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A recent decision issued by the Ninth Circuit Court of
Appeals held that an employer may defend a claim under the Equal Pay Act by
proving that its pay structure was based on employees’ prior salaries, so long
as this structure was reasonable and effectuated a business policy. This
decision parts ways with other Circuits that have discouraged using an
employee’s prior pay, by itself, to justify pay decisions.
The case was brought by a female employee, who was hired
in a management position for a public school system, making $62,733 a year. The
employee learned in a lunchtime conversation with colleagues that a man, who
had just been hired in her same position, was compensated approximately $79,000
a year. The employee also learned that others in the job, all men, earned
higher salaries than she earned. She
later discovered this was due to the system’s policy of paying new workers five
percent more than they were paid by their prior employers.
Ninth Circuit found in favor of the school system, recognizing four business
reasons supporting the school system’s procedure for determining starting
salaries primarily on the basis of prior salary: (1) the policy included no subjective opinions;
(2) the policy encouraged candidates to leave current jobs to work for the school
system because they would receive an automatic five percent pay raise; (3) the
policy prevented favoritism because it ensured consistency in application; and (4)
the policy was a judicious use of taxpayer dollars.
The Ninth Circuit’s
decision is surprising based on the views of many other Circuits. Even though the decision appears to give
employers greater latitude with regard to pay decisions, basing employee pay on
pay from a prior employer is not advisable.