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Proceed with Caution: Pay Differential Based on Prior Salary Can Be Lawful

Equal Pay litigation continues to cause angst for employers doing business in California. In addition to the federal Equal Pay Act, employers operating in California must comply with laws requiring equal pay for men and women for substantially similar work unless a statutory defense applies. The landscape of the equal pay protections is ever-changing, having been recently expanded in California to include not only sex but also race and ethnicity. Additionally, the new amendments to the California Fair Pay Act preclude employers from using prior salary as the sole justification for a pay differential. State and local jurisdictions are also considering and passing more legislation prohibiting prospective employers from even asking applicants about salary history as a way to minimize historical pay disparities. 

Despite legislative efforts to curb inquiries into salary history, employers may be feeling more confident after a recent win in Rizo v. Yovino, where the Ninth Circuit confirmed that prior salary can be a “factor other than sex” under the Equal Pay Act for pay differences, provided that the employer shows that prior salary “effectuate[s] some business policy” and the employer uses prior salary “reasonably in light of [its] stated purposes as well as other practices.” However, the employer has the burden of proof on this defense. They also must exercise caution on whether they can inquire about prospective or current employees’ prior salaries depending on the application of local and/or state laws that preclude such an examination. And under California’s amended Fair Pay Act, relying on prior salary history alone to justify a pay differential is prohibited. 

In Rizo v. Yovino, a female math consultant for a school district sued the superintendent, claiming a violation of the Equal Pay Act because she was paid less than the other math consultants in the School District, all of whom were male. The superintendent argued that the School District’s pay schedule was based on the previous salaries of the employees, and the difference in pay between Rizo and her male counterparts was based on a factor other than sex. The District Court denied the superintendent’s Motion for Summary Judgment and concluded that “when an employer bases a pay structure ‘exclusively on prior wages,’ any resulting pay differential between men and women is not based on any other factor other than sex.”

On appeal, the Ninth Circuit found that the superintendent offered four business reasons for using a standard pay structure that was based primarily on salary history. Indeed, the superintendent contended the policy to use prior salary (1) was objective; (2) encouraged candidates to seek employment with the County because they would receive a 5% pay increase over current salary; (3) prevented favoritism and ensured consistency in application; and (4) was a judicious use of taxpayer dollars. Upon remand, the superintendent would have the burden of proving the business reasons articulated and that the use of prior salary was reasonable. 

Despite this recent ruling in Rizo v. Yovino, employers doing business in California should continue to be vigilant in their compensation practices to ensure that they are not paying employees differently based on sex, race, or ethnicity, or basing the new compensation solely on prior salary. Keeping up to date on the hot issue of whether and how employers can ask about and use prior salary information is critical to compliance. 

© Polsinelli PC, Polsinelli LLP in California

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About this Author

Anne Cherry Barnett, Attorney, Polsinelli Law Firm
Principal

With an eye toward being a valued resource and partner to clients, Anne Cherry Barnett approaches each matter with the goal of streamlining costly litigation and achieving the client’s objectives successfully and efficiently. Anne focuses her practice on employment matters and has represented clients of all sizes. She prides herself on providing sound and cutting edge legal strategies that consistently focus on the client’s bottom line as they navigate the complex labyrinth of California and Federal employment regulations. Anne has represented employers in single...

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Michele Haydel Gehrke, Polsinelli, Class Action representation Lawyer, Labor Disputes Attorney
Principal

Michele Haydel Gehrke is an advocate for clients as she helps them face the complex web of workplace regulations and the potential for litigation. Focusing her practice on labor and employment matters on behalf of management, Michele takes time to understand the client’s objectives and crafts employment counseling, litigation or traditional labor legal strategies that align to the desired outcome. She has successfully defended employers in various types of labor and employment disputes, and has represented employers in state and federal court in both single-plaintiff and class-action cases. 

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