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Court Rules Past Salary May Justify Pay Discrepancy for Same Work

By:  R. Eddie Wayland, TCA General Counsel

The concept of pay equity among the sexes and equal pay for equal work is established legal doctrine under both federal and many states’ laws.  The Ninth Circuit Court of Appeals recently confirmed that an employee’s past salary can be a legitimate reason for pay discrepancies between men and women performing the same work.

Background

The case involved a female school teacher in California who worked as a consultant for math teachers.  Upon her hiring, the County determined her pay by considering her past salary in conjunction with a step-based salary schedule used for all employees.  The plan was to find the step in the salary schedule that corresponded to the employee’s last known salary with an additional five percent added.  However, even adding five percent to the employee’s latest salary placed her below the lowest level of the salary schedule.  Therefore, the employee’s starting salary was set at the minimum level—Step 1 of Level 1 under the salary schedule.  The employee also received a stipend for having her master’s degree, which provided a minor increase.

While having lunch with colleagues, the employee learned that a recently hired male performing the same work was given a starting salary on Step 9 of Level 1.  The employee later learned that other male math consultants were all paid more than her.  After complaining to the County, the employee was told that all salaries were properly based on the salary schedule system in place.   The employee filed suit under the Equal Pay Act, 29 U.S.C. § 206(d) and other statutes.

Analysis

In responding to the employee’s claims, the County conceded that the employee was paid less for the same work than her male counterparts.  The County sought summary judgment, however, arguing an affirmative defense of the Equal Pay Act: that the pay difference was “based on any other factor other than sex,” which the County said was prior salary.  The trial court found that basing pay on prior salary was so “inherently fraught with risk . . . 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.”  Accordingly, the County was denied summary judgment.  The County immediately appealed the legal issue of whether prior salary can ever be a “factor other than sex” to satisfy the defense to the types of pay gaps at issue. 

On appeal, the Ninth Circuit reaffirmed a prior ruling that “An employer may pay a differential based on prior salary . . . only if it showed the factor ‘effectuates some business policy’ and that the employer ‘uses the factor reasonably in light of the employer’s stated purpose as well as its other practices.”  The County offered four business reasons for its policy of using the salary schedule: (1) no subjective opinions had to be considered; (2) the policy encourages candidates to leave their current jobs to join the County because they will always receive a 5% pay raise; (3) the policy prevents favoritism and ensures consistency; and (4) it is a judicious use of taxpayer dollars.  None of these factors were considered by the trial court as required by current case law, however.  Accordingly, the Ninth Circuit remanded the case for the trial court to consider whether, in light of the four offered business reasons, the Court used prior salary “reasonably in light of its stated purposes as well as its other practices.”  

Takeaway

The Ninth Circuit’s latest reaffirmation that prior salary can conceivably be a justification for wage gaps between genders runs counter to two other federal appeals courts that have concluded that reliance on prior salary is banned.  As such, the case may be primed for review by the United States Supreme Court.  Until that time, however, employers should take note of how incoming employees’ salary decisions are made and, if prior salary is a consideration, carefully determine and consider the possible ramifications in the relevant jurisdiction.

R. Eddie Wayland is a partner with the law firm of King & Ballow.  You may reach Mr. Wayland at (615) 726-5430 or at rew@kingballow.com.  The foregoing materials, discussion and comments have been abridged from laws, court decisions, and administrative rulings and should not be construed as legal advice on specific situations or subjects.

July 18, 2017

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