Tuesday, April 10, 2018

Will Aileen Rizo be the next Lilly Ledbetter? (Updated 6/23/18)

You may remember Lilly Ledbetter. She was Barack Obama's poster child for equal pay when he was running to be President way back in 2008, and the first bill he signed as President was named after her. Yesterday, just in time for Equal Pay Day, the full Ninth Circuit issued its decision in Rizo v. Yovino, holding that an employer may not rely on an applicant's pay history in setting his or her starting pay. So I nominate Aileen Rizo to be the next Lilly Ledbetter. Why? Because the Ninth Circuit's decision is probably the most significant equal pay decision in many, many years; it addresses a very hot equal pay issue; it takes sweeping positions that impose more restrictions on employers than those taken by any other court or even the EEOC. And perhaps most importantly, Rizo's case stands a really good shot at being taken up and reversed by the Supreme Court. If so, Rizo will then be the next poster child that politicians and equal pay advocates point to.

In Rizo, the Ninth Circuit adopted two broad positions that make it an excellent candidate for Supreme Court review: first, the court ruled that, under the Equal Pay Act, an employer cannot rely on a job applicant's prior salary either alone or in combination with other factors in setting an employee's starting pay; second, the court ruled that an employer can only rely on a job-related factor to justify a pay disparity under the EPA.

Prior to the Ninth Circuit's decision, courts had been divided as to whether an employer can rely on prior salary standing alone to justify a pay disparity or can only rely on prior salary in combination with other considerations, like an employee's job experience and education. The EEOC has taken the latter position. The Ninth Circuit took the extraordinary step of rejecting both of those positions in favor of one that prohibits any reliance on prior salary at all, even though this position was not advanced by anyone in this case.

In her concurrence, Judge McKeown faults the majority for making it difficult for employers to compete for the best employees by allowing applicants to negotiate for higher salaries based on what they currently make. The Ninth Circuit tried to temper the sweeping implications of its decision by leaving open the potential for future Ninth Circuit panels to uphold reliance on prior pay in salary negotiations:

Today we express a general rule and do not attempt to resolve its applications under all circumstances. We do not decide, for example, whether or under what circumstances, past salary may play a role in the course of an individualized salary negotiation. We prefer to reserve all questions relating to individualized negotiations for decision in subsequent cases. Our opinion should in no way be taken as barring or posing any obstacle to whatever resolution future panels may reach regarding questions relating to such negotiations.
The problem here is that if an employer cannot rely on an applicant's pay history in making an initial salary offer, it cannot rely on an applicant's pay history in upping its initial offer during salary negotiations. I don't see how the majority could believe otherwise. As a result, the Ninth Circuit has adopted the nonsensical position where an employer cannot offer up front to pay an applicant what he or she currently makes, but an employer probably can offer to match or beat an applicant's current salary once the applicant asks the employer to do so. And who wouldn't ask the employer to match his or her current salary? To call this a loophole would be a vast understatement. To be sure, the Ninth Circuit does not explicitly state that an employer can rely on pay history once an applicant brings it up, but it as good as does that since it proclaims that its opinion is essentially no bar whatsoever to how a future Ninth Circuit panel decides to handle the salary negotiation issue and the majority states that concurring judges' concerns "regarding our opinion's effect on the setting of pay on an individualized basis are meritless." 

According to the majority, then, the defendant was not permitted to offer to pay male applicants more than Rizo based on what they were making with their current employers, but that does not mean it was also barred from agreeing to pay them more if they asked. If that makes sense to you, you're well qualified to serve on the Ninth Circuit. (Judge Reinhardt, who wrote the majority decision, died at the end of March, so they're taking applications.)

As I've discussed in the past, I like the compromise approach in which prior pay can be used as one of  multiple factors in setting pay. I disagree, however, with pretty everyone else about what that means. Here, the defendant had set a pay range for the math consultant position Rizo applied for, $62,133 to $81,461, which it divided into ten steps. New employees were placed at the step corresponding most closely to their current salary plus 5%. Prior to being hired by the defendant, Rizo was only earning about $52,000 per year, so in offering her $62,133, the defendant was clearly relying on more than her prior salary -- it was also relying on its predetermined pay scale. Moreover, the defendant paid Rizo an additional stipend of $600 per year for having a master's degree. Thus, it is clear that, although everyone has apparently assumed otherwise, the defendant in this case does not rely solely on pay history in setting an employee's pay, and in Rizo's case, reliance on a predetermined pay structure boosted her starting pay. 

Of course, the defendant relies on pay history in determining the appropriate step at which to pay an employee, but guess what? The federal government does the same thing. 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.

In addition to rejecting all reliance on prior pay, the Ninth Circuit sets itself apart by limiting EPA defenses to those that are job related. Under its catchall defense, the EPA explicitly allows an employer to rely on "any . . . factor other than sex" in setting pay. Previously, the Ninth Circuit had merely required that an employer show that it relied on an acceptable business reason, and this squared with the approach taken by the EEOC. But the full Ninth Circuit decided that position was too broad and limited employers to relying on job-related factors. Thus, for example, an employer would presumably not be able to rely on the practice of "red circling," which the EEOC has endorsed:

"Red circling" means that an employee is paid a higher than normal compensation rate for a particular reason. Such a practice does not violate the EPA if sex is not a factor and it is supported by a valid business reason. For example, an employer might transfer a long-time employee who can no longer perform his regular duties because of deteriorating health to an otherwise lower paid job, but maintain the employee's higher salary in gratitude for his long tenure of service. Similarly, an employer might assign employees in skilled jobs to less demanding work temporarily until the need for the higher skill arises again.
In adopting two extreme positions on pay history and the EPA's catchall defense, the Ninth Circuit has issued a decision that will be excellent fodder for rebuke by the Supreme Court. The likely outcome, I predict, is reversal by the Supreme Court (and fame for Aileen Rizo).

Update 6/23/18 - I noticed in looking again at Rizo recently that it discusses red circling and concludes that the practice of paying someone a premium because he has special skills that might be needed in the future is job related and can thus be justified under its standard. I don't see how this can be correct. Consider that job-related education must relate to the job actually being performed, so job-related skill must relate to the job actually being performed, not a job that might need to be performed at a future date. And even if such skills could be considered job related, red circling can also involve, as noted in the EEOC's guidance, paying someone more in recognition of his long-time service. Clearly, that basis for red circling could not be considered job related. 

And aside from red circling, there are other common non-sex business reasons for paying someone more that are not related to the specific job being performed, including shift differentials and part-time/full-time status. If someone is paid extra for working on an undesirable shift, the reason for paying more has nothing to do with the job but instead with when it is being performed. Similarly, paying full-time employees more than part-time employees is not related to the specific job being performed but the number of hours that an employee works each week.

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.