SHRM HR Magazine - September/October 2018

standard” and ruled that an employer’s policy of setting pay could be considered “reasonable” if it aligned with the company’s stated purpose and practices. So fair compensation could be set for new employees based on their ability, education, experience and prior salary.

Rizo overruled Kouba, going further than any other court in holding that prior salary could not be considered in deciding pay.

That’s because, to be legitimate, the determining factor must be job-related. Since prior pay relates to a different job, by definition it cannot be related to a person’s present position, according to the ruling. Moreover, the court viewed employers’ reliance on prior pay as inconsistent with the Equal Pay Act’s remedial purpose—“to put an end to historical wage discrimination against women.”

CONSIDERING PRIOR SALARY

In light of Rizo, HR professionals who work for employers in the 9th Circuit—Alaska, Arizona, California, Guam, Hawaii, Idaho, Montana, Nevada, Northern Mariana Islands, Oregon and Washington— may not set pay based on an employee’s prior salary. This applies to both male and female workers. As a preventive measure, it’s a good idea to refrain from inquiring about a person’s prior pay at all, because once you receive that information, you won’t be able to prove that you haven’t considered it. Also, remove the question from employment applications and interview schedules.

In addition, if your company has a history of basing its starting pay on prior salary, you may want to look into whether current gender pay differences among your workforce could require remediation.

FACTORING IN EXPERIENCE

But there is a subtler lesson as well.

In many cases, the employees
who rose most quickly in their prior
employment are likely to have been
better compensated because of
their skills and work ethic. So com-
pensation may indicate, in part,
the previous employer’s assessment
of an employee’s contribution to
the company. But since it can also
reflect discrimination, a better
way to gauge that is to look at an
employee’s experience in a prior
job. In fact, in the Rizo decision,
the court acknowledged that expe-
rience can be considered a relevant
factor in assessing an applicant’s
potential.

That’s where there’s an opportunity for HR. Most employee databases fail to include employees’ experience prior to joining the company—which leaves company leaders at a loss when they are challenged to explain pay differences, particularly on a classwide basis.

One way to capture this in-
formation is to merge the data
maintained in applicant databases,
which includes work history, with
main HR databases when appli-
cants are hired. This may be the
key takeaway from Rizo. After all,
it would be unfortunate for employ-
ers to lose or be forced to settle an
Equal Pay Act claim simply because
they aren’t able to access the re-
quired data.

GRAY AREA

The Rizo decision acknowledged
one gray area for employers that it
did not resolve: what to do when
“past salary may play a role in the
course of an individualized salary
negotiation.”
In light of the wave of “salary
ban” laws sweeping across many
states and a few cities, some HR
leaders have eliminated inquiries
about prior salary during the hiring
process and replaced them with
questions about salary expecta-
tions for a particular role. While
questions related to “expecta-
tions” appear to be lawful in most
jurisdictions, what happens when a
candidate bases his or her expecta-
tions on prior salary?

The court noted that it was not deciding this issue but would reserve it for future cases.

It’s common sense that prior salary influences salary expectations.

Taking it a step further, what happens if the candidate voluntarily discloses his or her salary during negotiations? It is difficult to “unsee” that information— although Rizo requires employers to do exactly that.