after an unusual history, in which an en banc decision was vacated by the U.S. Supreme Court due to having been issued several days after its author, U.S. Circuit Judge Stephen Reinhardt of the U.S. Court of Appeals for the Ninth Circuit, passed away.

Upon the case’s return to the Ninth Circuit, another judge was randomly selected to join the en banc panel, and a new decision was issued, which, like the earlier en banc ruling, overturned the Ninth Circuit’s 1982 decision in Kouba v. Allstate Insurance Co.,[2] and held that prior pay was not a factor other than sex that could be used as a defense in an Equal Pay Act claim. The defendant once again sought review by the Supreme Court, which recently denied certiorari.[3] 

The Ninth Circuit’s analysis began by holding that the list of three specific affirmative defenses in the EPA — seniority, merit and productivity systems — provide context for the fourth: any other factor other than sex. Thus, a factor other than sex must be one that, like the first three enumerated, is job-related and based on legitimate business reasons.

This standard is consistent with the great weight of circuit court decisions.[4] Only the U.S. Court of Appeals for the Seventh Circuit has held there is no limitation on other factors.[5] The U.S. Court of Appeals for the Eighth Circuit occupies a middle ground in which proposed factors are evaluated on a case-by-case basis to preserve business freedoms.[6] 

Applying the job relatedness test to prior pay, the Ninth Circuit easily concluded that prior pay is not related to the new job.

While prior pay could be viewed as a proxy for factors such as education, skills or experience related to the prior job, that does not serve to make prior pay itself related to the new job; indeed, the employer is expected to point not to a mere difference in education or experience, but to how that education is relevant to the new job. This is consistent with the employer bearing the burden of proving that “sex provide[d] no part of the basis for the wage differential.”[7]

The Ninth Circuit’s conclusion that prior pay cannot satisfy standards applicable to the factor-other-than-sex defense is consistent with several other circuits, though more definitive. The U.S. Courts of Appeals for the Sixth, Tenth and Eleventh Circuits have all held that prior pay cannot be the sole reason for a pay differential, but have not barred it from being considered in all circumstances, in addition to prior experience.[8] 

The U.S. Court of Appeals for the Second Circuit has not squarely addressed consideration of prior pay, but in adopting a high bar for what can constitute a factor other than sex in Aldrich v. Randolph Central School District in 1992, the court cited “When Prior Pay Isn’t Equal Pay: A Proposed Standard for the Identification of ‘Factors Other Than Sex’ Under the Equal Pay Act”[9] by Jeanne Hamburg, which suggests openness to Rizo’s rule.[10]

The Eighth Circuit has permitted use of prior salary as a defense to incumbent pay disparities only after ensuring in Drum v. Leeson Electric Corp. in 2009 “that an employer does not rely on the prohibited ‘market force theory’ to justify lower wages” for women based solely on gender.[11] Courts have held that reliance on prior pay alone is simply another form of the market force theory long rejected by the Supreme Court.[12] 

Consistent with its outlier anything goes standard, the Seventh Circuit has explicitly accepted reliance on prior pay alone as a factor other than sex, without qualification.[13]

While the U.S. Court of Appeals for the Fourth Circuit recently ruled in Spencer v. Virginia State University that reliance on prior pay with the same employer was a factor other than sex,[14] the court did not discuss its rationale, and it seems to be in tension with its 2018 decision in U.S. Equal Employment Opportunity Commission v. Maryland Insurance Administration,[15] which held that a defendant must show job-related distinctions actually caused the pay difference.

Given the broad consensus that prior pay alone does not qualify as a factor other than sex, the long-standing rejection of market force theory by the Supreme Court, and agreement that factors must be job-related, Rizo appears to be leading a trend toward rejecting prior pay as a factor other than sex. This trend is also consistent with efforts at the state level to bar employers from asking candidates about their salary history — such laws are now in effect in 16 states or territories.[16]

Four of those states also bar consideration of prior pay if that information is obtained without asking the applicant to provide it.[17] Plainly, employers — whether in a state already subject to a statutory bar or not — need to be prepared to establish pay rates without basing them on prior pay going forward.

Employees have greater opportunities to challenge existing pay disparities too. Since employers tend to defend prior pay as a proxy for the value of past education or experience, we would expect to see employers relying directly on past experience or education rather than prior pay when challenged over pay disparities.

That shift will make it harder for employers to justify distinctions when men and women have equivalent past experience, but did not come to the employer with equivalent prior salaries — a far-too-common experience. 

. . .

Christine E. Webber is a partner at Cohen Milstein Sellers & Toll PLLC.

A PDF of the article can be accessed here.