SAN FRANCISCO (CN) – The en banc Ninth Circuit gave little indication Tuesday as to whether an employer can base an employee’s starting salary on salary history alone, a practice critics say perpetuates pay inequity between women and men.
The court’s 11 judges alternately supported and demolished both parties in the Equal Pay Act case, ultimately focusing on how a ruling could change the circuit’s case law as set forth in 1982’s Kouba v. Allstate Ins. Co.
But about half the panel agreed basing salary on prior pay is discriminatory because women have historically been paid less than men for the same job, perhaps presaging its decision.
“The basic purpose of the statute is to correct pay imbalances in the market based on gender,” Circuit Judge William Fletcher said of the Equal Pay Act. “And it seems to me counterintuitive, and even contrary, almost obviously contrary, to the function of the statute if you are allowed to feed back into pay setting the very set of pay differentials the statute is designed to correct.”
Aileen Rizo, a math consultant, sued the Fresno, California, school district in 2014 under the Equal Pay Act, which requires employers to pay women and men the same wages for the same job. She claimed the district was paying her thousands of dollars less than her three male colleagues to instruct the county’s math teachers despite having more experience.
The school district moved for summary judgment, denying gender discrimination was the reason it paid Rizo less. An employer is exempt from Equal Pay Act lawsuits if it shows that a difference in pay is due to one of four exceptions. The school district relied on the law’s fourth exception to argue that the wage disparity between Rizo and her male colleagues stemmed from a “factor other than sex”: its pay structure.
The pay structure, implemented in 2004, bases an incoming employee’s salary solely on salary history. Management-level employees like Rizo get a 5 percent increase from their previous salary and a bonus for a master’s degree. Rizo earned $62,133, the minimum starting salary for a management-level Fresno educator.
Rizo countered that because women are paid less than men for the same job, salary history is not a “factor other than sex,” and using it to set pay is illegal.
In 2015, U.S. Magistrate Judge Michael Seng denied Fresno’s motion. Noting the Bureau of Labor Statistics found female teachers are paid less than their male counterparts, he held Fresno’s pay structure “is so inherently fraught with the risk – indeed, here, the virtual certainty – that it will perpetuate a discriminatory wage disparity between men and women that it cannot stand, even if motivated by a legitimate non-discriminatory business purpose.”
According to the Bureau of Labor Statistics, female middle school teachers in 2016 made 87 cents for every dollar male middle school teachers made. Female high school teachers made just under 94 cents for every dollar paid to male high school teachers that year.
Citing Kouba, Fresno told Seng the Ninth Circuit had already decided the Equal Pay Act allows an employer to consider prior salary in setting starting pay.
In Kouba, the appeals court recognized that employers could manipulate salary history to underpay women. But it held an employer seeking to justify a pay disparity as based on a factor other than sex must prove an “acceptable business reason.” Fresno said it based starting salaries on salary history alone to ensure a fair compensation structure, attract quality employees and spend taxpayer dollars responsibly – all legitimate business reasons, it concluded.
But Seng refused to consider Kouba in his decision, pointing out that salary history was one of several factors the employer in that case considered in setting salaries, while it was the only factor Fresno considered.
Seng noted a circuit split on the issue: the 10th and 11th circuits have ruled employers are not exempt from Equal Pay Act claims when pay structures based on prior salary result in pay inequity; the Seventh and Eighth circuits have found the opposite.
So Seng certified his ruling for an interlocutory appeal to the Ninth Circuit, asking whether employers are exempt from Equal Pay Act lawsuits when they base employee salary on salary history alone.
In April, a three-judge Ninth Circuit panel made up of circuit judges A. Wallace Tashima and Andrew Hurwitz, and U.S. District Judge Lynn Adelman of the Eastern District of Wisconsin, followed Kouba and held that prior salary alone can be a factor other than sex if the defendant showed that its use of prior salary was reasonable and achieved a business purpose. The panel remanded the case, instructing Seng to evaluate Fresno’s business reasons for implementing its pay structure.
Rizo’s lawyers questioned the legality of the April decision, prompting the en banc rehearing.
“The practice approved by the court simply perpetuates the history of gender bias in American society, contrary to the explicit purpose of the Equal Pay Act,” Rizo’s lawyers wrote in a petition for en banc rehearing. “[A]” business reason that is tantamount to an endorsement of practices forbidden by the Equal Pay Act – a factor based on historical market forces – should never be allowed.”
Pushing for reversal on Monday, Fresno’s attorney Shay Dvoretzky of Jones Day urged the court to affirm that under Kouba, consideration of prior salary, whether alone or in combination with other factors, is allowed. But he asked the court to “tweak” Kouba to state that an employer is not required in all circumstances to prove that a factor other than sex – Fresno’s pay structure, for instance – is reasonable.
Instead, the court should rule an employer is only required to prove the factor is not a pretext for sex discrimination, he said.
“That’s a pretty big tweak,” Circuit Judge Morgan Christen replied tersely. Later in the hearing, she expressed concern that ruling in Rizo’s favor would require the court to discard Kouba completely.
Dan Siegel, Rizo’s attorney at Siegel & Yee, asked the court to overrule Kouba, arguing that salary history should not be used at all to determine pay. In a brief, he also argued Kouba was not controlling because the Ninth Circuit in that case had not ruled on whether a wage disparity based only on prior earnings violates the Equal Pay Act, even if motivated by legitimate business reasons.
“The courts have been, in my view, almost uniform in rejecting the market-forces analysis as a justification. It is not consistent with the fourth defense,” Siegel said.
A middle school and high school math teacher in Phoenix since 1996, Rizo also designed the math curriculum for an online school before taking a job with Fresno County in 2009.
In 2012, Rizo was having lunch with a newly-hired male math consultant who told her he had been started on Step 9 of the salary scale. Later, she said, she learned that two other male consultants had both been started on Step 7. Rizo was started on Step 1, despite having more experience than them, she said. Pay on the 10-step salary scale ranges between $62,133 and $81,461.
Soon after, Rizo filed a complaint with the school district. The district refused to raise her salary, and reprimanded her supervisor for talking about pay with her, she says.
In response to her complaint, however, Fresno reviewed the initial salary placement of about 65 current male and female management employees hired over the past 25 years. According to the district, the data revealed that the pay structure “has not resulted in a disproportionate impact on gender,” with women having been placed on higher salary steps than men overall.
Rizo called the data “incredibly flawed and unusable” because it included employees hired before 2004 under a different pay structure that took education and experience into consideration, she said.
According to Rizo, the current average step placement for women is about 6.3, and 8.3 for male employees. Under the previous scheme, she says, the wage disparity was less pronounced: the average step placement for women was 6.7, and for men it was 7.7.
The Ninth Circuit’s decision in Rizo, expected in early 2018, will come on the heels of new laws passed in California, Delaware, Oregon and Massachusetts aimed at shrinking the gender pay gap by barring employers in those states from asking job applicants about their salary history.
Chief Circuit Judge Sidney Thomas, and circuit judges Marsha Berzon, Consuelo Callahan, M. Margaret McKeown, Mary Murguia, Richard Paez, Stephen Reinhardt, Richard Tallman and Paul Watford joined Christen and Fletcher on the panel.