Considering a Job Candidate's Salary History Can be Problematic

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Michael Blickman Michael Blickman

You are an executive who has an important position to fill. After reviewing resumes from job candidates, you select a female who appears highly qualified. You interview her, like her and want to hire her.

Now, you wonder just how much you are going to have to offer her to convince her to join the company. The salary negotiation dance begins, and you ask her what she is currently making. She responds honestly, “I make $75,000 in my current position.” Appropriately encouraged to ask for more, your candidate does just that.

Finally, you offer $80,000, and she accepts. But what you didn’t tell her is that you hired a male employee last month for the same position, but you are paying him $85,000 because he made $80,000 in his prior job, $5,000 more than the female candidate. You have just fallen head first into a dangerous legal trap, and you may be surprised that the outcome might just depend on the state in which the female employee will be working.

Similar facts were reviewed last month by the Ninth Circuit Court of Appeals—which governs several Western states, including California—in the case of Rizo v. Fresno County Office of Education.

In that case, Aileen Rizo was a math consultant who was hired by Fresno County after more than a decade’s experience in teaching. She later discovered the county had previously hired men for the same position for more money even though Rizo had more experience and seniority. When Rizo raised questions, her employer’s response was that the male employees’ salaries were fixed at higher levels because they were paid more in their prior jobs than Rizo.

Rizo filed a lawsuit under the federal Equal Pay Act. That law prohibits employers from paying men and women differently for the same or substantially similar work, with four limited exceptions, i.e., based on seniority, merit, the quantity or quality of the employee’s work, or “any other factor other than sex.” Rizo argued that her employer’s reliance on prior salary in setting salaries for new employees violated the Equal Pay Act because it perpetuated the gender pay gap.

That gap is fairly universally acknowledged, with the latest statistics showing women on average make about 20 percent less than men in the same positions. Rizo’s employer, on the other hand, argued that the law permitted it to set higher salaries for the male employees as long as it did so based on a factor other than sex. It argued that the prior salaries earned by the men were highly relevant and that this qualified as an exception under the Equal Pay Act.

The Ninth Circuit ruled against Rizo’s employer, holding that an employer is prohibited under the act from considering a job candidate’s prior salary in making pay decisions. The court acknowledged that permitting an employer to consider prior salary would allow it to benefit from the ongoing gender-based salary gap. Other circuit courts have come to the same conclusion.

However, in stark contrast, the Seventh Circuit Court of Appeals—which governs Indiana, Illinois and Wisconsin—reached the opposite result in 2005. The Seventh Circuit held that a candidate’s prior salary can always be considered by an employer. This split in the circuit courts means the Rizo case might end up in the U.S. Supreme Court.

While we wait to see if that case will be accepted by the Supreme Court, employers can easily fall into a legal snare, particularly when they operate in a variety of states that are governed by different circuit courts. The trap is even more dangerous because several states and municipalities (including New York and Philadelphia) have adopted laws that prohibit employers from asking about a job candidate’s prior salary on his or her employment application. These laws carry the risk of serious damages and penalties.

This discussion is trending across the country, and I expect more jurisdictions to adopt similar laws. For that reason, it is essential for employers to review their employment applications and train all managers who interview job candidates so they can avoid inadvertent violations of these and other employment laws.

My advice is that an employer should always try to be in a position to justify any salary decision based on legitimate business factors other than a candidate’s salary history. If that cannot be accomplished, you will have to ask yourself whether it is worth taking the risk.

For more information, contact Michael Blickman or another member of Ice Miller’s Labor, Employment, and Immigration Group.

This publication is intended for general information purposes only and does not and is not intended to constitute legal advice. The reader should consult with legal counsel to determine how laws or decisions discussed herein apply to the reader’s specific circumstances.

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