Stunning Ruling Has Employers Rethinking How They Set Salaries

There are about as many opinions on the matter as there are cents in a dollar. Economists and social scientists say it’s because of motherhood, or because women are less likely to pursue careers in high-paying fields, or because men get promoted more often. Some people question the validity of the 80.5-cent figure, or take issue with the very idea of the gender wage gap, calling it a myth based on cherry-picked or misconstrued facts. Others claim that 80.5 is actually an inflated number, and that many women—particularly non-white women—earn far less on the dollar.

I’m inclined to believe that the wage gap is a real phenomenon, but a complex and multifaceted one. Many of the factors behind income disparity are systemic problems that may not look like gender-related issues at first, second, or 80 1/2th glance.

Last month, the Ninth Circuit Court of Appeals uncovered one of these issues in a stunning ruling that has many employers rethinking how they determine employees’ salaries. The case at hand involved a female teacher who was paid significantly less than her counterparts, and who sued her employer, a California school district, for discrimination under the Equal Pay Act.

Enacted in 1963, the Equal Pay Act prohibits wage differentials between male and female employees. However, the law outlines 4 exceptions: employees may be paid differently based on seniority, merit, the quantity or quality of the work they produce, or because of “any factor other than sex” (the so-called “catchall exception”).

The school claimed that they calculated the plaintiff’s wages based on her prior salary history. They argued that because this decision had nothing to do with gender, it was justifiable under the catchall exception.

In an en banc ruling—that is, with all 11 judges present—the Ninth Circuit declared that the school had engaged in unlawful gender discrimination. The court asserted that paying an employee in accordance with their prior salary could be considered discrimination if the prior salary may have contributed to the wage gap. In the words of the late Judge Stephen Reinhardt, who wrote the court’s opinion (PDF), “to allow employers to capitalize on the persistence of the wage gap and perpetuate that gap ad infinitum … would be contrary to the text and history of the Equal Pay Act, and would vitiate the very purpose for which the Act stands.”

What does this mean for employers? First, you can’t use another employer’s potentially discriminatory policy to justify paying an employee less than her peers. Second, even if a policy does not seem gender-biased on its face, it may be illegal if it actually results in gender disparity.

Note that this case may not be over—the school intends to appeal the decision before the Supreme Court. In the meantime, however, employers should review their policies and procedures to determine if anything that isn’t obviously discriminatory may nonetheless result in a pattern of discrimination.

Take this decision as another reason to consider how nimble and agile your business really is: How quickly can you pivot? How easily can you revise your policies and implement changes in your workplace? Is your hiring team aware of this change?

It’s essential for today’s organizations to have systems in place to communicate these kinds of updates, and not just to high-level managers. All employees should have access to a single source of real-time policy information. Sounds like a job for your automated compliance system.