The United States District Court for the Eastern District of Virginia recently determined that an employer could use an employee’s prior salary as a factor in setting the employee’s starting salary and that doing so may be used as a defense to an Equal Pay Act (“EPA”) claim.
Background
The Employer used new hires’ prior salary history to set their starting salaries. The Employer stopped using prior salary history to determine a new hire’s salary in 2019. The employees alleged that the Employer’s past practice of using pay history to determine a new hire’s salary perpetuates the alleged gender wage gap and violates the EPA. Several current and former female employees filed a lawsuit seeking damages to remedy the wage disparity they allegedly experienced prior to 2019.
District Court’s Decision
The EPA prohibits gender-based discrimination by employers resulting in unequal pay for equal work. In order to establish a case under the EPA, an employee bringing the lawsuit must show that the employer paid different wages to an employee of the opposite sex for equal work on jobs requiring equal skill, effort, and responsibility, and are performed under similar working conditions. If an employee can show those circumstances are present to establish a case under the EPA, the employer has several defenses that it can assert to justify the wage differential, including that the differential is based on “any other factor other than sex.”
The employer in this lawsuit asserted that it may rely on prior salary history as “any other factor other than sex” in defense against the employees’ claims. In their attempt to show that the Employer could not rely on prior salary history as a defense, the employees pointed to a recent decision from the Ninth Circuit Court of Appeals, which has appellate jurisdiction over Alaska, Arizona, California, Hawaii, Idaho, Montana, Nevada, Oregon, and Washington. In that decision, the Ninth Circuit held that the salary associated with an employee’s prior job does not qualify as “a factor other than sex” that can defeat a claim under the EPA.
Because the Employer was a Virginia employer, and this case was brought in Virginia, the District Court applied existing case law from the Fourth Circuit Court of Appeals, which has appellate jurisdiction over Virginia, Maryland, West Virginia, North Carolina, and South Carolina. In the Fourth Circuit, employers are not prohibited from relying on an employee’s prior salary history in setting a new hire’s salary or as a defense to an EPA claim. Therefore, the District Court found that the Employer could rely on prior salary as a defense to the employees’ EPA claim.
Takeaway
There are two important and distinct takeaways from this case. First, this case is an important reminder that laws are different by jurisdiction and state. While employers in the Fourth Circuit may rely on an employee’s prior salary history under the federal EPA, employers in the Ninth Circuit may not. Some States may even have their own laws that prevent an employer from considering prior salary history. This is a controversial topic that has seen a lot of judicial and legislative activity over the past few years. Employers must be aware of the differences in employment laws in the States and judicial districts where they operate. An assumption that because an employment practice is okay in one State must mean it is okay in another State would be inaccurate.
Secondly, the court’s decision is a reminder that it is important to have clear and uniform policies for deciding salary. Employers should regularly review all of their policies, including policies regarding setting new hire salaries and raises, to help ensure that they are based on permissible neutral factors, while also ensuring they conform to the applicable laws.
R. Eddie Wayland is a partner with the law firm of King & Ballow. You may reach Mr. Wayland at (615) 726-5430 or at rew@kingballow.com. The foregoing materials, discussion and comments have been abridged from laws, court decisions, and administrative rulings and should not be construed as legal advice on specific situations or subjects.