On April 9, the Ninth Circuit Court of Appeals issued its decision in Rizo v. Yovino, which held that salary history may not be used by an employer as a factor when defending gender disparities in initial wages, whether considered exclusively or in conjunction with other factors.  The decision, which overruled a previous decision interpreting the Equal Pay Act, has caused some confusion and created a circuit split. 

Where is the confusion? 

In concurring opinions, some of the judges seem to question the strict nature of the majority’s holding.  Specifically, they agree that salary history should not be the sole factor when defending initial wages, but they take the position that salary history may be considered – along with other factors (such as education, experience, past performance) – so long as the other factors are job- or business-related and may justify the use of salary history as unrelated to sex.  For example, the concurring judges explain that the majority’s opinion could prevent prospective employees from using their past salary to negotiate higher pay, or could prevent employers from luring away top talent from competitors with more attractive compensation offers.

To be sure, the majority’s ruling does not foreclose the use of salary history in individualized pay decisions, such as those resulting from negotiations with prospective employees.  However, it remains unclear how employers are supposed to refrain from considering prior pay on the one hand, while allowing prior pay to play a role in individualized pay negotiations on the other.    Although the true target for the Ninth Circuit’s ruling was a written compensation policy that based initial wages exclusively on salary history, which all the judges agreed violated the Equal Pay Act, it is difficult to not read the holding expansively despite the disclaimer.

The Circuit Split

In 2005, the Seventh Circuit Court of Appeals ruled that prior pay alone can justify pay differentials, and that the burden is on the employee to prove that the use of salary history was a disguise for discrimination.  Meanwhile, other Circuits have taken a middle of the road approach more in line with the concurring judges in Rizo.

Employer Considerations

While these cases are addressed to the issue of factors other than sex under the Equal Pay Act, employers cannot forget state law or county and city ordinances as well.  States, like California, have enacted laws restricting an employer’s ability to request or use prior pay information.  Employers in such states, counties, and cities must evaluate local laws and federal law to determine how to comply with both.

Employers must remain vigilant regarding pay equality and should avoid relying solely on historical salary information when setting initial pay.  Employers must also consider carefully whether and when they can elicit prior salary information from applicants.  Until the Supreme Court weighs in, employers should err on the side of caution and consult with counsel regarding current pay-setting practices and plans to implement widespread changes.