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.

The 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.