Pay Equity: Old-School or Cutting Edge?
Pay Equity: Old-School or Cutting Edge?
The Equal Pay Act was passed in 1963. That same year, the Beatles wanted to hold your hand, President Kennedy was assassinated, and women were earning 59 to 64 cents for every dollar earned by men working the same jobs.

Over 50 years later, the gender pay gap still exists. Although there has been progress, women today still only earn about 79 to 80 cents for every dollar earned by men. For women of color, the pay gap is even greater. The government is obviously aware of this situation and has attempted to remedy the problem through pay equity initiatives at both the federal and state levels. Employers, faced with compliance requirements from many fronts, are looking for guidance. They want to ensure they are compensating their employees fairly, but the plethora of new and sometimes conflicting laws presents a challenge, even for the most diligent employer.

Not only must employers ensure they meet the old-school standards of the Equal Pay Act, but they must also determine whether they are subject to any of the many new laws prohibiting salary history inquiries and mandating pay transparency.

Equal Pay Act Circa 2017

Although we have seen many new pay equity laws enacted recently—including some that prohibit requesting salary history—the U. S. Court of Appeals for the Ninth Circuit, the federal appellate court that reviews federal cases from California and many other western states, recently decided a pivotal case interpreting the 1963 Equal Pay Act. In April 2017’s Rizo v. Yovino, a female math consultant for the Fresno County public schools filed a lawsuit because she was paid at the lowest of 10 salary steps for her position. She later learned that all the male math consultants were paid more than she. The county defended its position by contending the pay disparity was justified because it was based on “any other factor other than sex,” which is one of the statutory defenses available to employers in Equal Pay Act claims. The county pointed to the “other factor” as its practice of setting starting salaries based on prior salary, and Rizo’s salary in her previous job was lower than the lowest salary step for the new position with the county.

The trial court disagreed with the county’s argument, ruling that prior salary alone could not qualify as a factor other than sex because “a pay structure based exclusively on prior wages is so inherently fraught with the risk…that it will perpetuate a discriminatory wage between men and women…even if motivated by a legitimate business purpose.” But the Ninth Circuit reversed the lower court’s findings on appeal, finding that prior salaries could be used to set starting salaries where it makes good business sense and is not unreasonable.
…because women historically tend to be paid less than men, allowing employers to base starting salaries on prior pay perpetuates wage discrimination.
Employers, Be Warned: the Rizo Case Is Limited

After the Rizo case was filed, California, like many other states, enacted a state equal pay statute that is more employee-friendly. Effective January 1, 2017, California’s pay equity law was amended to include the rule that “prior salary shall not, by itself, justify any disparity in compensation.” Citing the Rizo case in the preamble to the amendment, the law stated that because women historically tend to be paid less than men, allowing employers to base starting salaries on prior pay perpetuates wage discrimination. Consequently, private employers in California may not set starting salaries solely on the basis of the employee’s prior salary. In other words, if Rizo’s case (or one like it) were filed today, the result would be much different.

Employers might now wonder whether they can even ask about prior salary history as a part of their compensation-setting procedures. The answer to that question depends on the jurisdiction where you do business. Some states and some cities have already said “no,” while others, including California, have laws in various stages of legislative consideration.

Salary History Prohibitions

Unfortunately for employers that are navigating compliance requirements in multiple jurisdictions, recently enacted legislation is not uniform in the way it approaches salary history questions. For example:

Massachusetts Equal Pay Act, Massachusetts Gen. Laws Ch. 149 (effective July 1, 2018) includes a prohibition on requesting salary history.

New Orleans
New Orleans’ mayor signed Executive Order MJL17-01 on January 25, 2017, which bans questions about salary history during the application and interview process for City positions.

New York
Executive Order 161 (Ensuring Pay Equity by State Employers): Prohibits state employers from asking or mandating that an applicant for employment provide compensation history until the applicant is extended a conditional offer of employment. After that, the employer may request and verify the information.

New York City
New York City 1253-A (effective October 31, 2017): Illegal for any employer or employment agency in New York City to ask about an applicant’s salary history, including benefits, or search any publicly available records to obtain any such information.

Philadelphia Bill No. 160840 prohibits employers from inquiring about a prospective employee’s wage history during the hiring process (effective May 23, 2017) – currently stayed pending litigation challenging constitutionality of the ordinance.

Puerto Rico
Puerto Rico Equal Pay Act, Law No. 16 (March 8, 2017): Employers prohibited from asking job applicants about wage history before offering a job.
Pay Transparency

In addition to laws banning inquiry into salary history, all states that have passed equal pay laws have included a requirement that employers may not require employees to keep their pay confidential. Although this is a long-held tenet of the National Labor Relations Act for hourly employees, and although federal contractors have been required to follow and post pay transparency requirements for a couple of years, the state laws apply the requirement to all employees—including managers and supervisors. As a result, we are seeing an increase in pay equity lawsuits as the facts needed to successfully pursue litigation are more easily obtained.

What Should Employers Do?

Employers should revisit their job descriptions and conduct attorney-client privileged self-audits to determine whether pay disparities exist and how they would be defended if challenged. Ensuring that job descriptions and job titles are accurate is a critical first step in this process as compensation comparisons should be made for employees who are similarly situated to each other. Employers should review how compensation is initially established and ensure the factors applied are based on objective, business-related criteria. Then, the process by which raises are awarded should be examined to determine how the employer may utilize its existing programs, or what changes may be needed, to address any disparities identified without compromising its policies or creating employee relations issues in the corrective process. Employers that have relied upon manager discretion for establishing compensation should consider how to adapt that policy to more objective procedures.

The recent Ninth Circuit case on the Equal Pay Act demonstrates that using salary history to establish a starting salary need not automatically result in a negative finding, but the trend in the newer laws suggests that employers should not expect to rely on that approach in the future.