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Employment Law

The official Frantz, McConnell, and Seymour, LLP blog.

The Growing Danger in Using Prior Income to Perpetuate Wage Distinctions

The Growing Danger in Using Prior Income to Perpetuate Wage Distinctions

  Many of us have been in a job interview on one side of the table or the other during which this very common question is asked - “what are you currently making?”  There is now, however, a growing movement questioning the legitimacy of inquiries regarding an applicant’s prior wages for the purpose of setting her rate of pay if she is hired. This includes an expanding body of judicial opinion holding that asking an applicant about her prior wages to set the amount of her pay once hired violates federal and state laws respecting equal pay.

 The United States Congress recognized as early as 1963 that legislative protections were needed to address sex-based wage discrimination.  Congress at that time enacted the Equal Pay Act (EPA) which provides in pertinent part that:

No employer…shall discriminate…between employees on the basis of sex by paying wages to employees…at a rate less than the rate at which he pays wages to employees of the opposite sex…for equal work on jobs the performance of which requires equal skill, effort and responsibility, and which are performed under similar working conditions, except where such payment is made 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.  

 While the EPA is an anti-discrimination statute, it is different than most other anti-discrimination laws in that an employee does not have to prove an actual discriminatory intent.  Instead, the mere fact of paying employees of one gender less wages for comparable work than the other gender creates liability, unless the employer is able to show that the wage disparity is based upon one of the 4 listed exceptions. 

 Since passage of the EPA, a majority of federal courts have held that paying an employee of one gender less than an employee of the other gender for similar work does not violate the EPA if that differential is based wholly or in part on the lesser paid employee having a disclosed history of receiving lower income in prior jobs.  Those courts determined that considering an employee’s disclosed prior salary history meets the fourth “catch all” exception in the statute, i.e. “a differential based on any other factor other than sex.”  Recently, however, the United States 9th Circuit Court of Appeals issued an opinion finding that an employee’s prior salary cannot be used to justify a wage differential between male and female employees, whether considered alone or even in combination with other factors.  That court concluded that allowing a prospective employer to consider prior income simply perpetuates already existing market wide wage disparity between men and women in many occupations.  Thus, if a female applicant is moving from an employer that engaged in significant wage discrimination, to the extent her subsequent employer considers her prior wage rate in setting her new one, the discriminatory practice would simply be continued.  In light of this, the court held that the only factors that can properly fall within the “catch all” exception of the EPA (“any factor other than sex”) must be “legitimate, job related factors.”  The court determined that since an applicant’s prior salary is not job related, it is not a legitimate consideration to take in account in setting current wages or salary. 

 This holding, of course, begs the question: What factors can properly be regarded as “job related?” The 9th Circuit attempted to provide some guidance by suggesting that the prospective employee’s experience, education, and demonstrated job performance are legitimate job related factors on which an employer may properly distinguish between male and female employees in terms of the amount of wages paid. 

 Decisions from the 9th Circuit Court of Appeals have no binding authority over employers in Tennessee. Currently, only a minority of federal circuit courts interpret the EPA to exclude any consideration of prior salary when determining the wages to pay male and female employees for comparable work.  The 6th Circuit Court of Appeals, in which Tennessee resides, has not reached this same result. There nonetheless is a renewed vigor on this topic and litigants are pressing for this new interpretation in most every federal circuit.  In fact, in order to reach its recent holding, the 9th Circuit had to reverse one of its own long established prior decisions.

 This new focus upon consideration of prior income history is not limited to courts construing the EPA.  A number of state legislatures have recently passed or are currently considering statutes prohibiting prospective employers from asking job applicants to disclose their wage history. To date, California, Oregon, Delaware and Puerto Rico have such laws in effect.  Massachusetts has a statute that becomes effective on July 1, 2018. 

 Tennessee employers need to be aware of the growing animosity about using prior wage history in setting wages since the legal landscape may change with issuance of one legal opinion. There are a number of commentators who believe the case for banning such inquiries has an air of inevitability about it.  I recommend employers take steps now to develop policies and procedures that preclude, or at least substantially minimize, consideration of prior wage-earning history when setting wages and salaries for new hires and promotions.  There are a number of strategies that can be suggested by well-informed human resources professionals and legal counsel to assist employers in implementing this change. Ideally, this work should be undertaken now while there is time for careful analysis and before a legal mandate forces immediate action.

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