This is a fairly common scenario: You have interviewed multiple candidates for a management position. The only female candidate that applied is the best candidate. You meet with her to discuss a salary. She volunteers that she is currently making $70,000 annually, and that she would like to earn $80,000 with your company. You would have been willing to offer her $100,000 because that is what you recently paid a similarly qualified male candidate. Instead, you offer her $90,000, recognizing that you are exceeding her expectations and saving some money at the same time. She happily accepts.
This kind of salary negotiation is not unusual. I expect that many companies have determined an employee’s initial salary – woman or man — based on what the employee was earning at her or his former job. So, is this a problem?
Well, according to a recent Ninth Circuit Court of Appeals decision, simple consideration of a candidate’s prior salary would not justify a wage differential under the Equal Pay Act. The majority decision concluded that the practice of relying on prior salaries allowed employers to “capitalize on the persistence of the wage gap and perpetuate that gap ad infinitum.”
Increasingly, plaintiffs’ lawyers are asserting claims under the Equal Pay Act. Unlike Title VII (which addresses discrimination), the Equal Pay Act does not require a claimant to prove any discriminatory intent. If a woman can show that she is being paid less than a man, the burden then is on the employer to show that the differential is based on something like “(i) a bona fide seniority system; (ii) an established merit system; (iii) a system which measures earnings by quantity or quality of production; or (iv) a differential based on any factor other than sex.” While many courts have previously held that prior salary could be a “factor other than sex,” the Ninth Circuit has now said this concept is limited to “legitimate job-related factors such as an employee’s experience, background, ability or prior job performance.”
This decision does not control Virginia or other East Coast states. But, there is now a clear split in opinion among the Circuits. I expect that the issue ultimately will have to be resolved by the Supreme Court. In the meantime, I also expect plaintiffs’ attorneys, relying on this decision, to assert similar claims around here. This is yet another reason for employers to conduct a careful evaluation of their salaries practices. If women are being paid less than men in comparable positions, make sure you can justify the discrepancy with a legitimate, job-related factor. Otherwise, it is time to reconsider the issue.