Salary History Not a Defense to Equal Pay Act Claims, 9th Circuit Says

May 16, 2018

Last month, the U.S. Court of Appeals for the Ninth Circuit issued a landmark decision in the decades-long fight against the sex-based pay gap, holding that the Equal Pay Act (the “Act”) forbids employers from considering an employee’s salary history when setting the employee’s compensation. This decision provides an immediate boon for women in the Ninth Circuit (Alaska, Arizona, California, Hawaii, Idaho, Montana, Nevada, Oregon, Washington, Guam and the Northern Mariana Islands), as it will prevent their employers from using the long history of pay inequality to justify current unequal pay practices.

However, the Ninth Circuit’s decision marks new territory that conflicts with rulings in other circuits, setting up a circuit split that may end up in the Supreme Court.  Certain aspects of the Ninth Circuit’s decisions are certain to be the subject of heated debate before the justices.

Facts Behind Rizo v. Yovino

In Rizo v. Yovino, Aileen Rizo, a math consultant at the Fresno County Office of Education, sued her employer for violations of the Equal Pay Act after she discovered that some of her male colleagues had been hired as math consultants at a higher salary. The county explained that it set the salaries of Rizo and her colleagues based on a standard operating procedure, which determined a new hire’s salary by taking that person’s previous salary and adding five percent. Under the Equal Pay Act, employers are allowed to pay men and women differently for the same job only if the sex-based pay differentials are justified by a seniority system, a merit system, a system that measures earnings by quantity or quality of production, or “any other factor other than sex.” The county argued that its policy, which focuses exclusively on an individual’s salary history, is sex neutral on its face, and thus sets pay based on a “factor other than sex.”

The Trial Court’s Decision

The trial court disagreed with the county, holding that setting pay on the basis of salary history conflicts with the Equal Pay Act’s goal of eradicating the historical discriminatory pay disparity between men and women. A three-member panel of the Ninth Circuit heard the county’s initial appeal and reversed the trial court, holding that a Ninth Circuit case from 1982, Kouba v. Allstate Insurance Co., allowed employers to use salary history as the sole factor in setting pay so long as the employer’s use of salary history “was reasonable and effectuated some business policy.” The Ninth Circuit sitting en banc reviewed the panel’s decision to determine whether Kouba was still good law.

The Ninth Circuit’s Decision

The Ninth Circuit en banc overturned Kouba, reversed the panel, and sided with the trial court, holding that reliance on salary history conflicted with “the very essence” of the Equal Pay Act. The court mostly sidestepped the textual question of whether salary history could ever literally be a “factor other than sex.”  Instead, the court focused on Congress’s “primary purpose” when passing the Act and various statements made by members of Congress and congressional witnesses during the debate over the Equal Pay Act.

Since the purpose of the Act and the focus of much of the congressional testimony was to undo the longstanding discriminatory pay gap between men and women by tying compensation to “legitimate, job-related reasons,” the Ninth Circuit concluded the “any other factor other than sex” justification for pay disparities must be limited to bona fide job-related factors. Since salary history is not a job-related factor – what an employee earned at her last job is unconnected to the demands and responsibilities of her current position – the court held that an employer policy using an employee’s salary history to determine compensation is always impermissible under the Equal Pay Act.  This is so regardless of whether the employer also relies on other factors or takes other steps that might negate the risks of perpetuating discriminatory wage disparities.

Although all of the judges agreed that the county’s exclusive reliance on salary history was illegitimate under the Act, five of the 11 judges disagreed with the court’s conclusion that salary history is always an illegitimate factor when an employer is determining employee compensation. In her concurrence, Circuit Judge M. Margaret McKeown argued that the court’s broad holding could actually harm women who want to volunteer their salary history to prospective employers in an effort to negotiate a higher salary. Judge McKeown noted that the Equal Employment Opportunity Commission – the federal agency tasked with enforcing the Equal Pay Act – and all other federal appeals courts to address the issue have held that, at least in some circumstances, an employer’s use of salary history in combination with other factors can be lawful under the Act so long as the employer can demonstrate that any resulting pay differential is based on a valid job-related factor other than sex.

Circuit Judge Consuelo Maria Callahan’s concurrence went even further, arguing that the court’s holding that a “factor other than sex” must be “job-related” has no basis in the text of the Equal Pay Act. In Wernsing v. Dept. of Human Services, State of Ill., the Seventh Circuit gave a similarly text-focused reading of the Equal Pay Act: “The statute asks whether the employer has a reason other than sex—not whether it has a ‘good’ reason.”

Possible Supreme Court Showdown

With the Ninth Circuit’s groundbreaking holding that employer policies for calculating compensation can never use salary history as a factor, there is now a split among the circuits, creating an inconsistency in federal law. Employers in the Second, Seventh, Eighth, Tenth, and Eleventh Circuits are permitted to use salary history in their compensation calculations, at least under some conditions, while employers in the Ninth Circuit are forbidden from doing so.

Barring any legislative action, the Supreme Court is the only body positioned to resolve this conflict and restore uniformity to federal employment law. However, recent history has shown that several members of the Supreme Court are reluctant to follow the Ninth Circuit’s lead and consider the intentions and statements of legislators over the literal meaning of the text when interpreting federal statutes. This poses a real danger that the Ninth Circuit’s strong ruling against the entrenchment of historical pay disparities may not survive Supreme Court review.

Earlier this year in Digital Realty Trust v. Somers, the Supreme Court unanimously held that the term “whistleblower” in the anti-retaliation provision of the Dodd-Frank Act did not cover employees who had complained within their companies about potential violations of law. Both the Second and Ninth Circuits had held that the term “whistleblower,” despite a literal interpretation of the statute that cut the other way, should be interpreted broadly to reflect the congressional purpose of protecting those who report violations of law.

In her opinion for the court, Justice Ruth Bader Ginsburg cited a Senate Report as evidence that Congress’ purpose when passing the Dodd-Frank Act was to protect only those employees who reported potential violations of law to the Securities and Exchange Commission.

In a brief but acerbic concurrence joined by Justices Samuel Alito and Neil Gorsuch, Justice Clarence Thomas mocked the majority’s decision to go beyond the text of the statute to discern “the supposed ‘purpose’ of” the Dodd-Frank Act from the Senate Report, echoing the exclusive reliance on statutory text and open hostility to legislative history commonly associated with the late Justice Antonin Scalia. In response, Justice Sonia Sotomayor, joined by Justice Stephen Breyer, laid out a defense of the use of legislative history when interpreting statutes.

Given the palpable disdain for inquiries into congressional “purpose” in Justice Thomas’ concurrence, it is likely a safe assumption that Justices Thomas, Alito, and Gorsuch would refuse to follow the Ninth Circuit’s approach and impute a “job-related” restriction to the Equal Pay Act’s “factor other than sex” defense in order to fulfill Congress’ mission to eliminate historical pay disparities. Even those justices who were open to considering congressional purpose and legislative history in Somers clung to the text of the statute, unwilling to depart from a literal reading of the text even when doing so would make the statute more effective at accomplishing its goals. Two of those justices, Justices Ginsburg and Breyer, had joined Justice Stephen’s opinion in Smith v. City of Jackson, which observed in a footnote that Congress’ use in the Equal Pay Act of the phrase “any other factor other than sex,” without qualification, meant that a pay differential could literally rely on any non-sex factor, “reasonable or unreasonable.”

If asked to review the Ninth Circuit’s decision, there is a strong chance that the Supreme Court will ally with the other circuits and Judges McKeown and Callahan to hold that the Equal Pay Act’s “factor other than sex” defense does not categorically prohibit the use of salary history in setting employee compensation.

A Questionable Future

Rizo v. Yovino represents a bold, progressive move by the Ninth Circuit, strengthening the Equal Pay Act by ensuring that the long history of sex-based pay disparity cannot be entrenched through the use of salary history in setting compensation. However, the Ninth Circuit’s deviation from the rest of the federal appellate courts and the Supreme Court’s recent tendencies in statutory interpretation cases pose a real danger that the Ninth Circuit’s decision may not stand for long.

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