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Why Employers Should be Concerned About Equal Pay

Consider this common scenario: You have interviewed multiple candidates for a management position in your company. Everyone agrees that the only female candidate who applied for the position is clearly the best candidate. You meet with her again and ask her what kind of salary it would take to persuade her to come to work for your company. She voluntarily discloses that she is currently making $80,000 and would like to earn $90,000. You would have been willing to offer her a salary of $110,000 because that is what you recently agreed to pay a similarly qualified male candidate, but you offer her $100,000 instead, thinking that you are already exceeding her expectations. She happily accepts.

The salary negotiation that I have just described is not unusual, especially with management and other higher level jobs. I suspect that there are many companies with quite a few employees whose initial salary was a function — at least in part — of the salary that they were earning in their former job. Is this a problem? According to a recent Ninth Circuit en banc decision in Rizo v. Yovino, your company’s consideration of a candidate’s prior salary would not justify a wage differential under the Equal Pay Act, even when it is assessed with other job-related factors. In holding that consideration of wage history was illegal under the Equal Pay Act, Judge Reinhardt — who passed away shortly after writing this decision — reasoned that the practice of relying on prior salaries allowed employers to “capitalize on the persistence of the wage gap and perpetuate that gap ad infinitum.”

In the past, most plaintiffs claiming wage discrimination only asserted claims under Title VII. Increasingly, plaintiffs’ lawyers are asserting claims under the Equal Pay Act which, unlike Title VII, does not require a plaintiff to prove discriminatory intent. If a woman can prove that she is being paid less than men, the employer must be able to show that the differential is based on “(i) a seniority system; (ii) a merit system; (iii) a system which measures earnings by quantity or quality of production; or (iv) a differential based on any factor other than sex.” While many courts have previously held that prior salary could be a “factor other than sex,” at least in the Ninth Circuit “a factor other than sex” will be “limited to legitimate job-related factors such as an employee’s experience, background, ability or prior job performance.”

Given that there is now a clear split in opinion among the Circuits, I would not be surprised if this question is ultimately resolved by the Supreme Court. Additionally, Rizo did not involve a salary negotiation, and Judge Reinhardt noted that the Ninth Circuit was not deciding whether past salary might play a role in the course of an individualized salary negotiation, although it is hard to see how that could be done without running afoul of the principal holding of the decision. In the meantime, however, this is yet another reason for employers to conduct an evaluation of their salaries. If women are being paid less than comparable male employees for the same work, make sure you can justify the discrepancy with a legitimate, job-related factor. Otherwise, it may be time to reconsider some of your employees’ salaries. 

This information is provided by Vinson & Elkins LLP for educational and informational purposes only and is not intended, nor should it be construed, as legal advice.