Ninth Circuit Clarifies Employer Burden Under EPA to Justify Pay Differential

On April 27, 2017, a panel of the Ninth Circuit Court of Appeals vacated and remanded a district court’s ruling denying an employer’s motion for summary judgment on an Equal Pay Act (EPA) claim. In so doing, the court reaffirmed precedent and reinforced how an employer can use prior pay to account for a pay differential between male and female employees. Rizo v. Yovino, No. 16-15372 (April 27, 2017).  

Background

Aileen Rizo is employed as a math consultant with the public schools in Fresno County, California. During a lunch in July of 2012, she learned that a recently-hired male math consultant was hired at a higher salary level than she had been. She later discovered that the other male math consultants also had higher salaries than she did. When she complained to the county, she was informed that all management-level starting salaries were set in accordance with its “Standard Operating Procedures.” In the applicable standard operating procedure, the initial salary level was determined by the employee’s most recent prior salary plus five percent. In Rizo’s case, the county also gave her a $600 stipend for her master’s degree.

Unpersuaded, Rizo filed suit under the EPA, Title VII of the Civil Rights Act of 1964, and the California Fair Employment and Housing Act. The county conceded that Rizo had established a prima facie case under the EPA. It thus moved for summary judgment on the ground that the pay differential was based on a “factor other than sex,” i.e., her prior pay.

Though it noted that Ninth Circuit precedent permits reliance on prior pay as a factor other than sex, the district court denied the county’s motion, holding that under the EPA, prior pay alone can never qualify as a factor other than sex. As such, it adopted the argument by Rizo and the U.S. Equal Employment Opportunity Commission in amicus curiae, that such a practice would only perpetuate a discriminatory wage disparity between men and women. 

The Ninth Circuit’s Analysis

Under the EPA, once a plaintiff establishes a prima facie case, the burden of persuasion shifts to the employer to establish that one of the four statutory defenses justifies the pay disparity, i.e., a seniority system, a merit system, a system that measures earnings by quality or quantity of production, or a differential based on any other factor other than sex. Here, the Rizo court specifically focused on the legal question of whether prior salary, by itself, can ever be a “factor other than sex.” 

The court found that the district court disregarded the Ninth Circuit’s holding in a 1982 case holding that the EPA does not strictly prohibit the use of prior pay to establish current pay. Instead, it held that an employer could rely on prior pay only if “it showed that the factor ‘effectuate[s] some business policy’ and that the employer ‘use[s] the factor reasonably in light of the employer’s stated purpose as well as other practices.’” 

In Rizo, the county asserted four business reasons for following the standard operating procedure that relied primarily on prior pay: (1) it was objective; (2) it encouraged candidates to work for the county in that it offered a five percent increase over prior pay; (3) it prevented favoritism and encouraged consistency; and (4) it was a “judicious use of taxpayer dollars.” The district court, however, did not analyze whether the county’s use of prior pay as a determinate factor was reasonable in light of these stated purposes. The Ninth Circuit thus vacated the ruling and remanded the case to the district court. 

The Rizo court also made it clear that the employer bears the burden of persuasion when it comes to justifying a pay differential under one of the EPA’s four defenses. Further, in the context of the “factor other than sex” defense, an employer must persuade the factfinder that (1) its stated factor actually caused the pay differential; (2) its stated factor effectuates some business policy; and (3) it used the factor “reasonably in light of its stated purpose and its other practices.” The Rizo court also noted that while EPA cases do not require proof of discriminatory motive, a plaintiff could still introduce evidence of pretext or otherwise attempt to cast doubt on the employer’s defense, if he or she so chose. 

Key Takeaways

Relying on prior pay to justify a pay differential has faced intense scrutiny of late, especially with the proliferation of state laws banning the reliance on—and in some cases even the requesting of information on—prior pay. Notably, this case did not arise under the current version of the California Fair Pay Act, which was recently amended to provide that prior pay, by itself, cannot be used to justify a pay differential. In the Ninth Circuit at least, under the federal EPA, reliance on prior pay continues to survive in concept. The saga continues, as the district court will address the more specific issue on remand, and as such, will hopefully provide employers with useful guidance on this issue.