Pay Equity: Newest Developments

(Co-written with Ben Hase, Esq.)

Pay equity requirements continue to challenge and perplex employers across the country as state and local legislatures churn out new legislation in this contentious area. The trend continues into 2018 as numerous states add such laws to their books, requiring employers to adjust their hiring and pay practices. Additionally, federal appeals courts have been unable to agree on pay equity (and how it relates to gathering and use of salary history information), causing a circuit split with a smattering of different requirements affecting the majority of states.

The logic behind such laws is that when employers use prior salary information to set current rates of pay, they may be perpetuating discriminatory practices from prior employment, and perpetuating the pay gap between men and women. In some states, like California, race- and ethnicity-based pay gaps are also under scrutiny.

In response, Employers Council tracks such developments and communicates them to members to facilitate compliance. In this article, please see the newest developments in this continuously emerging and complex area of employment law.

The Ninth Circuit and Other Federal Appeals Courts

The U.S. Court of Appeals for the Ninth Circuit (which covers Alaska, Arizona, California, Hawaii, Idaho, Montana, Nevada, Oregon, and Washington, as well as the territories of Guam and the Northern Mariana Islands) recently issued a decision covering its territory. Rizo v. Yovino (9th Cir. 2018). The decision in Rizo was issued by the court sitting en banc and reversed a prior decision that allowed previous salary history information to be used by an employer in defense of a pay equity claim. Consequently, the Rizo decision now disallows prior salary history information from justifying a disparity in pay. The decision applies to all federal Equal Pay Act claims brought within the jurisdiction of the Ninth Circuit.

Notably, the decision of the Ninth Circuit runs contrary to a similar case decided by the Seventh Circuit (which covers Illinois, Indiana, and Wisconsin), whereby salary history information may always be considered as a factor in decision-making related to pay. Wernsing v. Department of Human Services (7th Cir. 2005).

For employers in the Tenth Circuit (which covers Colorado, New Mexico, Oklahoma, Utah, and Wyoming), as well as the Eleventh Circuit (which covers Alabama, Florida, and Georgia), salary history information may be used to defend a federal Equal Pay Act claim. But salary history cannot be the sole factor “other than sex” on which an employer bases its pay decision-making. See Riser v. QEP Energy (10th Cir. 2015) and Irby v. Bittick (11th Cir. 1995), respectively.

The Eighth Circuit (which covers Arkansas, Iowa, Minnesota, Missouri, Nebraska, North Dakota, and South Dakota) maintains a “case-by-case” basis approach more similar to the Seventh Circuit than the Tenth and Eleventh Circuits. Taylor v. White (8th Cir. 2003).

Of course, each decision cited for the federal appeals courts above is heavily nuanced. Thus, employers should always consult with legal counsel before making decisions about pay. In addition, with renewed activity in sub-federal legislatures regarding pay equity, state and local requirements may alter the requirements as described in federal judicial opinions.

Look for this issue to head to the Supreme Court in 2018 or 2019.

California 

In 2015, California Governor Jerry Brown signed into law new amendments to the California Equal Pay Act. In the words of the California Department of Industrial Relations (DIR), these amendments effectuated the following changes:

  • Requiring equal pay for employees who perform “substantially similar work,” when viewed as a composite of skill, effort, and responsibility.
  • Eliminating the requirement that the employees being compared work at the “same establishment.”
  • Making it more difficult for employers to satisfy the “bona fide factor other than sex” defense.
  • Ensuring that any legitimate factors relied upon by the employer are applied reasonably and account for the entire pay difference.
  • Explicitly stating that retaliation against employees who seek to enforce the law is illegal, and making it illegal for employers to prohibit employees from discussing or inquiring about their coworkers’ wages.
  • Extending the number of years that employers must maintain wage and other employment-related records from two to three years.

A full discussion by the DIR of California’s Equal Pay Act may be found here.

In 2016, California added “race and ethnicity” to the list of protected categories. In other words, an employer is prohibited from paying its employees less than employees of the opposite sex, or of another race, or of another ethnicity for substantially similar work. In addition, the 2016 amendments ensured that employers cannot use “prior salary” as a factor to uphold its decision-making when it comes to pay for the position at issue.

On January 1, 2018, California joined New York and Massachusetts, as well as several localities such as the City of Philadelphia, in disallowing salary history inquiries. As a result, employers in California were required to sanitize their employment applications of items that requested rates of pay in prior positions. Such questions were also required to be omitted during the hiring process generally.

Delaware

Effective December 2017, Delaware’s equal pay law presents a slightly different set of limitations. In addition to prohibiting “compensation” history inquiries, the new law disallows employers or their agents from using such information to “screen” applicants for employment, such as setting and evaluating a minimum or maximum prior salary standard during hiring decision-making. Delaware broadly defines “compensation” to include “benefits and other forms of compensation.”

Oregon

The Oregon Equal Pay Act of 2017 becomes effective in stages. Oregon employers have been subject to a prohibition on salary history inquiries since October 6, 2017. Like Delaware’s law, the Oregon law prohibits “screening” based on past compensation. It also includes a prohibition that disallows employers from using past compensation information to determine present rates of pay, which will not go into effect until January 1, 2019. Civil actions under the Oregon law will not be allowed until January 1, 2024.

Washington 

Washington Governor Jay Inslee signed the Equal Pay Opportunity Act into law on March 21, 2018. The new law requires that “similarly employed” employees performing jobs requiring similar skill, effort, and responsibility be paid equally. When it goes into effect in June 2018, the law will permit employees who believe they are paid less than a colleague with the same experience and position because of their gender to file a complaint with the Washington Department of Labor and Industries and seek damages. The law prohibits employers from retaliating for any such complaint, or for retaliating against employees asking about their own salary or that of other employees. It also forbids employers from denying professional opportunities to employees on the basis of gender.

Additionally, employers in Washington will now be prohibited from asking prospective employees for their salary history. The law explicitly states that previous salary history is not a legitimate gender-neutral factor that salary can be based upon, and will not be an effective defense in the event of a pay equity lawsuit.

Conclusion

Pay equity bills have been proposed in 29 states and the District of Columbia. This patchwork of laws presents a challenge to multi-state employers, as they all contain crucial differences in how they define what qualifies as similar work, and which salaries can be reasonably compared.

For employers who are concerned about their potential vulnerability to pay equity claims, Employers Council offers a comprehensive Pay Equity Analysis package that will review your obligations under all relevant federal and state law, provide a statistical analysis of your workforce and compensation, and advise on how to ensure you are compliant with state and federal law. Contact the Affirmative Action Planning Services Department at 303.223.5670 to find out more.