9th Circuit Decision Proves Need For Laws Banning Prior Salary Inquiries

A few weeks ago I wrote that some states are passing laws banning prospective employers from asking applicants about their salary history. The reason lawmakers give for this law is that basing salary on an applicant's pay with another employer locks in discrimination. This practice particularly impacts women.

A recent case out of the normally very liberal 9th Circuit demonstrates the need for laws banning salary history inquiries. The Court found in Rizo v. Yovino that an employer may legally justify paying women less than men where it based pay solely upon 5% above prior salary. The Court said that, under the Equal Pay Act, prior salary could be a factor other than sex that justified a pay disparity. The appellate court overturned the district court's ruling in favor of the employee:

The district court determined that, under the Equal Pay Act, prior salary alone can never qualify as a factor other than sex, reasoning that “a pay structure based exclusively on prior wages is so inherently fraught with the risk . . . 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.”

The appellate court analyzed the employer's justification for the pay disparity:

The County has offered four business reasons for using Standard Operation Procedure 1440, under which starting salaries are based primarily on prior salary: (1) the policy is objective, in the sense that no subjective opinions as to the new employee’s value enters into the starting-salary calculus; (2) the policy encourages candidates to leave their current jobs for jobs at the County, because they will always receive a 5% pay increase over their current salary; (3) the policy prevents favoritism and ensures consistency in application; and (4) the policy is a judicious use of taxpayer dollars. But, the district court did not evaluate whether these reasons effectuate a business policy or determine whether the County used prior salary “reasonably,” as required by Kouba.

The Court noted that other circuit courts had held, contrary to their ruling, that prior salary was not sufficient justification for gender pay disparities, citing Angove v. Williams-Sonoma, Inc., 70 F. App’x 500, 508 (10th Cir. 2003); Irby v. Bittick, 44 F.3d 949, 954 (11th Cir. 1995); Price v. Lockheed Space Operations Co., 856 F.2d 1503, 1506 (11th Cir. 1988); and Glenn v. Gen. Motors Corp., 841 F.2d 1567, 1570–71 (11th Cir. 1988). So yay for my own 11th Circuit.

Here's what the Court directed the district court to do on remand:

On remand, the district court must evaluate the four business reasons offered by the County and determine whether the County used prior salary “reasonably in light of [its] stated purpose[s] as well as its other practices.” Kouba, 691 F.2d at 876–77. We emphasize that because these matters relate to the County’s affirmative defense rather than to the elements of the plaintiff’s claim, the County has the burden of persuasion. See Maxwell, 803 F.2d at 446. Thus, unlike in a typical case under Title VII involving the burden-shifting method of McDonnell Douglas Corp. v. Green, 411 U.S. 792 (1973), the plaintiff does not have to present evidence that the County’s explanation for the pay differential is a pretext for intentional gender discrimination. Rather, it is up to the employer to persuade the trier of fact that its stated “factor other than sex” actually caused the salary differential, that the stated factor “effectuate[s] some business policy,” and that the employer used the factor “reasonably in light of [its] stated purpose as well as its other practices.” Kouba, 691 F.2d at 876–77. Of course, the plaintiff is free to introduce evidence of pretext (or any other matter that casts doubt on the employer’s affirmative defense) if it chooses to do so. Maxwell, 803 F.2d at 446.

This case was not a disparate impact case, so I wonder what would happen if the same set of facts were raised under the theory that a facially neutral practice of basing pay on prior salary alone has a disparate impact on women.

In the meantime, this case should give the legislators and lobbyists who are pushing laws to ban salary history inquiries some ammunition to prove that salary history inquiries are bad for women and are thus bad public policy.