Sunday, April 30, 2017

Rizo v. Yovino: Is it ok to rely solely on prior salary in setting pay?

The Ninth Circuit's new decision in Rizo v. Yovino, No. 16-15372 (Apr. 27, 2017), provides some timely guidance on the extent to which employers are allowed to rely on prior salary in setting a new employee's starting pay. Interpreting a decision from 1982, the court rejected the plaintiff's and the EEOC's contention that prior salary standing alone is per se insufficient under the Equal Pay Act to justify a pay differential between opposite-sex employees performing the same job.

The defendant hired Aileen Rizo as a math consultant, which the defendant classified as a management-level position. The defendant based the starting salary of math consultants on level 1 of the management pay scale. In 2009, level 1 had 10 steps, ranging from $62,133 at step 1 to $81,461 at step 10. The defendant set a newly hired math consultant's pay at the step that corresponded to the employee's prior salary, plus a 5% raise. Because the plaintiff's prior salary was only about $52,000, the defendant set the plaintiff's pay at the lowest step. The defendant also paid the plaintiff a stipend of $600 per year for having a master's degree, making her starting salary $62,733. After learning that male math consultants had been hired at higher steps of the level 1 management pay scale, Rizo filed an Equal Pay Act lawsuit. The district court denied the defendant's motion for summary judgment on the grounds that under the Equal Pay Act, an employer cannot justify a pay differential that is based solely on a starting employee's prior salary.

Like the EEOC, some federal courts, including the Eleventh Circuit, have concluded that prior salary alone cannot be used as a defense under the Equal Pay Act. Although the Ninth Circuit would appear to be in direct conflict with these other courts and the EEOC, I don' think that's as big a deal as it might initially seem to be.

First, and most important, there's confusion about what it even means for an employer to base starting salary solely on prior salary. In this case, the parties apparently did not dispute that the plaintiff's starting salary was based solely on her prior salary. Nevertheless, the court pointed out that the plaintiff's starting salary also reflected a $600 stipend based on her education, so in the court's view, the plaintiff's starting salary was not based solely on her prior salary. It is true, of course, that the step on the pay scale was based solely on the plaintiff's prior salary, but that just highlights an even more significant factor -- the pay scale itself. The minimum and maximum pay levels were limited by the 10 steps of the level 1 management pay scale. Unlike the men's starting salaries, the plaintiff's starting salary reflected a nearly 20% increase over her previous salary. If the plaintiff's prior salary had been the only factor in the setting of her pay, then she would have made considerably less. Oddly, this was pointed out by Judge Lynn Adelman during oral argument, but none of the parties or other judges picked up on this point.

Second, to prevail under the Equal Pay Act pursuant to Ninth Circuit precedent, an employer must show that its reliance on a particular factor, whether prior salary or some other 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.'"

Third, there is a difference between the factors that an employer relies on in setting a new employee's salary, and the factors that cause the pay disparity between opposite-sex employees in the same job. 
As the Ninth Circuit points out, even if an employer is prohibited from relying on prior salary alone, there will be some instances in which an employer will rely on multiple factors, but the factor causing the pay differential between opposite-sex employees will be prior salary alone:
For example, assume that a male and a female employee have the same education and number of years’ experience as each other, but the male employee was paid a higher prior salary than the female employee. The current employer sets salary by considering the employee’s education, years of experience, and prior salary. Using these factors, the employer gives both employees the same salary credit for their identical education and experience, but the employer pays the male employee a higher salary than the female employee because of his higher prior salary.
In this case, I think it's clear that the plaintiff's salary was based on several factors: the level 1 management pay scale, the plaintiff's education, and the plaintiff's prior salary. The higher pay of the male comparators, however, was apparently solely attributable to their higher prior salaries.

This approach to setting starting salaries is consistent with that of the federal government, as I noted in a discussion of North v. United States in this prior post. In that case, the court upheld the Department of Education's decision to offer a male attorney a higher starting salary than it offered the female plaintiff because he had earned more in his prior job.

Here, the district court rejected out of hand the defendant's reliance on prior salary because it was undisputed -- incorrectly, in my view -- that it was the sole factor that the employer relied upon. Thus, on remand, the district court will be required to determine whether the employer's asserted reasons for relying on prior salary effectuate a business policy and are used reasonably: 1) the policy is objective;  (2) the policy encourages candidates to leave their current jobs by providing a 5% pay increase over their current salary; (3) the policy prevents favoritism and ensures consistency; and (4) the policy is a judicious use of taxpayer dollars. 

Update 5/30/17: This new post discusses the petition for rehearing by the full Ninth Circuit and the need for a more coherent approach to relying on prior pay.

This blog reflects the views solely of its author. It is not intended, and should not be regarded, as legal advice on how to analyze any particular set of facts.