Friday, December 1, 2017

Lauderdale v. Illinois Dep't of Human Services: Relying on prior salary to set pay within a range is ok, at least in the Seventh Circuit

In Lauderdale v. Illinois Department of Human Services, No. 16-3830 (Nov. 30, 2017), the Seventh Circuit rejected Marybeth Lauderdale's claim that she was paid less than a male employee in violation of the Equal Pay Act where the defendant set her pay based, in part, on her prior salary. Notably, Lauderdale's claim is very similar to the one brought by Aileen Rizo in the Ninth Circuit against a public school system. Both of their starting salaries were set at the low end of a pay range because of their prior salaries. Both of them, however, received substantial pay increases over their prior salaries so that their starting salaries were within the designated pay range. The difference between the two cases is where they brought their claims. In the Seventh Circuit, prior pay is recognized as a legitimate basis for setting pay under the Equal Pay Act, absent evidence that discrimination led to lower prior wages. In the Ninth Circuit, the issue remains opens as to the extent to which an employer can rely on prior pay but will soon be decided by the full court in an en banc rehearing.

In my view, the "salary range" approach, utilized by the defendants in both Lauderdale and Rizo -- in which an employer does not unrestrictedly base a new employee's pay on his or her prior salary but instead uses prior salary to set pay within a pre-determined range -- is the most reasonable and balanced approach to using prior salary to set a new employee's starting pay. As I explained previously:
It is almost certainly impossible for an employer to determine with pinpoint accuracy the market value of a particular job and an employee's qualifications. There will always be some range of what can be considered reasonable pay for an individual with particular qualifications to perform a particular job. In my view, therefore, a reasonable and balanced approach to considering prior pay in setting a new employee's starting salary is for an employer to (1) establish a pay range for a new employee based on the position being filled and the applicant's qualifications and (2) then use salary history to set the new employee's pay within that range. . . .
For example, in North v. United States, the court upheld a salary discrepancy between the plaintiff, a female attorney hired at the GS-14 level by the Department of Education, and a man who was also hired as a GS-14 attorney. The court concluded that the pay disparity did not violate the Equal Pay Act because it was based on the male attorney's "superior" qualifications and prior salary. Although the plaintiff also had superior qualifications -- meaning that she and the male attorney were both considered "highly qualified" for the position -- her starting salary exceeded her prior salary, so her pay was set at the lowest step of the GS-14 pay grade. The male comparator's salary, by contrast was set at the highest step of the GS-14 pay grade (almost $30,000 above the lowest step), and even at that rate, he made less than in his previous job.

The salary range approach is consistent with the recently introduced Paycheck Fairness Act, H.R. 1869, which would amend the Equal Pay Act to restrict employers' reliance on salary history. . . . Specifically, the bill provides that it is unlawful for an employer to "seek from a prospective employee or any current or former employer the wage history of the prospective employee, except that an employer may seek to confirm prior wage information only after an offer of employment with compensation has been made to the prospective employee and the prospective employee responds to the offer by providing prior wage information to support a wage higher than that offered by the employer." Thus, although the bill prohibits employers from requiring applicants to disclose their salary history, it does not prohibit employers from relying on salary history in setting pay when salary history is voluntarily disclosed by applicants, and the bill contemplates that salary history will be used by applicants to negotiate for higher pay. Moreover, like the pay range approach discussed above, the bill requires an employer to make an initial assessment of an appropriate starting salary for a new employee. 
In Rizo, the Ninth Circuit will be deciding whether prior salary can ever be the sole factor in setting pay. I don't think the salary range approach relies solely on prior salary in setting a new employee's pay -- another factor is the pre-determined salary range -- so I'm dumbfounded as to why the Ninth Circuit is even entertaining Rizo's claim. No one is contending that prior salary cannot be any factor in setting pay, only that it can't be the sole factor.

To be sure, under the salary range approach, although prior salary is not the sole factor in setting pay, it may nevertheless be the sole factor for part or even all of the pay disparity between two individuals, including with respect to both Lauderdale's and Rizo's claims. But it would be going too far to contend that prior salary must not be the sole factor not only for setting pay but also for a pay disparity between male and female employees. If prior salary can't be the sole reason explaining all of a salary disparity, then it obviously also can't be the sole reason explaining part of a disparity. Which means that prior salary really can't be any factor at all in setting pay. As noted, federal agencies place some limited reliance on prior pay in setting the pay of new employees, so the elimination of all reliance on prior pay would hamper federal sector recruitment. Not even the EEOC or equal pay advocates support such an extreme position. 

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.