Editor’s Note: The following article by August W. Heckman III and Tyler J. Hill was published as part of the New Jersey Labor and Employment Law Quarterly, which is distributed to members of the Labor and Employment Law Section. To learn more about joining a section of the New Jersey State Bar Association, email us at [email protected]
Employers in the Ninth Circuit had long been permitted to use salary history to determine employee wages.1 But in the spring of 2018, the Ninth Circuit Court of Appeals said no more. In Rizo v. Yovino,2 the court held that prior salary does not justify sex-based wage differentials under the Equal Employment Act (EPA).
Enacted in 1963 as an amendment to the Fair Labor Standards Act,3 the EPA prohibits sex-based wage discrimination between men and women employed in the same establishment who perform jobs that require equal skill, effort and responsibility.4 The EPA, thus, stands for the basic principle that men and women should be paid the same for doing the same work. This mandate, however, is not without qualification. The EPA carves out four exceptions; specifically, wage differentials are permitted if effectuated pursuant to “(i) a seniority system; (ii) a merit system; (iii) a system which measures earnings by quantity or quality of production; or (iv) a differential based on any other factor other than sex[.]”5 The Rizo court ruled that prior salary does not constitute a “factor other than sex” under this fourth exception— colloquially referred to as the ‘catch-all clause.’6
Rizo could bear broad implications for New Jersey employers, altering how the state’s courts interpret and apply not only the EPA, but New Jersey’s equal pay laws. Indeed, the New Jersey Equal Pay Act exempts wage differentials based on “a reasonable factor or factors other than sex,”7 which has largely been interpreted consistent with the federal law. The recently enacted Diane B. Allen Equal Pay Act differs, however, and exempts pay differentials only if they are made pursuant to a seniority or a merit system, or the employer satisfies a five-part test that requires, among other things, a showing that the pay differential is based on a “legitimate, bona fide factor[]…such as training, education or experience, or the quantity or quality of production…”8
Rizo could signal a change in how these exceptions are interpreted and applied in New Jersey.
Rizo v. Yovino—An End to Consideration of Salary History…in the Ninth Circuit
Rizo v. Yovino involved a math consultant, Aileen Rizo, who was hired by the Fresno County Office of Education.9 To determine a new employee’s starting salary, the county took the hired individual’s prior salary, added five percent, and placed the new employee on the corresponding step of its salary schedule. Rizo learned that male colleagues performing the same job as she were starting at higher salaries. Litigation ensued, with Rizo alleging, inter alia, violation of the EPA. In June 2015, the county moved for summary judgment, arguing that under the catch-all clause, prior salary history justified it paying Rizo less than her male colleagues. Indeed, as the Ninth Circuit noted, it had previously held in Kouba v. Allstate Ins. Co.10 that “the Equal Pay Act does not impose a strict prohibition against the use of prior salary.”11
Sitting en banc, the late Honorable Stephen Roy Reinhardt disagreed. In sweeping, unmistakable language, the Rizo court overruled Kouba and concluded that prior salary, neither standing alone nor in consideration with other factors, permits wage differentials between male and female employees.12 Specifically, the court ruled that prior salary “is not job related and thus does not fall within an exception to the [Equal Pay] Act that allows employers to pay disparate wages.”13 The court proceeded to reason that the catch-all clause is “limited to legitimate, job-related factors such as a prospective employee’s experience, educational background, ability, or prior job performance.”14
Permitting wage differentials between men and women on the basis of prior salary history, the Ninth Circuit reasoned, is “wholly inconsistent” with the EPA, the remedial purpose of which is “to put an end to historical wage discrimination against women.”15 Thus, underlying Rizo is the premise that continued reliance on salary history would “operate to perpetuate the wage disparities prohibited under the Act,” since “[a]t the time of the passage of the Act, an employee’s prior pay would have reflected a discriminatory marketplace that valued the equal work of one sex over the other.”16 “Congress simply could not have intended to allow employers to rely on these discriminatory wages as a justification for continuing to perpetuate wage differentials,” Judge Reinhardt wrote.17
Rizo is direct in its holding and unequivocal in its justification for it. The majority reached its decision “unhesitatingly,”18 and contextualized the opinion by lamenting that “[a]lthough the Act has prohibited sex- based wage discrimination for more than fifty years, the financial exploitation of working women embodied by the gender pay gap continues to be an embarrassing reality of our economy.”19
What Rizo Means for New Jersey
Rizo garnered the attention of commentators and employers nationwide. The opinion, however, was handed down recently (in April 2018) and it is, of course, binding law only in the Ninth Circuit. As such, it is admittedly difficult to predict what, if any, impact Rizo will have in New Jersey. At time of publication, no New Jersey state or federal court, let alone the Third Circuit, has cited Rizo in an opinion. As one commentator stated: “We will have to wait and see if or when other circuits adopt this position on the Equal Pay Act, and whether the Supreme Court decides to eventually take up this issue.”20 To this end, in Aug. 2018, the defendant in Rizo filed a petition for writ of certiorari requesting review by the U.S. Supreme Court of the question as to whether prior salary is a factor other than sex under the catch-all exception of the EPA.21
While the Court mulls over the certiorari petition, New Jersey employers would be wise to contemplate and consider how Rizo may affect application of equal pay laws. In New Jersey, Rizo may impact not only adjudication of the EPA, but also the New Jersey Equal Pay Act as well as implementation of the Diane B. Allen Equal Pay Act.
Review of the state’s jurisprudence indicates that, though New Jersey courts have noted prior salary as a ‘legitimate’ basis for wage differentials, they largely have not relied on such criterion to justify pay disparities among men and women. For example, in Churchill v. Int’l Bus. Machines, Inc., Nat. Serv. Div.,22 salary history was recognized, even if implicitly, as a “legitimate factor[] that might affect [] salaries…”23 More recently, the District Court of New Jersey restated such contention by listing prior salary as an “[a]cceptable factor[]” under the catch-all exception of the EPA.24 Moreover, in June 2018 (i.e., after Rizo was handed down) the District Court of New Jersey reiterated prior salary as an “acceptable factor.”25 Klein, however, did not rely on salary history to justify a pay differential.26 Likewise, in Dubowsky v. Stern, Lavinthal, Norgaard & Daly, while it deemed previous salary a “legitimate consideration,” the court concluded this factor was inapposite because the plaintiff ’s previous salary did not “explain the discrepancy[.]”27
That New Jersey courts have apparently not relied on salary history to permit wage differentials, however, does not render moot the potential impact of Rizo in this state. Following the Ninth Circuit’s ruling, New Jersey state and federal courts, alike, might decline to recognize prior salary as a legitimate consideration. That is, in view of Rizo, the language cited in the foregoing cases could be cast as mere dicta or otherwise abandoned to the more enlightened reasoning.
Equally so, in regard to the state’s equal pay laws, Rizo may limit the reach of the statutory exceptions embedded in the New Jersey Equal Pay Act and the Diane B. Allen Equal Pay Act. In both statutes, the language exempting wage differentials is, on its face, malleable; under the former, it is “a reasonable factor or factors other than sex,”28 and, for the latter, it is a “bona fide factor[] [other than the protected characteristic].”29 Following Rizo, a New Jersey court could find that prior salary fits under neither of these exceptions. Indeed, the rationales that drove the Ninth Circuit to hand down Rizo—remedial purpose of the EPA; risk of perpetuating wage discrepancies between men and women—align with the principles underlying New Jersey’s equal pay laws. The Supreme Court has observed that New Jersey’s Equal Pay statute was enacted due to “[t]he Legislature’s desire to protect women against sex-based wage discrimination,” a desire which, the Court further noted, also led to amendments to the Law Against Discrimination (LAD).30
The Diane B. Allen Equal Pay Act lends further support for the contention that New Jersey public policy comports with Rizo. This legislation, which requires pay equality across all categories protected under the LAD, including sex, was signed into law by New Jersey Governor Philip Murphy in the same month that the Ninth Circuit issued Rizo. The Governor’s Office has lauded the statute as “the most sweeping equal pay legislation in America.”31 Governor Murphy declared, on the day of the bill signing: “Today, we are sending a beacon far and wide to women across the Garden State and in America—the only factors to determine a worker’s wages should be intelligence, experience and capacity to do the job.”32 In support of Murphy’s declarations, the Governor’s Office commented that, in New Jersey, the median salary for full-time working women is $11,737 less than it is for men, and that women earn 82 cents for every dollar earned by a male for doing “similar” work.33
Within this context, New Jersey employers should remain cognizant of Rizo, and the legal (and political) environment in which it has arisen, when rendering salary determinations. New Jersey’s governor and Legislature have articulated a clear commitment to eliminating gender-based pay inequities. Thus, the landscape in the state appears ripe for the New Jersey Judiciary to be partial to, if not adopt, Rizo’s ban on salary history as a consideration otherwise justifying wage discrepancies among sexes.
Update
On Feb. 25, the U.S. Supreme Court vacated and remanded the Ninth Circuit’s ruling in Rizo on the basis that the vote of Judge Stephen Reinhardt, who authored the decision, should not have counted since he passed away before the decision was issued. Commentators and employers will, ultimately, have to wait and see if, on remand, the Ninth Circuit again endorses the late Judge Reinhardt’s ruling. However, even excluding Judge Reinhardt’s vote, his decision was still supported by five of the remaining 10-member en banc panel; thus, remand will likely not yield a different result in the Ninth Circuit.
Endnotes
1. Kouba v. Allstate Ins. Co., 691 F.2d 873, 878 (9th Cir.
1982).
2. Rizo v. Yovino, 887 F.3d 453 (9th Cir. 2018).
3. 29 U.S.C. § 201 et. seq.
4. 29 U.S.C. § 206(d)(1).
5. See id. (emphasis added).
6. Rizo, 887 F.3d at 457.
7. N.J.S.A. § 34:11-56.2.
8. N.J.S.A. § 10:5-12(t).
9. Rizo, 887 F.3d at 453.
10. Kouba v. Allstate Ins. Co., 691 F.2d 873 (9th Cir. 1982).
11. Id. at 878.
12. See Rizo, 887 F.3d at 456.
13. See id. at 460.
14. See id.
15. Id. at 460.
16. Id. at 461, 467.
17. Id. at 461.
18. Practitioners, however, should note that Rizo expressly reserved on the issue of “whether or under what circumstances, past salary may play a role in the course of an individualized salary negotiation.” Id. at 461 (emphasis added).
19. Id. at 460.
August W. Heckman III is a partner in the Princeton office of Morgan, Lewis & Bockius LLP and Tyler J. Hill is an associate of the firm.