Courts Rule on Salary History Bans

By Erica Parks

Last week, the United States District Court for the Eastern District of Pennsylvania partially enjoined an ordinance adopted by the Philadelphia City Council which banned employers from making salary history inquiries.  The court held that the portion of the ordinance prohibiting employers from asking about an applicant’s previous salary violates the First Amendment.  It also held that the portion of the law barring employers from relying on past salary is allowed.

The Eastern District of Pennsylvania’s ruling came on the heels of a decision by an 11-judge en banc panel of the U.S. Court of Appeals for the Ninth Circuit in Rizo v. Yovino, in which the Court ruled unanimously that prior salary history cannot be used at all, even in combination with other factors, to justify paying women less than men under the federal Equal Pay Act (“EPA”). The EPA prohibits employers from paying male and female employees a different wage for substantially equal work unless the employer can demonstrate that any pay differential is based on a seniority system, a merit system, a system which measures earnings by quantity or quality of production, or “any other factor other than sex.” 29 U.S.C. § 206(d)(1) (emphasis added).

In Rizo, the Court emphatically held that the employer’s reliance on prior salary to justify the wage disparity between the claimant and her male peers was not a legitimate “factor other than sex.”  Only job-related factors, such as experience, training, education, or prior performance, can justify pay differentials under the EPA.   Indeed, the decision states, “[i]f 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.”

In Rizo, salary was set using a formula that factored in pre-hire salary with an applicant’s previous employer. The Court’s decision left open the possibility that prior salary lawfully could “play a role” in “individualized salary negotiations.” However, it did not expand on this potential exception to the rule that prior salary history may not be considered and applying the “individualized salary negotiation” carve-out seems risky without additional guidance.

The Ninth Circuit’s opinion overturned a decision in the same case last year in which a 3-judge panel ruled that prior salary may constitute a “factor other than sex” under the EPA provided the employer’s reliance on prior salary is reasonable and effectuates a business policy.

It also rejected the rule adopted by other circuits permitting prior salary to be considered, along with other non-discriminatory factors, when setting salary.

The opinion was issued in the midst of rapid legislation on the issue of salary inquiries. Since the case was first filed, Massachusetts, California, Delaware, Oregon, and Puerto Rico, as well as several municipalities, including San Francisco, New York City, Albany, and Philadelphia, have passed laws prohibiting employers from asking job applicants about their salary histories.

 

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