In the past, a number of courts have ruled that relying too heavily on women’s past salaries can easily violate laws like the Equal Pay Act (EPA). But a recent ruling appears to throw a wrench in the gears of the equal pay movement.
A federal appeals court essentially said employers can legally pay women less than men for the same work based on differences in previous salaries.

The appeals court overturned a lower-court ruling that said pay discrepancies based solely on past salaries were discriminatory under the EPA. Women’s past salaries tend to be lower than men’s because of gender bias, the lower court said.

The recent appeals court ruling has garnered a good deal of national press attention and has been met with outrage by those on the front-lines of the fight for equal pay.

Deborah Rhode, who teaches gender equity law at Stanford Law School said: “The decision is a step in the wrong direction if we’re trying to really ensure that women have work opportunities of equal pay. You can’t allow prior discriminatory salary setting to justify future ones or you perpetuate the discrimination.”

But from an employer perspective, what are the implications of this ruling?

First some background on the case.

Most recent salary plus five percent

In Rizo vs. Yovino, math consultant Aileen Rizo learned a recently hired math consultant was brought on at a higher salary than she was. Then, she found out the other math consultants also had higher salaries than her.

When she complained to the county, she was told salaries were set by its “Standard Operating Procedures” – a process where pay is set by an employee’s most recent prior salary level plus five percent.

The Operating Procedures were built around four business reasons for relying primarily on prior pay, which included:

  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.”

This explanation prompted Rizo to file an EPA lawsuit.

The county tried to get the suit tossed on the ground’s that even though prior pay played a rule in Rizo’s salary, the pay differential was based on a “factor other than sex.”

But the district court refused to dismiss the case. It said under the EPA, prior pay alone can never qualify as a factor other than sex.

Court ruling an outlier?

The appeals court disagreed with this interpretation. In its reversal, a three-judge panel said employers could use previous salary info if they applied it reasonably and had a business policy to back up the decision.

So what does this mean for employers? Firms shouldn’t put too much weight on this ruling. It’s just one court’s interpretation. Plus, salary history has come under fire recently.

A number of states have laws that prohibit employers from relying on salary history, and there are several bills being considered that aim to ban asking about past pay altogether.

And regardless of the fate of this particular case, it’s probably a good idea to review your pay practices, paying close attention to any discrepancies between men and women in similar positions.

If you can’t explain – through solid documentation – any discrepancies in gender pay through common factors (e.g., the “motherhood gap”), then you may have to make some changes.

Firms that don’t have the time and/or resources for such an undertaking may want to consider getting a qualified outside vendor to conduct a pay audit for them.

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