The en banc Ninth Circuit ruled Monday that employers can’t justify different pay grades for male and female employees by using salary history alone, overturning more than three decades of circuit case law.
“To hold otherwise – to allow employers to capitalize on the persistence of the wage gap and perpetuate that gap ad infinitum – would be contrary to the text and history of the Equal Pay Act, and would vitiate the very purpose for which the Act stands,” U.S. Circuit Judge Stephen Reinhardt wrote for the court in one of his final opinions before his death in March.
Math consultant Aileen Rizo 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 paid her thousands of dollars less than 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 the Equal Pay Act if it can show that a difference in pay is due to one of four exceptions. Fresno relied on the law’s fourth exception to argue that the wage disparity between Rizo and her male colleagues instead stemmed from its pay structure and not a “factor other than sex.”
Fresno’s 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 educator in Fresno.
Rizo argued 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 starting pay is illegal.
Fresno countered the Ninth Circuit had already decided in 1982’s Kouba v. Allstate Ins. Co. that the Equal Pay Act allows an employer to consider prior salary in setting starting pay.
In Kouba, the court held that an employer seeking to justify a pay disparity as based on a factor other than sex must prove it has an “acceptable business reason” for doing so.
Fresno said it based starting salaries on salary history to ensure a fair compensation structure, attract quality employees and spend taxpayer dollars responsibly – all legitimate business reasons, it argued.
But U.S. Magistrate Judge Michael Seng denied Fresno’s motion in 2015, finding its pay structure perpetuates wage disparities between male and female employees.
He refused to consider Kouba, pointing out that salary history was one of several factors the employer in that case considered in setting salaries but the only factor Fresno considered.
Last April, a three-judge Ninth Circuit panel made up of Senior U.S. Circuit Judge A. Wallace Tashima, U.S. Circuit Judge Andrew Hurwitz and U.S. District Judge Lynn Adelman of the Eastern District of Wisconsin concluded they were bound by Kouba and held prior salary can be a factor other than sex if the defendant shows that its use of prior salary is reasonable and achieves a business purpose.
After vacating that opinion to hold an en banc rehearing, the full court found Monday that a factor other than sex must be job-related, rather than one that achieves a business purpose. It concluded prior salary is not job-related and “perpetuates the very gender-based assumptions about the value of work that the Equal Pay Act was designed to end.”
“It is inconceivable that Congress, in an act the primary purpose of which was to eliminate long-existing ‘endemic’ sex-based wage disparities, would create an exception for basing new hires’ salaries on those very disparities – disparities that Congress declared are not only related to sex but caused by sex,” Reinhardt wrote. “To accept the county’s argument would be to perpetuate rather than eliminate the pervasive discrimination at which the act was aimed.”
Monday’s decision maintains a circuit split on the issue: the 10th and 11th circuits have ruled that 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.
“By overturning Kouba, they have created a new rule in the Ninth Circuit which is consistent with what is happening in other courts and have gotten rid of a decision that is contrary to the inalterable direction that things are moving in,” Dan Siegel, Rizo’s attorney with Siegel, Yee & Brunner in Oakland, California, said by phone.
Five judges concurred in the majority opinion but expressed disagreements with parts of it.
U.S. Circuit Judge Paul Watford said past pay can be a factor other than sex, but only if an employee’s past pay isn’t a result of sex discrimination.
U.S. Circuit Judges Consuelo Callahan and Richard Tallman said the majority failed to follow Supreme Court precedent and ignored the realities of doing business, potentially hindering equal pay instead of promoting it.
U.S. Circuit Judges M. Margaret McKeown and Mary Murguia said the opinion went too far in holding that no consideration of prior pay is permissible under the Equal Pay Act, even if assessed with other job-related factors.
Siegel disagreed with their views.
“If a business were to say, ‘I’m going to set a person’s salary 99 percent based on experience and qualifications and 1 percent based on race, we would understand what’s wrong with that,” he said. “The idea that you can somehow discriminate a little bit I think is contrary to the direction of the law.”
Michael Woods, the school district’s lawyer with McCormick Barstow in Fresno, said the district plans to petition the Supreme Court for review.
“We remain confident that the policy of determining salaries by the Fresno County Superintendent of Schools, which was in effect through Dec. 31, 2015, was absolutely gender-neutral, objective and effective in attracting qualified applicants and complied with all applicable laws,” Woods said in a statement. “FCSS’ policy was applied to more than 3,000 employees over 17 years, was similar to policies used by many other employers, and had no disparate impact on female employees, who make up the majority of FCSS employees and its senior administrative staff.”
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 when he 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, 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 said.
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 also assessed education and experience.
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.
Chief U.S. Circuit Judge Sidney Thomas and U.S. Circuit Judges Marsha Berzon, Morgan Christen, William Fletcher and Richard Paez also sat on the panel.