United States Court of Appeals for the Ninth Circuit. Photo: Jason Doiy/ALM.

The U.S. Supreme Court pushed a major pay equity case back to a federal appeals court, leaving an open question for employment attorneys and companies seeking clarity on whether a worker's salary history can be used to justify unequal pay.

The high court did not reach the merits of the case Yovino v. Rizo, a closely watched challenge to the scope of the Equal Pay Act. The justices returned the dispute to the U.S. Court of Appeals for the Ninth Circuit after concluding the opinion should not have included the vote of Judge Stephen Reinhardt, who died shortly before the decision was released.

At the heart of the case is a common business practice for companies—setting compensation based on a job candidate's previous salary. Aileen Rizo, a math consultant in Fresno County, California, sued her employer after she said she discovered her pay was as much as $10,000 less than men in similar positions. The county justified the pay differential based on Rizo's prior salary at an Arizona school district.

Equal pay advocates and the U.S. Equal Employment Opportunity Commission say the practice of using salary history can perpetuate a cycle where women make less than men. Management-side lawyers and business advocates, defending the use of prior salary history, had wanted the Supreme Court to provide clarity on what's allowed under the Equal Pay Act.

The Supreme Court's decision will send Rizo's case back to the Ninth Circuit, where it's unclear how the proceedings will play out. Given the ongoing uncertainty, employers should not rush to respond to the court's decision, as the outcome may likely be the same, said Lara de Leon, co-chair of the pay equity practice at Ogletree, Deakins, Smoak & Stewart.

“The move will not drastically change what I recommend, but it makes the issue in the forefront of people's minds,” de Leon said. “Most clients want some kind of guidance from the Supreme Court on the federal law. It's a challenge for employers to deal with a patchwork of regulations. Getting that clarity will be very much welcome.”

In April, the en banc Ninth Circuit panel became the first appeals court to broadly declare that employers cannot use prior salary history to justify paying men and women separately for similar jobs. Other appeals courts had ruled similarly, but not as clear-cut, employment attorneys say. The Ninth Circuit opinion was fractured. All of the judges on the en banc panel said they would have ruled in Rizo's favor, but only six judges joined the majority opinion written by Reinhardt.

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The Ninth Circuit hasn't said how it intends to handle the case now that it's back in the appeals court.

“It is extremely likely that the appeals court will once again assemble an en banc panel to review the case and issue another opinion, and it seems like a foregone conclusion that the full panel will rule in Rizo's favor,” a team from Fisher Phillips attorneys said in an advisory. One open question will be what standard the majority sets regarding the Equal Pay Act's “catchall provision, and how employers in the Ninth Circuit's jurisdiction will be able to treat salary history when setting compensation.”

Jones Day partner Shay Dvoretzky, who represented Fresno County at the Supreme Court and in the Ninth Circuit, declined to comment.

Daniel Siegel of Siegel, Yee & Brunner, who represents Rizo, said the procedure moving forward is unclear. Siegel said it's unlikely Rizo's case will be reargued.

Siegel said he was optimistic Rizo would prevail the second time around based on the appeals court's prior rulings. “I would also like to see a strong Ninth Circuit decision that helps move the law on this issue,” he said.

Employers will continue to grapple with whether to outright eliminate any question about prior salary during the application process. Eleven states and nine cities have banned employers from asking about salary history, according to the Economic Policy Institute.

Fisher Phillips lawyers said the circuit split among federal appeals courts will continue to exist regardless of how the Ninth Circuit ends up on Rizo's case.

“Setting compensation based in whole or in part on salary history is fraught with danger in any jurisdiction governed by Ninth Circuit precedent,” the Fisher Phillips lawyers, including Cheryl Behymer and Kathie Caminiti, said in their analysis. Behymer and Caminiti are co-chairs of the firm's pay equity group.

W. John Lee, a Philadelphia-based partner at Morgan, Lewis & Bockius, said the Supreme Court's decision will not practically change the advice he provides to clients, particularly given California's strict state laws that prohibit using salary history. The patchwork of local and state laws has long caused uncertainty for employers.

“There hasn't been certainty on this issue in federal court for a long time, now state and local legislatures are passing prior pay laws. Most companies do want that kind of clarity when they are looking at national exposure,” Lee said. “They want to have certainty as opposed to the piecemeal approach.”

On Tuesday, a U.S. House committee considered a bill that would address “loopholes and insufficient enforcement [that] have prevented equal pay for equal work from becoming a reality.”

“Despite current protections, the lack of wage data transparency makes discrimination difficult to detect, let alone prevent,” U.S. Rep. Bobby Scott, D-Virginia, said. “Even when wage discrimination is discovered, workplace rules that restrict information about wages and pay raises often keep working women from holding employers accountable for discrimination.”

 

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