The Ninth Circuit U.S. Court of Appeals held Monday, on the eve of National Equal Pay Day, that it violates the Equal Pay Act to use pay history to justify wage gaps between male and female employees for the same or substantially similar work. The decision in Rizo v. Yovino, No. 16-15372 (9th Cir. Apr. 9, 2018) has immediate ramifications for employers in the Ninth Circuit in evaluating employee compensation.

The Equal Pay Act (29 U.S.C. § 206(d)(1)) prohibits employers subject to the Act from “discriminat[ing] . . . between employees on the basis of sex by paying wages to employees . . . at a rate less than the rate at which he pays wages to employees of the opposite sex . . . for equal work on jobs the performance of which requires equal skill, effort, and responsibility, and which are performed under similar working conditions.” The Act contains four exceptions where differences in pay for the same or similar work are allowed: (1) a seniority system; (2) a merit system; (3) a system which measures earnings by quantity or quality of production; and (4) a differential based on any other factor other than sex.

The Rizo opinion removes a defense previously available to employers in Equal Pay Act claims by holding that “any other factor other than sex” must be “job related,” and that “prior salary alone or in combination with other factors cannot justify a wage differential.” In so holding, the court reversed its prior decision in Kouba v. Allstate Ins. Co., 691 F.3d 873 (9th Cir. 1982), which held that pay history was a valid factor other than sex on which employers could permissibly rely. The Ninth Circuit explained its departure from Kouba by stating, “[t]o hold otherwise – to allow employers to capitalize on the persistence of the wage gap and perpetrate that gap ad infinitum – would be contrary to the text and history of the Equal Pay Act, and would vitiate the very purpose for which the Act stands.”

The Ninth Circuit’s opinion creates a circuit split over this issue. The Seventh Circuit has held in Wernsing v. Dep’t of Human Servs., State of Ill., 427 F.3d 466 (7th Cir. 2005) that prior salary is always a “factor other than sex.” Other circuits have come down somewhere between these two extremes with holdings that “a factor other than sex” could include pay history. As such, this issue is ripe for review by the Supreme Court to resolve the circuit split.

Most immediately, employers in the Ninth Circuit – Alaska, Arizona, California, Hawaii, Idaho, Montana, Nevada, Oregon, and Washington – should promptly evaluate their pay practices and criteria for compliance with the Rizo decision both for new hires and existing employees.

The Ninth Circuit’s decision in Rizo also comes on the heels of widespread pay equity legislation passed in various jurisdictions this past year – including California, Delaware, Massachusetts, New York City, Oregon, San Francisco, and Washington – aimed at curbing the gender gap in pay, which typically prohibit employers from asking for pay history during the application process or considering pay history when setting compensation. This is another obstacle employers in the Ninth Circuit, and elsewhere, will need to navigate in setting employee compensation.

For more information on this decision or assistance with compliance, please contact any member of Schiff Hardin’s Labor & Employment Group.

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Photo of Kyle Jacob Kyle Jacob

Kyle is a litigator at heart and has broad experience litigating matters for employers in state and federal court and before numerous administrative agencies. Kyle also regularly counsels clients on compliance issues arising from the intricate web of local, state, and federal laws…

Kyle is a litigator at heart and has broad experience litigating matters for employers in state and federal court and before numerous administrative agencies. Kyle also regularly counsels clients on compliance issues arising from the intricate web of local, state, and federal laws and regulations impacting employers. Kyle has a long history of working with employers, both in his current practice and for several years working as a paralegal assisting in the defense of workers’ compensation and retaliation claims in state and federal tribunals. Kyle knows the challenges and pitfalls facing employers and prioritizes understanding both the legal and business needs of his clients to identify problems and find efficient solutions.

Photo of Julie Furer Stahr Julie Furer Stahr

Julie is sought after as an advisor and litigator by clients large and small who want effective, real-world counsel and solutions to the personnel issues employers face on a daily basis.

A one-stop shop for a broad range of human resources and employment…

Julie is sought after as an advisor and litigator by clients large and small who want effective, real-world counsel and solutions to the personnel issues employers face on a daily basis.

A one-stop shop for a broad range of human resources and employment law needs, Julie is an excellent resource who can demystify a complex web of issues. She is able to focus on a client’s big picture and understands that employment law problems are only a small part of it. That’s why Julie gears her advice toward furthering business operations and management goals in the most efficient way possible, and provides clear direction and counsel in language that makes sense to non-lawyers.