Labor & Employment Law Daily En banc 9th Circuit: Prior salary is not a valid ‘factor other than sex’ to justify pay disparity
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Monday, March 2, 2020

En banc 9th Circuit: Prior salary is not a valid ‘factor other than sex’ to justify pay disparity

By Lisa Milam, J.D.

The appeals court issued a new decision after the U.S. Supreme Court vacated its earlier opinion, which was issued 11 days after the death of its author, Judge Stephen Reinhardt.

A female employee’s prior rate of pay is not a permissible “factor other than sex” under the Equal Pay Act (EPA) justifying an employer’s decision to pay her less than her male counterparts performing the same work, an en banc panel of the Ninth Circuit held. “The express purpose of the Act was to eradicate the practice of paying women less simply because they are women. Allowing employers to escape liability by relying on employees’ prior pay would defeat the purpose of the Act and perpetuate the very discrimination the EPA aims to eliminate,” the appeals court reasoned. Thus, a county employer that relied on prior salary to set a female employee’s starting salary failed to set forth a valid affirmative defense, and the denial of its motion for summary judgment against the employee’s EPA claim was affirmed (Rizo v. Yovino, February 27, 2020, Christen, M.).

The case had been resubmitted for en banc consideration following remand by the U.S. Supreme Court, which vacated the panel’s original 2018 opinion for procedural reasons: namely, it was issued days after the death of its author. The majority of the newly comprised panel agreed with their late colleague: Only job-related factors may serve as affirmative defenses to EPA claims, and prior pay is not such a factor. “Prior pay—pay received for a different job—is necessarily not a factor related to the job for which an EPA plaintiff must demonstrate unequal pay for equal work,” the court wrote.

There were two concurring opinions: one argued that prior salary may permissibly be considered in combination with other factors in setting pay; the second rejected the notion that prior salary alone can never be considered.

Earlier proceedings. When a county employer hired the plaintiff as a math consultant, it set her starting salary using her most recent prior salary, plus 5 percent (plus a $600 stipend for her master’s degree). When she learned the other math consultants (all male) were paid more, she filed suit under the EPA, Title VII, and state law. The county moved for summary judgment, arguing her salary was based on “any other factor other than sex,” namely prior salary. Denying the motion, the district court held that under the EPA, prior salary alone can never qualify as a factor other than sex because there was too much risk that would “perpetuate a discriminatory wage disparity between men and women.”

However, the district court certified the case for interlocutory appeal, cognizant that its ruling might conflict with the Ninth Circuit’s 1982 decision in Kouba v. Allstate Ins. Co. In that case, the appeals court held that prior pay can qualify as an affirmative defense to an EPA claim if the employer considers prior pay in combination with other factors, and uses it reasonably to effectuate a business policy.

A Ninth Circuit panel then vacated the decision. It held that prior salary can be a factor other than sex if it effectuated a business policy and was used reasonably. The panel directed the lower court on remand to consider the employer’s stated business reasons for its salary schedule. However, the appeals court later granted rehearing en banc to clarify the law.

Original en banc opinion. Overruling Kouba, the Ninth Circuit sitting en banc ruled that prior salary does not constitute a “factor other than sex” upon which a wage differential may be based under the EPA’s “catchall” exception. This was true regardless of whether past salary was considered alone or in conjunction with other factors. While the EPA has prohibited sex-based wage discrimination for over 50 years, “[s]alaries speak louder than words,” and the “gender pay gap continues to be an embarrassing reality of our economy,” Judge Reinhardt had written. “The Equal Pay Act stands for a principle as simple as it is just: men and women should receive equal pay for equal work regardless of sex. The question before us is also simple: can an employer justify a wage differential between male and female employees by relying on prior salary? Based on the text, history, and purpose of the Equal Pay Act, the answer is clear: No.”

Supreme Court vacates, remands. However, the opinion was not actually published until shortly after Judge Reinhardt’s death. The Supreme Court granted certiorari and issued an order vacating the judgment and remanding the case. Because Reinhardt was no longer a judge at the time the en banc decision was filed, the High Court reasoned, he should not have been “counted” among the majority. In issuing the post-mortem opinion, the Ninth Circuit had “effectively allowed a deceased judge to exercise the judicial power of the United States after his death,” the Court noted, pointing out that “federal judges are appointed for life, not for eternity.”

Burden of proof. The EEOC was among one of several non-parties to submit amicus briefs in the case. It observed that past Ninth Circuit case law had “blur[red] the line between Title VII and the EPA” by incorrectly suggesting that the third step of the McDonnell-Douglas test applies to EPA claims. The appeals court conceded this point and acknowledged that it may have been why the lower court in this case erroneously indicated that, if the employer demonstrated that her pay was based on a factor other than sex, the employee then had the burden of showing pretext.

Reflecting this confusion, the employer had argued that the burden was improperly shifted to the employer to disprove the influence of wage discrimination on the plaintiff’s prior salary. But “what the County considers to be an impermissible shift is actually the burden-shift required by the EPA’s two-step framework,” the court explained. No pretext showing is required, the court expressly stated. It emphasized that EPA claims do not require proof of discriminatory intent. Rather (1) A plaintiff must make a prima facie showing of a sex-based wage difference; and (2) if such a showing is made, the burden shifts to the employer to establish an affirmative defense.

“The EPA does not require employers to prove that the wages paid to their employees at prior jobs were unaffected by wage discrimination,” the court said, adding that it would not presume that a plaintiff’s past wages were depressed due to sex discrimination. “But if called upon to defend against a prima facie showing, the EPA requires employers to demonstrate that only job-related factors, not sex, caused any wage disparities that exist between employees of the opposite sex who perform equal work.” The history of pervasive unequal pay in the nation’s workforce demands no less.

Only job-related factors. Most circuits agree: The catch-all “differential based on any other factor other than sex” exception is narrow in scope and limited to legitimate, job-related factors only, such as experience, education, or skills. Although the employer argued that the exception allows for an affirmative defense based on any factor that is not sex itself—job-related or no—the text of the statute, its history and “‘broadly remedial’” purpose, and the majority of other circuits to consider the issue (including the Second, Fourth, Sixth, Tenth, and Eleventh Circuits) indicate otherwise.

The Seventh Circuit is the outlier (and the Fourth Circuit has signaled it may follow its rogue sister, but only suggests as much in dicta). While the Sixth, Tenth, and Eleventh Circuits “articulated rules purporting to allow prior pay to serve as an affirmative defense if considered with other factors, they have substantively relied on the ‘other factors’ to justify the challenged pay differentials,” the appeals court observed. For its part, the Eighth Circuit has eschewed a bright-line rule defining factors other than sex; it demands a case-by-case analysis of the disputed factor.

Past salary is not a job-related factor. Moreover, prior pay does not qualify as a job-related factor, the court said, relying heavily on the statutory purposes underlying the EPA. The court reasoned that “allowing prior pay to serve as an affirmative defense would undermine the Act’s promise of equal pay for equal work.” This interpretation also squares with the Supreme Court’s guidance in Corning Glass Works v. Brennan, the court added. The EPA was meant to remedy vast wage disparities, and those problems persist, the appeals court observed, noting that the pay gap, while it has narrowed, remains stubbornly intact. Moreover, because the Supreme Court in Corning Glass rejected the “market force” rationale for unequal pay, Kouba was further untenable for having condoned an employer’s reliance on “business reasons” and “business policy” in justifying wage disparities.

Setting a salary vs. defending a claim. The appeals court took care to articulate the important distinction between an employer’s use of prior pay “when setting a salary—which the EPA does not address, much less prohibit” and its reliance on prior pay to defend itself from an EPA claim. The EPA doesn’t bar employers from considering past pay for other reasons, such as negotiating a job offer or setting a salary. “But whatever factors an employer considers, if called upon to defend against a prima facie showing of sex-based wage discrimination, the employer must demonstrate that any wage differential was in fact justified by job-related factors other than sex. Prior pay, alone or in combination with other factors, cannot serve as a defense.” And while there may be tension in this distinction, the tension “is inherent in the terms of the EPA itself.”

McKeown concurrence. Judge McKeown (joined by Judges Tallman and Murguia) found it easy to concur in the result in this case—a “textbook violation” of the EPA. However, Judge McKeown rejected the notion that prior salary can never be used, “even in combination with other factors,” as an affirmative EPA defense. McKeown contended that no other circuit has adopted this rule, and that it is also at odds with the EEOC’s stance on the issue. And, “perhaps most troubling, the majority fails to account for the realities of today’s dynamic workforce, choosing instead to view the workplace in a vacuum. In doing so, it betrays the promise of equal pay for equal work and disadvantages workers regardless of gender identity.”

“Merely because prior pay is unavailable as a standalone defense does not mean that employers should be barred from using past pay as a factor in setting an initial salary,” McKeown argued, unconvinced by the majority’s “vague disclaimer” that its holding would bar such use. Noting the current trend of state and local laws prohibiting salary history discussions (but permitting them if the applicant wishes to disclose), McKeown suggested that the holding in this case “may reach beyond these state statutes by making it a violation of federal antidiscrimination law to consider prior salary, even when an employee chooses to provide this information as a bargaining chip for higher wages. I am concerned about chilling such voluntary discussions. The majority handcuffs employers from relying on past salary information—but in doing so, equally shackles women from using prior salary in their favor. Indeed, the result may disadvantage rather than advantage women.”

Callahan concurrence. Judge Callahan, joined by Judges Tallman and Bea, disagreed with the majority’s holding that prior pay can never be considered as a factor in determining pay under the EPA. She rejected the unduly narrow interpretation of the catch-all exception as limited solely to “job-related” factors, arguing that the exception was in fact meant to be construed broadly, and urging that “the standard is not whether a factor is ‘job-related,’ but whether regardless of its ‘job-relatedness,’ the factor promotes or perpetuates gender discrimination.” The majority, she feared, had created “an amorphous and unnecessary new standard” for interpreting the exception, a standard that ignores the dynamic realities of business, and that “in doing so, the majority may hinder rather than promote equal pay for equal work.”

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