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In Rizo v. Yovino, 2018 U.S. App. LEXIS 8882 (9th Cir. April 9, 2018), the full court unanimously held that prior salary – whether alone or in combination with other factors – cannot justify a wage differential under the Equal Pay Act (EPA). This new opinion is contrary to the Ninth Circuit’s panel decision in the same case last year and overrules a long-standing precedent on this issue.

In Rizo, the Fresno County employer paid a female math consultant (Rizo) less than her male counterparts. The pay differential was due to the county’s standard operating procedure for setting new hire compensation, which: (a) set the starting rate for new hires at an amount equal to their prior salary plus 5 percent and; (b) then placed each employee into a salary schedule (that would govern salary increases moving forward) based on that starting rate.

Rizo sued, alleging unlawful discrimination and violation of the EPA, a federal statute that prohibits employers from discriminating between employees on the basis of sex with respect to compensation. In defending against Rizo’s EPA claim, the county argued the salary differential was lawful because it was based on prior salary – not sex. The question before the court was therefore: “Can an employer justify a wage differential between male and female employees by relying on prior salary?”

This time, the Ninth Circuit answered with a definitive “no.” The court reasoned that employers should not be permitted “to capitalize on the persistence of the wage gap and perpetuate the gap ad infinitum…” and rejected the employer’s argument that consideration of prior salary fits within the Equal Pay Act’s four narrow affirmative defenses.

The Rizo court limited the EPA’s “factor other than sex” defense to job-related factors such as experience, educational background, ability and prior job performance. In doing so, it explicitly overruled its 1982 decision in Kouba v. Allstate Insurance Co. Kouba held that using prior salary to set compensation was defensible under the EPA because the EPA permits employers to use any ”factor other than sex” in setting pay – and prior salary is a “factor other than sex.” In other words, prior to Rizo, employers in the Ninth Circuit could use prior salary information as a legitimate business reason justifying wage differentials.

Following Rizo, employers, especially those within the Ninth Circuit – Alaska, Arizona, California, Hawaii, Idaho, Montana, Nevada, Oregon, and Washington – should conduct a compensation audit of their pay polices so as to eliminate any systemic considerations of improper factors, identify any wage differentials between male and female employees in which they are performing the same work, and determine whether corrections need to be made.