United States: Massachusetts And The Ninth Circuit: Recent Ban On Using Prior Salary As Basis For Gender Pay Gap

Executive Summary: The federal Equal Pay Act already imposes limitations on employers when it comes to compensating employees of the opposite sex for equal work. With a recent legislative change in Massachusetts and a decision earlier this month out of the Ninth Circuit, however, several jurisdictions now prohibit the use of prior salary as a justification for any pay differential between men and women.

Massachusetts' New Equal Pay Act

On July 1, 2018, Massachusetts' new Equal Pay Act will go into effect. The new Act expands Massachusetts law to prohibit: seeking the wage or salary history of a prospective employee; requiring, as a condition of employment, that employees refrain from discussing their wages; and retaliating against employees with respect to actions protected by the Act. Penalties may include the amount of the wage underpayment, liquidated damages of the same amount, and reasonable attorneys' fees for violations of the unequal pay provisions, or actual damages for violations of provisions such as the anti-retaliation provision.

However, the Act does not create a total ban on prior salary inquiries. If the prospective employee has voluntarily disclosed the prior wages or salary, the prospective employer can confirm this information. Additionally, after the prospective employer has made an offer of employment that includes salary to the prospective employee, the prospective employer can confirm the prior wages or salary.

The Act also expands the guidelines regarding possible defenses to paying employees of the opposite sex different salaries for equal work. The defense provisions mirror those of the federal Equal Pay Act with one exception. Instead of including the catch-all defense of "any other factor other than sex," the Massachusetts Act lays out specific defenses. Thus, in addition to the federal Equal Pay Act defenses (a seniority system, a merit system, and a system that measures earnings based on quality or quantity of production, sales, or revenue), the Massachusetts Act provides that variations in wages shall not be prohibited if based upon: the geographic location in which the job is performed; education, training, or experience (to the extent such factors are reasonably related to the particular job in question; and travel (if the travel is a regular and necessary condition of the particular job). At least in Massachusetts, the Act contradicts current case law within the First Circuit (which covers Massachusetts, Maine, New Hampshire, Puerto Rico and Rhode Island) regarding the federal Equal Pay Act, which states that "acceptable 'factors other than sex' include prior salary. Akerson v. Pritzker (D. Mass. 2013). The new law specifically states that an employee's previous wage or salary history shall not be a defense to an action. The Act puts Massachusetts in line with California's stance on prior salary as a prohibited factor and, with the Ninth Circuit's decision earlier this month, puts Massachusetts in line with several other states.

California Labor Code § 432.3 prohibits employers from asking job applicants about their salary histories. Applicants may still "voluntarily and without prompting" disclose their own salary history information, and an employer may rely on that information in determining salary history as long as prior salary is not the only factor justifying a disparity in pay. Additionally, employers are required to provide a salary range upon reasonable request by an applicant. Thus, in a state law unequal pay claim (brought under California's Fair Pay Act, Cal. Lab. Code § 1197.5), an employer may assert prior salary in combination with other factors as a defense. However, as discussed below, recent Ninth Circuit precedent holds that an employer may not assert prior salary (alone or in combination with other factors) as a defense to an unequal pay claim.

The Ninth Circuit's Recent Decision

Earlier this month, in Rizo v. Yovino (9th Cir. April 9, 2018), the Ninth Circuit reversed its previously-held position that employers may use prior salary as a defense to federal Equal Pay Act claims. In this decision, the Ninth Circuit (which covers California, Nevada, Oregon, Washington, Idaho, Montana, Arizona, Alaska and Hawaii) held that "prior salary alone or in combination with other factors cannot justify a wage differential." However, this holding conflicts with other circuits' interpretations of what can constitute a "factor other than sex." For example, the Eleventh Circuit has held that prior salary alone does not establish an affirmative defense, but that prior salary in combination with other "factors other than sex" (i.e. prior salary and experience) can establish an affirmative defense against federal Equal Pay Act claims. See Irby v. Bittick (11th Cir. 1995). On the other hand, the Seventh Circuit has held that prior salary is always a "factor other than sex." See Wernsing v. Dep't Human Servs. (7th Cir. 2005).

The concurrences of the Rizo decision address these sister circuit decisions, and while the concurrences agreed with the majority opinion's holding that prior salary alone could not establish an affirmative defense, they disagreed with the holding that prior salary can never be considered. In following the decisions of sister circuits, the concurring judges argued that prior salary should be allowed to be considered in conjunction with other factors when setting initial wages, and not allowing it to be considered "ignores the realities of business and . . . may hinder rather than promote equal pay for equal work."

Due to this circuit split, the issue of whether prior salary can be asserted as a defense to an Equal Pay Act claim may ultimately reach the U.S. Supreme Court for resolution. However, given the recent trend of state laws banning the use of prior salary, it is uncertain whether or how the Supreme Court will decide such a split.

Suggested Strategies to Ensure Compliance

Due to the new Massachusetts Act, California law and the Ninth Circuit decision, employers must become familiar with current and pending laws prohibiting prior salary inquiries and examine their hiring practices to ensure they are compliant. Massachusetts employers should also take note of the affirmative defense made available under the Act. Employers who perform a good faith, reasonable self-evaluation within the three-year period prior to an employee's claim and show reasonable progress toward eliminating any unlawful gender wage gaps may assert the affirmative defense. Additionally, employers in Massachusetts and all jurisdictions should take the following steps to ensure compliance with these laws:

  • Review the Laws in Your Jurisdiction. Massachusetts is not the only jurisdiction to pass such a law, and many of these laws vary slightly from jurisdiction to jurisdiction. For example, California's prior salary ban requires employers, upon reasonable request, to provide the pay range for the applied-for position. Additionally, employers who operate in multiple jurisdictions should consider auditing their practices to ensure compliance in all jurisdictions.
  • Revise Your Materials. Employers should review their handbooks, applications, and on-boarding materials to remove any requirement that the applicant disclose his or her prior salary. Further, anti-discrimination and anti-retaliation policies should be revised to cover these new laws.
  • Re-Train Your Hiring Managers. Employers should educate their hiring managers and supervisors regarding the questions that may and may not be asked during the hiring process, as well as the information that may and may not be considered in determining compensation.
  • Re-Evaluate Your Use of Third-Party Service Providers. Employers should not forget about any third-party service providers they may be using, as employers may face additional legal exposure based on background checks performed by third parties that routinely obtain prior salary. Some recent prior salary-ban laws exempt employers from liability for discovery of prior salaries due to background checks, but other state laws, including Massachusetts, are silent on the issue. Additionally, employers using outside recruiters should ensure the recruiter is aware of the limitations set by these laws.

Conclusion

Based on recent trends, it is likely that laws prohibiting prior salary inquiries are only going to gain popularity among other states and localities. For a discussion of emerging laws prohibiting inquiries into past pay history, please see our October 24, 2017 Alert. Although these laws are focused on benefitting groups that have been historically disadvantaged by lower wages, they create issues for employers regarding legal exposure and compliance. In jurisdictions like Massachusetts, where such laws have already been passed, clients are advised to contact their legal counsel to ensure their practices and policies are compliant with the new law. Clients in other jurisdictions should keep watch on their state and local legislative bodies to stay aware of any potential legislation, as many states have already introduced similar laws in their legislatures.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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