by Julie Ann Giammona

In Rizo v. Fresno County Office of Education the Ninth Circuit Court of Appeals ruled en banc that an employer’s use of prior salary information to justify pay gaps between men and women violates the Equal Pay Act. This decision overturned a prior Ninth Circuit 1982 decision (Kouba v. Allstate Insurance Co.) and the April 2017 panel ruling by the Ninth Circuit. The decision will likely be appealed to the U.S. Supreme Court because it conflicts with the Seventh Circuit 2005 holding that salary history, by definition, is a “factor other than sex”, and thus using such information to set a salary rate does not violate the Equal Pay Act.

In Rizo, a female math consultant discovered that she was paid less than her male counterpart. She sued Fresno County Superintendent of Schools, alleging that its practice of paying new hires more than they earned at their last job carried forward an illegal pay gap. The Ninth Circuit agreed and ruled unanimously in Rizo’s favor: “Prior salary alone or in combination with other factors cannot justify a wage differential. To hold otherwise – to allow employees to capitalize on the persistence of the wage gap and perpetrate that gap ad infinitum would be contrary to the text and history of the Equal Pay Act.”

Notwithstanding the above broad language, the Ninth Circuit left wiggle room for an employer to discuss past salary when negotiating a particular employee’s salary and benefit package. The majority opinion stated: “We do not decide, for example, whether or under what circumstances, past salary may play a role in the course of an individualized salary negotiation.”  This caveat presents more questions than it answers because it does not specifically identify how salary history can be utilized when negotiating an individual salary package. Because Rizo presented an actual policy that looked at past salary to determine current salary, the issue of individualized salary negotiation was not at issue.

In addition to the above case from the Ninth Circuit, as of January 1, 2018, California Labor Code Section 432.3 prohibits employers from asking about prior salary information during the application process and in setting compensation and benefits. Section 432.3 does allow employers to consider salary history when an applicant, “voluntarily and without prompting,” discloses the information. However, employers should be wary of the California Fair Pay Act (Lab. Code § 1197.5(a)(3)) which prohibits employers from relying on prior salary, by itself, to justify a discrepancy in pay.

Until and if this issue is clarified by future cases, employers should not consider past salary history as a factor when determining the salary of a new hire.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.