Can Prior Salary Still Be A Factor In Setting New Hire Salary? Not Allowed, According To Ninth Circuit!

By: Julia Turner Baumhart

What employer has not considered an applicant’s prior salary as at least a factor in determining what compensation to offer a newly hired employee?  Surely, employers routinely ask applicants for prior salary information.  Employers, however, may find themselves hard pressed to defend their actions if the U.S. Court of Appeals for the Ninth Circuit makes inroads with its novel interpretation of the Equal Pay Act’s “any factor other than sex” affirmative defense.  This is because the Ninth Circuit determined that – not only can the employer not consider prior salary as the only factor in setting a newly hired employee’s salary – the employer cannot even consider it as one factor among many.

In its recent en banc opinion, Rizo v. Yoving, six judges on an eleven-judge panel interpreted the following “equal pay for equal work” provision of the EPA:

No employer . . . shall discriminate, . . . between employees on the basis of sex by paying wages to employees . . . at a rate less than the rate at which he pays wages to employees of the opposite sex . . . for equal work on jobs the performance of which requires equal skill, effort, and responsibility . . . except where such payment is made pursuant to . . . a differential based on any factor other than sex.

Previously, the same court had held that prior salary, at least when considered in combination with other factors such as prior experience and education, could indeed be considered a factor other than sex under the EPA.

The Rizo panel overruled the earlier Ninth Circuit decision, even though it did not need to.  And in doing so, it went far beyond the standard generally accepted among other appellate courts, which is that prior salary can at least be considered as a factor in determining what salary to offer.  Rather, according to Rizo, “prior salary, whether considered alone or with other factors, is not job related and thus does not fall within an exception to the Act that allows employers to pay disparate wages.”  And to make sure its decision left no room for debate or disagreement, the majority characterized the question before it as “simple” and the answer to the question as “clear.”

In reality, it is neither.  As if to underscore its commitment to making new law, the majority answered a “question” that it was not even asked.  The employer in question admittedly used prior salary as the only factor in setting the salaries of its newly hired employees, male and female, meaning there was no need for the majority to depart from the existing consensus permitting use of prior salary as a factor among others.  It could have (and should have) limited its ruling to salary systems – like the one before it – that used prior salary as the sole factor.  So the question before it was not the “simple” one it claimed to be answering.

And the answer itself was far from “clear,” as demonstrated by the fact that five of the eleven en banc judges authored or joined separate opinions, all of which agreed that prior salary – at least in most circumstances – could be at least a factor among many.

Whether the Rizo opinion will find advocates who succeed in expanding its novel holding to the other circuits is an open question.  The Ninth Circuit is by far the largest judicial circuit in the country.  It is the only circuit with so many active judges that it hosts three en banc panels, rather than the usual one.  It also is frequently reversed by the U.S. Supreme Court.  Moreover, disagreements between the Ninth Circuit and the Sixth Circuit (with jurisdiction over the Michigan, Ohio, Kentucky and Tennessee federal courts) are frequent.  Nevertheless, local employers should take heed from the Rizo opinion and think carefully before considering prior salary in setting salary offers to newly hired employees.

This e-blast was written by Julia Turner Baumhart, who is a member of the Detroit SHRM Legal Affairs Committee.  Ms. Baumhart is a partner in the labor and employment firm of Kienbaum Opperwall Hardy & Pelton, P.L.C. in Birmingham, Michigan and can be contacted at jbaumhart@kohp.com or (248) 645-0000. 

Detroit SHRM encourages members to share these articles with others, inside and outside their organization, as long as its name and logo, and the author’s information, is included in the re-post of the article.  April 2018.