Compensation Inequities Open Companies to New Litigation Risk

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Recent legislation has increased Compensation scrutiny as legislators, regulators, shareholders and the media increase their focus on pay inequities. The legislation was sparked by Rizo v. Yovinco, Case No. 16-15372. Aileen Rizo, a math teacher, sued Jim Yovinco, Fresno County Superintendent, in 2012 after learning her salary was lower than her male counterparts. Based upon previous wages, a newly-hired male colleague – with the same job title as Rizo – was paid an additional $13,000 by the Fresno County Office of Education. Rizo sued over violation of the 1963 Equal Pay Act. The county, however, defended its pay scale claiming it adhered to the Equal Pay Act on the basis of the fourth “catch-all” affirmative defense in the Equal Pay Act, which provides, in pertinent part, that wage differentials are permissible if “based on any factor other than sex.” (Jackson Lewis PC)

In 2017, the 9th Circuit Court upheld the Office of Education defense, however, a full panel of judges reconsidered Rizo’s case this year.

On April 9, 2018, a three-judge panel of the 9th Circuit ruled en banc in Rizo v. Yovino, Case No. 16-15372, that employers may not consider prior salary alone or in combination with other factors to justify a wage differentiation between male and female employees under the Equal Pay Act.

“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 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,” U.S. Circuit Judge Stephen Reinhardt wrote in the court’s majority opinion before his March death. “… Although 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.”

While other circuits have ruled that prior salary alone may not be considered, none have ruled that salary cannot be considered at all, and the issue appears ripe for an appeal to the Supreme Court.

Key Points Include:

Graph 1

• The 9th Circuit has ruled that employers may not rely on prior salary, alone or in combination with other factors, to justify wage disparities under the Equal Pay Act.
• The 9th Circuit ruling does not address whether and in what circumstances prior salary may play a role in individualized salary negotiations.
• The 9th Circuit’s ruling brings federal law closer in line with California state law, which as of January 1, 2018, expressly provides that prior salary does not justify disparities and prohibits employers from asking about prior salary information.

Read the full en banc case here.

The 9th Circuit Court oversees federal courts in California, eight additional states, Guam and the Northern Marina Islands. It is not binding in other federal appellate courts or jurisdictions but would be considered influential precedence on other federal courts.

To support business objectives of assuring pay equity, the Firestorm Business Continuity Annual Compensation Benchmarking Report includes gender assessment in reviewing compensation by job title in Continuity-related professions. The data findings in the 16th Annual Business Continuity Compensation Report highlight that the majority of the study’s female respondents indicated job titles of predominantly Planner or Manager, while the male respondents were predominantly Manager or Vice President. Along with this job title difference, is a significant average pay disparity by gender. The recently released report reveals male respondents earn an average of $123,345 annually while females earn $111,604 (graph one).

Graph 2

Shown in graph two, male participants in the business continuity sector earn more than their female colleagues within six of the eight job title categories. This year’s study respondents were 56.6% male and 42.3% female (1.1% chose not to disclose).

“Firestorm supports our clients who strive to improve their understanding of how compensation programs affect business risks,” said Firestorm People Solutions practice leader and Vice President, Cheyene Marling. “Achieving pay equity requires solid, trusted business data upon which to base decisions, and changes to the compensation and business risk environment require continued diligence.”

We advise that compensation practices are reviewed regularly and rigorous review of position titles and pay by gender be a required part of this process. Through constant attention to these areas, companies can improve the likelihood that their compensation programs will promote the desired business results and achieve compliancy with new and emerging national regulations.

The Study received more than 900 participants and was open from February 2018 through March 30, 2018. The final report highlights the findings in profession compensation factor areas including:

• Title and pay by gender
• Average total compensation
• Discipline experience
• Total work experience
• Industry experience
• Previous career experience
• Degree
• Educational Institutions
• Certifications
• Management experience
• Leadership experience
• Location
• Bonus
• Credentials leading to best hire

The Compensation Study can be used by employers to work toward gender pay equity and gauge where an organization’s compensation packages stack up in the industry, while job seekers can utilize the study to compare job and compensation offers. Please contact us to obtain your copy of the report.

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