A major new test of the power of employers to use prior salary history to justify wage disparities between male and female employees is inching closer to the U.S. Supreme Court after settlement talks failed to resolve the closely-watched dispute.

Lawyers from Jones Day, representing a California school district, have received extra time to file a petition by Sept. 4, according to court filings. The Fresno school district lost in the U.S. Court of Appeals for the Ninth Circuit, which said an employee's salary history can't be used to justify paying men and women differently for comparable jobs.

The pay equity case Yovino v Rizo spotlights a common hiring practice that equal pay advocates argue institutionalizes the gender wage gap in which women make 80 cents on the dollar on average to men in comparable positions. Management-side firms predicted the case could push employers to examine their pay practices.

“The Equal Pay Act stands for a principle as simple as it is just: men and women should receive equal pay for equal work regardless of sex,” the late Judge Stephen Reinhardt wrote in the NInth Circuit's ruling in April. “The question before us is also simple: can an employer justify a wage differential between male and female employees by relying on prior salary? Based on the text, history, and purpose of the Equal Pay Act, the answer is clear: No.”

Aileen Rizo, the lead challenger, contends she makes thousands of dollars less than similarly situated male colleagues. The action in the Supreme Court was on pause as Fresno attempted to settle the case, court filings show.

A lawyer for Fresno, Jones Day partner Shay Dvoretzky, said on Aug. 13 that settlement talks have stopped and that he is now preparing to file a petition at the Supreme Court challenging the Ninth Circuit opinion.

Dvoretzky did not immediately respond to request for comment. Dan Siegel of Siegel, Lee & Brunner in Oakland, representing Aileen Rizo, did not respond to request for comment.

There is no certainty the Supreme Court would take the case, but courts are divided and any petition would likely fuel friend-of-the-court briefs. Two federal appeals courts—the Tenth and Eleventh circuits—previously held that prior pay alone cannot be considered an exemption to equal pay laws. The Seventh Circuit has ruled that previous salary can be considered.

The U.S. Equal Employment Opportunity Commission urged the Ninth Circuit to restrict the ability of employers to base new employees' starting pay on their most recent compensation. “Males in teaching and other education-related jobs continue to out-earn their female counterparts,” the agency said in a brief. “A practice of basing starting pay for new employees solely on what they earned in their most recent prior job simply institutionalizes the gender pay gap that studies confirm still exists.

Rizo, a Fresno County math consultant, sued in 2012 when she discovered men were paid as much as $10,000 more in comparable positions. The county justified this discrepancy because the compensation level was set by her previous salary in an Arizona school district.

The en banc Ninth Circuit panel, which was fractured, found that this practice violates the Equal Pay Act.

Reinhardt, who died just before the ruling was published, wrote for the majority: “Salaries speak louder than words.” The majority ruling found that “to accept the county's argument would perpetuate rather than eliminate the pervasive discrimination” that the federal law aimed to protect.

“Women are told they are not worth as much as men,” Reinhardt wrote. “Allowing prior salary to justify a wage differential perpetuates this message, entrenching in salary systems an obvious means of discrimination.”

Fresno's lawyers argued the school district's policy that determines salaries was “absolutely gender-neutral, objective and effective in attracting qualified applicants and complied with all applicable laws.”

Several judges said the majority's ruling, expressed as a general rule, could pose challenging practical implications. Judge Margaret McKeown and Judge Mary Murguia said in a concurring opinion that an employee might choose voluntarily to provide prior salary “as a bargaining chip for higher wages.” McKeown wrote: “I am concerned about chilling such voluntary discussions. Indeed, the result may disadvantage rather than advantage women.”

“Wake-up Call for All Employers”

The management side firm Fisher & Phillips said in a blog post in April that the Ninth Circuit's ruling was a “wake-up call for all employers to ensure their compensation structures do not unfairly limit the amount of money women earn at their organizations.”

Employers can rely on salary history to screen candidates on the high and low ends of the compensation ranges, and the information can be a useful tool in crafting attractive offers, said Liz Washko, co-chair of the pay equity practice group at Ogletree Deakins Nash Smoak & Stewart.

“One thing employers are struggling with right now is taking a critical look at setting compensation—what information they are using and how they are using it,” said Washko, a shareholder in the Nashville office. “When I'm helping clients with pay equity issues, I can't think of a situation of intentional discrimination. Pay disparities appear to be the result of a systemic issue or lack of policies, or failing to enforce policies.”

She predicted the Supreme Court would take up the Rizo case, noting the split in the circuits take different approaches to the question. “This is an important time for employers to look at how they are making these decisions,” she said. “It's an opportunity to evaluate that and base compensation on factors relevant to the job.”

Several cities and states have banned salary history inquiries or have proposals pending, including California, Delaware, Massachusetts, Oregon, New Orleans, Philadelphia and New York City. Additionally, numerous pending court cases challenge pay discrimination on the basis of gender. A judge in California recently said a class action against Google could move forward. The complaint cited, among other things, the company's use of prior salaries to determine compensation.

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