Court says setting salary based on pay history is ok. Just don’t base salary on gender. ¯\_(ツ)_/¯

When you have a man and woman performing the same job, you pay ’em the same. Otherwise, you’re violating the Equal Pay Act. Except, an employer can argue that a pay differential is lawful when it’s “based on any other factor other than sex.”

[cue music]

So, for example, when I’m given a fixed budget and tasked with hiring two new associates, I make all finalists recite the bullpen ERAs from the 2004 World Series Champion Boston Red Sox. Then, I have them tell me a joke that’s dirty enough to make me LOL, but not dirty enough to make me walk down the hall to HR. It’s a delicate tight rope.

Second place gets a job. First place gets the job and a higher salary. Sadly, I don’t really hire anymore. But, I digress…

In Rizo v. Yovino (opinion here), the Ninth Circuit Court of Appeals was faced with a situation in which the employer flatly admitted that it was paying the plaintiff, a woman, less than other men performing the same position. The defendant sought to establish the affirmative defense that this pay differential was based on a “factor other than sex” by showing that its pay structure was based on employees’ prior salaries. (The employer set the new hire’s salary at 5% above his/her prior salary).

And, the Ninth Circuit was cool with that:

Prior salary can be a factor other than sex, provided that the employer shows that prior salary effectuates some business policy and the employer uses prior salary reasonably in light of its stated purpose as well as its other practices…

The employer offered four business reasons to justify its policy (and the plaintiff’s lower salary):

1. the policy is objective, in the sense that no subjective opinions as to the new employee’s value enters into the starting-salary calculus;
2. the policy encourages candidates to leave their current jobs for jobs at the County, because they will always receive a 5% pay increase over their current salary;
3. the policy prevents favoritism and ensures consistency in application; and
4. the policy is a judicious use of taxpayer dollars.

This decision comes in the fact of states like Massachusetts and cities like Philadelphia, which have enacted laws banning employers from asking salary-history questions. The rationale is that these questions propagate a systemic pay disparity between the sexes.

And now we have a split in authority on this issue. That is, other the tenth and eleventh circuits have held that prior salary alone cannot justify a pay disparity. So, what’s an employer to do?

Well, maybe it’s not that hard. Because if you negotiate salary based on a number of factors, e.g., salary history and experience, education, salary demands, feats of strength, etc., then you have a number of factors — other than sex — that help set the salary. Or, even in places where salary-history questions are verboten, you ask the candidate for their salary demands and negotiate from there. These steps mitigate the risk of violating the law.