Employer May Use Salary History to Set Pay, 9th Circuit Rules

Author: David B. Weisenfeld, XpertHR Legal Editor

May 3, 2017

The 9th Circuit Court of Appeals has ruled that an employer may use an applicant's salary history to determine the individual's pay in certain circumstances, even if it results in a female employee earning less than male employees for doing the same work.

The San Francisco-based appellate court held in Rizo v. Yovino that the Equal Pay Act does not impose a strict prohibition against considering prior salary. However, the court explained that an employer can maintain a pay differential based on prior salary, or any other facially gender-neutral factor, only if it can show that the factor relates to some business policy and the employer uses that factor reasonably.

In this case, Fresno County hired Aileen Rizo as a management-level math consultant. Under the county's standard operating procedure, it gave her a five percent increase over her salary from her previous job along with additional compensation to bring her pay to the minimum salary level of $62,733 per year. But Rizo later learned that the other math consultants, all of whom were male, earned more than she did.

The employer moved to dismiss the case, arguing that while her salary was less than her male colleagues' salary, the difference was based on a factor other than sex. The district court permitted the case to go forward. But in vacating that ruling, the appellate court noted that the employer offered four business reasons to justify the salary difference:

  • The employer's standard operating procedure is objective rather than subjective, and based solely on an applicant's prior salary;
  • The policy encourages applicants to leave their jobs by offering at least a five percent increase over their current salary;
  • The policy is consistently applied; and
  • The policy is a judicious use of taxpayer dollars.

The 9th Circuit found the lower court erred in failing to consider these business reasons, and ordered it to determine whether the employer used prior salary "reasonably." The appellate court added, though, that it will be up to the employer to show that these factors actually caused the salary differential.

Siding with the employee, the Equal Employment Opportunity Commission claimed that any time an employer sets pay by considering only its employees' prior salaries, it perpetuates existing disparities and undermines the Equal Pay Act.

Trend Disfavors Salary History Inquiries

In contrast to the 9th Circuit's ruling, there has been a notable legislative trend restricting an employer's salary history questions. For instance, New York City recently passed legislation that would bar employers from asking about salary history during all stages of the employment process.

Meanwhile, Massachusetts and California have enacted pay equity laws governing male and female employees who perform substantially similar work.