Employers in the Ninth Circuit (which includes Washington, Oregon, California, Alaska, Idaho, Montana, Nevada, Arizona, and Hawai’i) can no longer justify pay differentials between male and female employees based upon employees’ prior compensation. In an April 9, 2018 decision, Rizo v. Yovino, the Ninth Circuit Court of Appeals overruled prior Circuit law to hold that an employee’s previous compensation, either alone or in combination with other factors, cannot form the basis of a wage differential between men and women.

While the Equal Pay Act permits “a differential based on any other factor other than sex,” the Court held that an employee’s prior compensation is not a “factor other than sex.” Specifically, the Court held that the above “catchall” exception under the Equal Pay Act is intended to allow employers to rely upon only job-related factors, such as experience, educational background, ability, or prior job performance.  Prior compensation, the Court opined, is not job-related.

The Court reserved the question of “whether or under what circumstances, past salary may play a role in the course of an individualized salary negotiation.” It remains an open question, therefore, whether an employer would violate the Equal Pay Act by offering an increased salary to an applicant who had rejected a lower offer because of his or her salary history.

The Court’s holding in Rizo creates a split in Circuit law, as the Second, Eighth, Tenth, and Eleventh Circuits allow compensation history to be considered in combination with other factors, while the Seventh Circuit has held that prior compensation is always a “factor other than sex,” and thus may even serve as the sole basis for a wage differential. Even the Equal Employment Opportunity Commission (EEOC), which enforces the Equal Pay Act, has taken the position that a wage differential may be based in part upon prior compensation in combination with other factors.

Concurring opinions authored by two of the judges on the en banc panel that decided the Rizo case suggested that the Ninth Circuit should follow the approach condoned by the EEOC and the Second, Eighth, Tenth, and Eleventh Circuits. But under the position adopted by the majority of judges on the panel, prior salary can never form the basis of a wage differential, even when combined with other non-gender-related factors.

Employers in Washington are also prohibited from basing a pay differential on employees’ previous compensation under state law: the brand new Pay Equity Act.