Appeals Court Holds Salary History-Based Pay Gap OK Sometimes

Inclusion and Diversity

The Ninth Circuit Court of Appeals ruled this week that a salary history-based compensation structure that results in a gender pay gap does not violate the federal Equal Pay Act when the factor for the difference is "reasonable and effectuated a business policy," a decision that could add more steam to efforts to ban employers from requesting salary history information from job applicants.  Reversing a district court ruling, the court held that, while the employer conceded that it paid a female employee less than comparable male employees for the same work, "prior salary alone can be a 'factor other than sex' if the [employer] shows that its use of prior salary was reasonable and effectuated a business policy." Among other arguments, the local school district whose policy was challenged contended that the policy encourages candidates to leave their current jobs for jobs at the employer because it invariably offered a 5 percent pay increase over their current salary.  In an amicus curiae brief, the EEOC had argued that when an employer sets pay by considering only its employees’ prior salaries, it perpetuates existing pay disparities and thus undermines the purpose of the Equal Pay Act.  The decision is likely to accelerate efforts to enact state and local laws that prohibit employers from asking job applicants about salary history.  In January, Philadelphia became the nation's first city to prohibit salary history inquiries in hiring, but is delaying enforcement pending resolution of a legal challenge to the ordinance.  The New York City Council recently passed a similar law, which Mayor Bill de Blasio is expected to sign.