Prior Salary Could Be Defense to Equal Pay Act Pay Disparity Claim

Rizo v. Yovino, et al - Ninth Circuit Court of Appeals

Facts:  Aileen Rizo ("Rizo") was hired as a math consultant (a position which was considered 'management-level') for the public schools in Fresno County, California ("County").  The County used a salary schedule to determine the starting salaries of management-level employees.  The schedule consisted of twelve levels, with each level having progressive steps within it.  To determine the step within Level 1 on which a new employee would begin, the County considered the employee's most recent prior salary and placed that employee on the step that corresponds to his or her prior salary, increased by 5%.  After she discovered that the County was paying her less than her male counterparts for the same work, she brought a claim under the Equal Pay Act ("EPA"), Title VII of the Civil Rights Act of 1964, and the California Employment and Housing Act.

The County moved for summary judgment and acknowledged that it paid Rizo less than comparable male employees for the same work.  However, the County said the pay difference was lawful because it was "based on any other factor other than sex" (an affirmative defense to an EPA claim).   In this case, the County argued the other factor was prior salary.  The District Court denied the motion for summary judgment and concluded that when an employer bases a pay structure "exclusively on prior wages", any resulting pay differential between male and female employees is not based on any other factor other than sex (and therefore in violation of the EPA).

The County's subsequent interlocutory appeal of the District Court's decision was permitted.

Holding:  (Note, when a Title VII plaintiff contends she has been denied equal pay for substantially equal work, EPA standards apply.  As a result, the Court did not separately address the Title VII claims.  As well, because no differences were asserted between federal law and the California Fair Employment and Housing Act, the Court did not separately discuss California law.)

Under the EPA, the plaintiff bears the burden of establishing a prima facie case of discrimination.  Perhaps one of the important portions of the EPA is that it is strict liability (as a result, no intent to discriminate need be shown).  Once it is shown that the plaintiff is receiving different wages for equal work, the burden shifts to the employer to show the wage disparity is permitted by one of the four exceptions to the EPA:

1. a seniority system; 
2. a merit system; 
3. a system which measures earnings by quantity or quality of production; or 
4. a differential based on any other factor other than sex.

As referenced above, the County conceded that Rizo had established a prima facie case under the EPA, but asserted the defense that the difference in pay was "based on any other factor other than sex."   The Court pointed out that a prior Ninth Circuit decision, Kouba v. Allstate Insurance Co., had dealt with similar issues.  That case held that while prior salary does not automatically qualify as a factor other than sex, this exception to the EPA could be maintained if the employer showed that the factor "effectuate[s] some business policy" and that the employer "use[s] the factor reasonably in light of the employer's stated purpose as well as its other practices."

In this case, the County offered four business reasons for using the twelve level salary policy:  1) the policy was objective; 2) the policy encouraged candidates to leave their current jobs for a position at the County (with a 5% salary increase incentive); 3) the policy prevented favoritism and ensured consistency in application; and 4) the policy was a judicious use of taxpayer dollars.  However, District Court held that "[t]he Ninth Circuit in Kouba was not called upon to, and did not rule on the question of whether a salary differential based solely on prior earnings would violate the [Equal Pay Act], even if motivated by legitimate, non-discriminatory business reasons."  Consequently, the District Court pointed to cases from other circuits that held that prior salary alone cannot justify a pay disparity.  

The Court of Appeals disagreed with the District Court and held that Kouba did not leave open the question of whether a salary differential based solely on prior earnings violated the EPA.  Instead, the Court held that Kouba provides that a pay differential based on the employer's use of prior salary can be "a differential based on any other factor other than sex", so long as the County can establish the use of prior salary was reasonable and effectuated a business policy.

Judgment:  The Court of Appeals vacated the District Court's denial of summary judgment in favor of the County and remanded the case with instructions that the District Court consider whether the four reasons provided by the County for using the prior salary of an employee to establish a difference in pay between male and female employees was reasonable and effectuated a business policy, such that the use of prior salary was based on a "factor other than sex" (an exception to an EPA claim).

The Takeaway:  For what many might consider a rather direct and to the point opinion (in so much as the Court of Appeals held that Kouba provided guidance on the matter and should have been considered by the District Court), there was certainly a lot to unpack and examine in this opinion.  

Readers should note that the Court of Appeals did not rule on the case in regard to whether a violation of the EPA occurred (or even whether any of the four reasons provided by the County amounted to a valid affirmative defense of the EPA claim).  Instead, the Court pointed out that the District Court improperly applied (or rather failed to apply) Kouba.  As a result, the Court was quite explicit that because Kouba was on point and provided the framework in which a court in the Ninth Circuit should analyze EPA claims (and affirmative defenses), this case should be remanded for further consideration.  As always, given that other circuits often handle cases differently depending upon prior caselaw (as evidenced by the District Court pointing to cases from other circuits to reach a different ruling than Kouba), readers should consult the caselaw in their circuit to stay up to date on the relevant statutory and caselaw precedent. 

Majority Opinion Judge:  Judge Adelman

Date:  April 27, 2017

Opinion:  hr.cch.com/eld/RizoYovino042717.pdf