Pay Plan That Uses Prior Pay For Starting Pay Discriminates Against Women Under The Equal Pay Act

Judge Reinhardt, of the Ninth Circuit, starts his opinion in Rizo v. Yovino, with a roar.

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?

Judge Reinhardt carefully crafts a very strong opinion holding that a wage differential between male and female employees that relied on prior salary violated the Equal Pay Act. This Opinion if upheld by the United States Supreme Court would be a landmark opinion.

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The facts in this case are also simple and undisputed. Aileen Rizo was hired as a math consultant by the Fresno County Board of Education (County) at step 1 with a starting pay of $62,133 for 196 days of work plus a master’s degree stipend of $600. Previously, she was employed in Maricopa County, Arizona as a middle and high school math teacher and earned an annual salary of $50,630 for 206 working days plus $1,200 per year for her master’s degrees in educational technology and mathematics education. Rizo’s new salary upon joining the County was determined by taking the hired individual’s prior salary, adding 5%, and placing the new employee on the corresponding step of the salary schedule.

During a lunch with colleagues Rizo learned that her male colleagues had been subsequently hired as math consultants at higher salary steps. She then filed a complaint about the pay disparity with the County, which responded that all salaries had been set in accordance with SOP 1440, rejecting her complaint. Rizo then sued Jim Yovino in his official capacity as the Superintendent of the Fresno County Office of Education claiming a violation of the Equal Pay Act (Act).

The County asserted that, Rizo was paid less than her male counterparts for the same work was based upon her prior salary, which was a permissible affirmative defense to her concededly lower salary than her male counterparts under the fourth, catchall clause, a “factor other than sex” under the Act. The district court denied summary judgment, reasoning that SOP 1440 “necessarily and unavoidably conflicts with the Act ” because “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.” The district court then certified the following legal question to the Ninth Circuit, which eventually ruled on the question sitting en banc (the full Circuit):

“whether, as a matter of law under EPA, 29 U.S.C. § 206(d), an employer subject to the EPA may rely on prior salary alone when setting an employee’s starting salary.”

In order to better frame the issue let’s start with how a violation is proven under the Equal Pay Act.

“…a plaintiff must show that her employer paid male and female employees different wages for substantially equal work; however, not all differentials in pay for equal work violate the Equal Pay Act, because the Act includes four statutory exceptions—“(i) a seniority system; (ii) a merit system; (iii) a system which measures earnings by quantity or quality of production; or (iv) a differential based on any other factor other than sex”— which operate as affirmative defenses.”

The County argued that (iv) “any other factor other than sex,” (referred to the catchall exception), allowed an employee’s prior salary to be used by an employer in setting the starting salary.

Therefor, the determinative question was the meaning of the phrase “a differential based on any other factor other than sex” under the catchall exception to the Act. The answer to this question is a matter of statutory construction; therefore, the court used a number of well-recognized analytical legal tools to discern the meaning of this language.

The Ninth Circuit reasoned that the pay plan violated the purpose of the Act because Congress enacted it to put an end to the “serious and endemic problem of employment discrimination in private industry” and to carry out a broad mandate of equal pay for equal work regardless of sex. “The purpose of the Act is clear: to put an end to historical wage discrimination against women.”

The Ninth Circuit reasoned in light of the clear intent and purpose of the Equal Pay Act, it could not construe the Act as justifying setting employees’ starting salaries on the basis of their prior pay because this perpetuates existing wage disparities between men and women. “Congress simply could not have intended to allow employers to rely on these discriminatory wages as a justification for continuing to perpetuate wage differentials.”

Next the Court looked at the text noting that the text showed that the phrase “any other factor other than sex” follows a series of exceptions. Several rules used to determine the meaning of the text now come into play. The Court applied the canon noscitur a sociis— “a word is known by the company it keeps.” The three specific exceptions prior to the catchall exception are based on systems of seniority, merit, and productivity; therefor, since these three terms all relate to job qualifications, performance, and/or experience it follows that the catchall exception should be limited to legitimate, job-related reasons as well. A related canon, ejusdem generis, also supported the Courts interpretation of the catchall term because general terms at the end of a list of more specific ones are construed to embrace only objects similar in nature to those objects enumerated by the preceding specific words. The Court concluded that allowing an employer to justify a wage differential between men and women on the basis of prior salary is wholly inconsistent with the statutory language.

In addition, the legislative history of the Act also supports the Court’s interpretation that the catchall exception is limited to job-related factors. During the legislative proceedings industry leaders argued that the earlier exceptions to the Act were specific and under inclusive; therefore, the Court concluded that the catchall exception was added to the final Equal Pay Act in direct response to these employers’ concerns that their legitimate, job-related means of setting pay would not be covered under the exceptions already in the bill. Representative Robert Griffin, author of the Landrum Griffin Labor Law, put it best by describing the catchall exception, as a broad principle, and those preceding it are really examples.”

Furthermore, interpretations of the Act lend support to the interpretation that prior salary used as a basis to establish initial salary for an employee was not a legitimate measure of work experience, ability, performance, or any other job-related quality although it may bear a rough relation to legitimate factors other than sex.

Based on the above analysis the Court held that the Act was violated by using prior salary as the basis for the starting salary for female employees making this a landmark case in the 55-year history of the Act, if it upheld by the United States Supreme Court.

Judge Reinhardt, the “Liberal Lion” of the liberal 9th Circuit, ends his opinion with gigantic roar:

“‘Collectively, the gender wage gap costs women in the U.S. over $840 billion a year.” If money talks, the message to women costs more than “just” billions: women are told they are not worth as much as men. Allowing prior salary to justify a wage differential perpetuates this message, entrenching in salary systems an obvious means of discrimination—the very discrimination that the Act was designed to prohibit and rectify.’”

But not so fast. Judge Reinhardt, the author of the opinion and the Ninth Circuit are big targets for the United States Supreme Court. Even though the opinion is strong and very well reasoned the Ninth Circuit as a liberal bastion has been overruled many times by the Supreme Court including some of the opinions authored by Judge Reinhardt. Stay tuned.

If you have a pay practice similar to the issue in this case, you should exercise extreme caution in following that practice until there is some final resolution. You may also want to check your pay plan since my experience is that pay plans generally have similar provisions, which are used to resolve the fundemental question of where an employee starts on the pay plan.

Howard Wright© 2018

For a more detailed analysis of Rizo v, Yovino see April 2018 MMAA Newsletter.

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