©2024 Seyfarth Shaw LLP Developments in Equal Pay Litigation | 53 3. Challenging The Factor Other Than Sex: Salary History And Beyond At its core, equal pay litigation is about how employers set and adjust salary levels. In a free and competitive marketplace, starting salary must take some account of applicants’ prior salary. If employers cannot meet or exceed that salary, they risk losing applicants to other employers who will. One issue that comes up frequently in equal pay litigation, therefore, is whether and to what extent an employer can justify a pay disparity by pointing to employees’ prior salaries at the time they were hired. Many employers take the commonsense view that they must start higher-paid applicants at a higher salary, or those applicants will not take the job. On the other hand, some courts and commentators have argued that paying employees based on past earnings only perpetuates a systemic gender pay gap. It is therefore invalid as a factor other than sex, because female employees’ prior salaries may have been kept artificially and unfairly low compared to their male peers. One of the key trends driving equal pay litigation today is whether and to what extent an employer can rely on a factor other than sex defense when that factor may itself be tainted by discrimination. Rizo v. Yovino420 is a significant decision bearing on this issue.421 The district court in that case held: “[A] pay structure based exclusively on prior wages 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.”422 The Ninth Circuit agreed, holding that “setting wages based on prior pay risks perpetuating the history of sex-based wage discrimination,”423 and: “[t]he 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.”424 The Ninth Circuit’s decision in Rizo adds to a growing split among the Courts of Appeals on this issue. The Seventh Circuit came to an arguably different conclusion in Lauderdale v. Illinois Department of Human Services.425 Its prior decisions had consistently held that a difference in pay based on the difference in what employees were previously paid is a legitimate factor other than sex under the EPA.426 Relying on that precedent, the Seventh Circuit held that a pay discrepancy that was created in reliance on 420 Rizo v. Yovino, 854 F.3d 1161 (9th Cir. 2017), aff’d en banc, 887 F.3d 453 (9th Cir. Apr. 9, 2018), rev’d, 139 S.Ct. 706 (2019). 421 In that case, a county employee challenged the county’s practice of using prior salary to determine starting salaries. Id. at 1163. The county used a salary schedule to determine the starting salaries of management-level employees, which used prior salary to determine starting salaries. Id. To determine the step on which a new employee would begin, the county considered the employee's most recent prior salary and placed the employee on the step that corresponds to his or her prior salary, increased by 5%. Id. Because the plaintiff’s prior salary was below the Level 1, Step 1 salary, even when increased by 5%, she was automatically started at the minimum salary level. Id. at 1164. 422 Rizo v. Yovino, No. 1:14-cv-0423-MJS, 2015 WL 9260587, at *9 (E.D. Cal. Dec. 18, 2015). 423 Rizo v. Yovino, 950 F.3d 1217, 1228 (9th Cir. 2020). 424 Id. at 1219. In concurring opinions, two judges said their colleagues should have taken the more moderate approach of some other circuits. Judge Margaret McKeown said the policy did not justify the disparity between plaintiff’s pay and that of her male coworkers, but salary history “may provide a lawful benchmark” for setting pay if considered alongside other factors such as education and training. Id. at 1234. Judge Consuelo Callahan also concurred, joined by Judges Tallman and Carlos Bea. She stated that an employer should be permitted to use past salary as a factor in setting pay, as long as its use “does not reflect, perpetuate, or in any way encourage gender discrimination.” Id. at 1241. 425 Lauderdale v. Ill. Dep’t of Human Servs., 876 F.3d 904 (7th Cir. 2017). In this case, the Seventh Circuit held that the Illinois pay plan for state employees did not violate the EPA by basing pay increases, at least in part, on an employee’s prior salary. The Department had conceded that plaintiff had established a prima facie case under the EPA because she had taken over the same responsibilities as her predecessor but was paid less. Id. at 907-08. She was therefore paid less for work that was equal to, if not more demanding than, the work performed by her male predecessor. However, the Department argued that the pay discrepancy was based on non-discriminatory bases, including the employees’ prior salaries. Id. at 908-09. 426 Id. at 908 (citing Wernsing v. Dep't of Human Servs., 427 F.3d 466, 468 (7th Cir. 2005); Dey v. Colt Constr. & Dev't Co., 28 F.3d 1446 (7th Cir. 1994); Riordan v. Kempiners, 831 F.2d 690 (7th Cir. 1987), and Covington v. S. Ill. Univ., 816 F.2d 317 (7th Cir. 1987)).
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