In the recent case Rizo v. Yovino, the Ninth Circuit Court of Appeals held that employers can consider past salary in determining what to pay employees, despite possible gender pay gap issues. In the case, Plaintiff Aileen Rizo brought suit against her employer, the Fresno County Office of Education, when she discovered that a male colleague was being paid more than she was. The California equal pay law was not yet in effect, so Ms. Rizo sued under the federal Equal Pay Act, among other laws. The county argued that it based teachers’ salaries on their prior salaries, hiring them at 5% more than their last salary, which was a factor other than sex.
The trial court held that “under the Equal Pay Act, prior salary alone can never qualify as a factor other than sex, reasoning that ‘a pay structure based exclusively on prior wages is so inherently fraught with the risk . . . that it will perpetuate a discriminatory wage disparity between men and women that it cannot stand, even if motivated by a legitimate nondiscriminatory business purpose.'” However, the Ninth Circuit disagreed, and explained that an employer could consider prior salary if “it showed that the factor ‘effectuate[s] some business policy’ and that the employer ‘use[s] the factor reasonably in light of the employer’s stated purpose as well as its other practices.'” The county argued that it had four business reasons for considering prior salary: “(1) the policy is objective, in the sense that no subjective opinions as to the new employee’s value enters into the starting-salary calculus; (2) the policy encourages candidates to leave their current jobs for jobs at the County, because they will always receive a 5% pay increase over their current salary; (3) the policy prevents favoritism and ensures consistency in application; and (4) the policy is a judicious use of taxpayer dollars.” The Ninth Circuit remanded the case to allow the trial court to determine if those reasons were sufficient.
You can read the full case here: http://sos.metnews.com/sos.cgi?0417//16-15372
California enacted its own version of the Equal Pay Act in 2016, which provides: “An employer shall not pay any of its employees at wage rates less than the rates paid to employees of the opposite sex for substantially similar work. . . except where the employer demonstrates [t]he wage differential is based upon one or more of the following factors…. A bona fide factor other than sex, such as education, training, or experience. This factor shall apply only if the employer demonstrates that the factor is not based on or derived from a sex-based differential in compensation, is job related with respect to the position in question, and is consistent with a business necessity. For purposes of this subparagraph, “business necessity” means an overriding legitimate business purpose such that the factor relied upon effectively fulfills the business purpose it is supposed to serve. This defense shall not apply if the employee demonstrates that an alternative business practice exists that would serve the same business purpose without producing the wage differential.” The law was amended in 2017 to include that “The one or more factors relied upon account for the entire wage differential. Prior salary shall not, by itself, justify any disparity in compensation.” See Labor Code section 1197.5 to read California’s complete law.