Appellate Court Issues Groundbreaking Interpretation of Equal Pay Act

The 9th U.S. Circuit Court of Appeals has ruled that the Equal Pay Act (EPA) prohibits an employer from paying a female employee less at their new position based on their salary at a prior job. The ruling came in a lawsuit by Aileen Rizo who sued the Fresno County Office of Education over her salary.

“The 50-year-old statute had not been interpreted that way before,” says Scott Witlin, a partner with the Los Angeles office of Barnes & Thornburg LLP, where he heads its Labor and Employment department.

The EPA, implemented by Congress in 1963, was designed to eliminate long-standing pay disparities between the sexes, not preserve them, said Rizo in court.

Permissible factors other than sex should be “limited to legitimate, job-related factors such as a prospective employee’s experience, educational background, ability, or prior job performance,” said the court.

Prevailing precedent interpreting the EPA, dating back to 1982, indicated that employers may consider what a female employee was paid at a prior job due to the statute’s catch-all provision.

However, the ruling in Rizo vs. Fresno County Office of Education, in which all the judges dispelled that precedent despite issuing three separate opinions, will likely be appealed to the U.S. Supreme Court.

The court’s opinion was penned by District Judge Stephen Reinhardt, a noted liberal, who, at the age of 87, died on March 29 following a heart attack. In concurring with Reinhardt, Judge M. Margaret McKeown, who was joined by Judge Mary M. Murguia, wrote, “the majority goes too far in holding that any consideration of prior pay is impermissible under the Equal Pay Act.”

In yet another concurring opinion, Judge Consuelo M. Callahan, joined by Judge Richard C. Tallman, wrote that Reinhardt’s majority opinion “fails to follow Supreme Court precedent, unnecessarily ignores the realities of business and, in doing so, may hinder rather than promote equal pay for equal work.”

Of course, the new interpretation of the Act is a big reason why an appeal to the nation’s highest court is likely. Moreover, the ruling contradicts an interpretation of the EPA reaffirmed by the 7th Circuit Court as recently as November 2017. In that case, in which a female employee alleged she was paid less than her male counterparts at her new job, despite taking on twice the responsibility, the court ruled the discrepancy was not based on sex.

“In Rizo, the defendant said they used market data and based [the] pay disparity on this earlier salary. All the judges seemed to agree that prior salary wasn’t free of gender bias,” says Witlin.

As it happens, California already has a law requiring employers to pay all employees equally based on responsibilities and skills. Since the 9th Circuit Court of Appeals covers not only California, but also Alaska, Arizona and Hawaii, Rizo is now the prevailing precedent in those jurisdictions.

Meanwhile, it is also illegal for employers in California to even inquire about prior salaries, says Witlin, noting other states, such as New York, are considering similar laws.

He laments that such a scenario places an onerous burden on employers as they seek to pay employees “the best deal and ensure their pay scale is equitable for the market.” When employers are prohibited from learning what a potential staffer earned in a previous position, they are placed in a negotiating disadvantage. That often leads to employers issuing low-ball employment offers with potential employees countering for a better deal.

“That’s counter-productive and doesn’t serve the purpose of the bill. You get to the same place but makes the marketplace more cumbersome,” he says.

Rizo’s likely impact
While the 9th Circuit’s interpretation of the EPA stands as precedent, the ruling will have a “broad impact,” Witlin surmises.

In the states other than California under the 9th Circuit’s jurisdiction, “employers aware of the decision will be more cautious how they interview people. They will have to change they ways they determine appropriate salaries,” says Witlin.

No doubt the ruling will reverberate even further.

“Because court decisions are retroactive, [this] decision will likely lead to a floodgate of litigation. Since courts are interpreting but not writing laws, court decisions are considered retroactive,” Witlin explains.

“The ruling could cause great mischief because the statute was interpreted one way for 50 years but the 9th Circuit said ‘Oh No, the EPA really means something else.’”