Rizo v. Yovino, No. 16-15372 (9th Cir. Apr. 9, 2018) (en banc)

| Apr 9, 2018 | Daily Developments in EEO Law |

In an important decision, the Ninth Circuit holds en banc that a “factor other than sex” under the Equal Pay Act (29 U.S.C. § 206(d)(1)) must be “job-related,” and thus rejects an employer’s use of pre-employment salary history as a reason to pay a woman less than a man doing the same work. The court overrules its prior decision on this subject, Kouba v. Allstate Ins. Co., 691 F.3d 873 (9th Cir. 1982).

Rizo v. Yovino, No. 16-15372 (9th Cir. Apr. 9, 2018) (en banc): The federal Equal Pay Act of 1963 mandates that men and women be paid the same for work that “requires equal skill, effort, and responsibility, and which are performed under similar working conditions.” An employer can escape liability only by proving that the disparity is “pursuant to (i) a seniority system; (ii) a merit system; (iii) a system which measures earnings by quantity or quality of production; or (iv) a differential based on any other factor other than sex.”

For many years, employers have argued that they may consider an applicant’s prior, pre-employment salary history (“prior salary”) in setting a starting salary, and that this falls under the “catchall” category of “factor other than sex.” This argument gained purchase in some courts, and indeed was the law in the Ninth Circuit for decades. But today’s decision throws out the old Ninth Circuit law, brings the court in line with other circuits who have rejected prior salary as a “factor other than sex,” and arguably goes beyond other courts by setting a bright-line rule barring use of that factor.

Rizo was hired as a math consultant by the Fresno County Office of Education in 2009, and discovered in 2012 that she was being paid less than her male peers. In litigation, the County did “not dispute that Rizo established a prima facie case” under the EPA, but argued that the pay differential was attributable to men entering the job with better salary histories:

“[The County] asserted that, although Rizo was paid less than her male counterparts for the same work, the discrepancy was based on Rizo’s prior salary. The County contended that her prior salary was a permissible affirmative defense to her concededly lower salary than her male counterparts under the fourth, catchall clause, a ‘factor other than sex.'”

The district court agreed with Rizo that her prior salary was not a valid factor under the EPA. But it allowed an interlocutory appeal of the issue to the Ninth Circuit, which reversed the district court based on the prevailing authority, Kouba v. Allstate Ins. Co., 691 F.3d 873 (9th Cir. 1982). The Ninth Circuit then ordered rehearing of the case en banc.

The en banc court today affirms the district court and overrules Kouba. The late Judge Stephen Reinhardt – who (according to a footnote) completed the opinion right before his death – wrote for the majority of six judges. The majority “conclude[s], unhesitatingly, that ‘any other factor other than sex’ is limited to legitimate, job-related factors such as a prospective employee’s experience, educational background, ability, or prior job performance.” Thus, “[p]rior salary, whether considered alone or with other factors, is not job related and thus does not fall within an exception to the Act that allows employers to pay disparate wages.”

The majority bases this decision on the legislative history and intent of the EPA:

“In light of the clear intent and purpose of the Equal Pay Act, it is … clear that we cannot construe the catchall exception as justifying setting employees’ starting salaries on the basis of their prior pay. At the time of the passage of the Act, an employee’s prior pay would have reflected a discriminatory marketplace that valued the equal work of one sex over the other. Congress simply could not have intended to allow employers to rely on these discriminatory wages as a justification for continuing to perpetuate wage differentials.”

The majority notes that this decision accords with the language of the EPA.

“[T]he catchall phrase is grouped with three specific exceptions based on systems of seniority, merit, and productivity. These specific systems share more in common than mere gender neutrality; all three relate to job qualifications, performance, and/or experience. It follows that the more general exception should be limited to legitimate, job-related reasons as well.”

The majority finds further support in the majority of U.S. Courts of Appeals (citing decisions from the Second, Sixth, Tenth and Eleventh Circuits) that also require factors other than sex to be “job-related.” (The court nevertheless notes that two circuits, the Eighth and Ninth, are not in accord.) It rejects the broader definition of factors that may be “business-related,” holding that the exception would consume the rule: 

“Including ‘business-related’ as a legitimate basis for exceptions under the catchall provision would permit the use of far too many improper justifications for avoiding the strictures of the Act. Not every reason that makes economic sense-in other words, that is business related-constitutes an acceptable factor other than sex.”

At bottom, the majority holds, the use of prior salary perpetuates discrimination:

“Prior salary does not fit within the catchall exception because it is not a legitimate measure of work experience, ability, performance, or any other job-related quality. It may bear a rough relationship to legitimate factors other than sex, such as training, education, ability, or experience, but the relationship is attenuated. More important, it may well operate to perpetuate the wage disparities prohibited under the Act. Rather than use a second-rate surrogate that likely masks continuing inequities, the employer must instead point directly to the underlying factors for which prior salary is a rough proxy, at best, if it is to prove its wage differential is justified under the catchall exception.”

The majority stops short of deeming prior salary entirely irrelevant to pay decisions, noting that “[w]e do not decide … whether or under what circumstances, past salary may play a role in the course of an individualized salary negotiation.” But the opinion all but completely proscribes that factor in setting salaries.

Three concurring opinions for five judges agreed that the district court was correct, but declined to adopt the full breadth of the majority’s reasoning.

Judge McKeown (joined by Judge Murguia) did not agree with the bright-line rule that starting salary is a banned factor under the EPA. “Using prior salary along with valid job-related factors such as education, past performance and training may provide a lawful benchmark for starting salary in appropriate cases.”

Judge Callahan (joined by Judge Tallman) would have held that salary history is “not inherently a reflection of gender discrimination,” and may reflect other considerations “such as the cost of living in different parts of our country.” Nevertheless, these concurring judges agreed that making prior salary the “exclusive determinant of pay” was not valid under the EPA.

Finally, Judge Watford would hold that while an employer may rely on prior salary as a factor-other-than-sex, “it bears the burden of proving that its female employees’ past pay is not tainted by sex discrimination, including discriminatory pay differentials attributable to prevailing market forces,” which “in most instances that will be exceedingly difficult to do.”

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