Is the question of salary history…history? New 9th Circuit Court decision forbids questions of prior salary in setting new hire pay in select states; Michigan bucks the trend

Can employers ask prospective employees about salary history? Patricia Nemeth, founding partner of Detroit-based labor and employment law firm Nemeth Law, says that’s the question many employers may be asking themselves after this week’s Rizo v. Yovino decision out of the Ninth Circuit Court of Appeals (covering California, Alaska, Arizona, Hawaii).

In the case, female employee Rizo’s salary was below that of her comparable male employees.  The employer’s defense was that Rizo received the same step increases as males received under the union contract, but she was initially hired in at a lower rate based on her prior salary; her prior salary was the only basis for the wage differential.  The court held that considering prior salary alone or in combination with other factors could not justify a wage differential between male and female employees and therefore violated the Equal Pay Act.

Nemeth explains that the Equal Pay Act prohibits employers from discriminating “between employees on the basis of sex by paying wages to employees at a rate less than the rate at which the employer pays wages to employees of the opposite sex . . . for equal work on jobs requiring equal skill, effort and responsibility performed under similar working conditions.”   Exceptions are made for wages pursuant to a (i) seniority system, (ii) merit system, (iii) system measuring earnings by quantity or quality of production or (iv) a differential based on any other factor other than sex.

“In essence, the court determined that an individual’s prior salary history was not a differential based on a factor other than sex,” Nemeth said.  “Instead, the court stated that what the Equal Pay Act meant by a ‘factor other than sex” was limited to legitimate job-related factors such as a prospective employee’s experience, educational background, ability or prior job performance. Further, the court indicated Rizo’s employer, the Fresno County of Education, could not consider Rizo’s prior salary history alone OR in combination with other factors.  Either way, in the Ninth Circuit’s opinion, such action would be a violation of the Equal Pay Act.”

The Rizo opinion goes beyond what is required by the Equal Employment Opportunity Commission.  The EEOC’s Compliance Manual indicates that the Equal Pay Act allows employers to consider prior salary history as part of a mix of factors (education, experience) where the employer “concludes that the prior salary accurately reflects ability, based on job-related qualifications.”  Other courts such as the Tenth (covering Oklahoma, Colorado, Kansas, New Mexico, Wyoming) and Eleventh Circuits (Alabama, Florida, Georgia) have followed the EEOC’s interpretation.  Still, Nemeth says there is a national trend toward banning employers from asking about prior salary history.

“In an effort to address gender wage disparity, a number of states and cities have passed laws over the last year prohibiting employers from asking prospective employees about their prior salary history. (States:  Massachusetts, California, Delaware, Oregon, Puerto Rico; Cities: San Francisco, New York City).  There is also activity at the federal level with a bill having been introduced to ban employers from inquiring about prior salary history,” Nemeth said.

The theory behind the trend is that when employers ask about prior salary history, they perpetuate gender-based wage disparity carried forward from employer to employer. The counter to this theory is the flawed assumption about prior salary history being based on gender discrimination. Low salary could be the result of poor performance, geographical differences, an excess of workers to fill a particular need at a particular point in time, etc.

Currently, asking about prior salary history is permissible in Michigan and, bucking the trend, Gov. Rick Snyder on March 26, 2018 signed a bill to prohibit any local government in the State of Michigan from enacting a law prohibiting an employer from asking about salary history (as well as other select information).  The law goes into effect June 24, 2018.  In the meantime, Nemeth offers the following considerations for Michigan employers.

“If employers are going to consider prior salary history in making a hiring decision, they should also look at other factors in conjunction with the salary history, such as prior work experience and education,” Nemeth said.  “When making the hiring decision, employers should consider how these factors align with the work experience, education and salary the organization is currently paying males.”

Nemeth says the easiest way to think about it may be in terms of a lawsuit.

“If your organization is sued for violating the Equal Pay Act, who will the comparable employees be?  Are you paying male and female comparable employees equally as required under the Act? Or is there a legitimate reason as recognized by the Equal Pay Act which would allow you to do so? Those are key questions employers need to consider now,” Nemeth said.

About Nemeth Law, P.C.

Established in 1992, Nemeth Law specializes in workplace investigations, employment litigation, traditional labor law, management consultation/training for private and public sector employers, and arbitration and mediation. It is the largest woman-owned law firm in Michigan to exclusively represent management in the prevention, resolution and litigation of labor and employment disputes.