Skip to Page Content

Legal Update

    Human Resources Group of West Michigan

    Legal Update – April 2018

    By Nathan D. Plantinga and Matthew M. O’Rourke

    Miller Johnson

    Salary History Inquiries and the Equal Pay Act

    We’ve all heard of the Equal Pay Act (“EPA”), and we’re (hopefully) all familiar with it.  As the name suggests, the EPA prohibits employers from paying men and women differently for equal work.  At first glance, this principle is easily understood:  male and female employees must be paid equally if they perform jobs that require the same skill, effort, and responsibility under similar working conditions.  Easy peasy, right?

    Not so fast.  Life doesn’t happen in the vacuum in which laws are written, and we can’t always make direct comparisons between employees and their work to ensure equal pay.  The EPA accounts for some of these real world difficulties and grants employers four exceptions to equal pay for equal work:  pay that is based on (1) a seniority system; (2) a merit system; (3) a system that measures earning by quantity or quality of production; or (4) a differential based on any factor other than sex that is job-related or related to a legitimate business reason. 

    You’re probably familiar with the idea of asking an applicant or new employee the salary that he or she earned in previous jobs.  This is a simple and straightforward method to set an employee’s wages, and employers generally believe that it meets the EPA’s fourth exception because any resulting discrepancy in pay between men and women is due to the employee’s prior wage.  As the argument goes, this is “a differential based on any other factor other than sex.”  

    Take Aileen, for example.  Aileen worked as a middle and high school teacher who earned $50,630 for 206 working days.  Aileen decided to change jobs, and accepted a position with a different school district.  The new school district set her starting salary according to a uniformly applied formula that took the new hire’s previous salary, added 5%, and placed the new employee in a corresponding step on the district’s salary schedule.  The district claimed that this system satisfied the requirements of the fourth EPA exception because it set Aileen’s salary according to her previous salary, not her sex.  Based on this formula, Aileen was hired at a salary of $62,133 for 196 days of work.     

    Trouble arose, however, when Aileen started talking pay with her new colleagues and learned that some of her male coworkers had been subsequently hired in the same position at higher salary steps.  Aileen sued the district and claimed that it violated the Equal Pay Act and unlawfully discriminated against her in violation of Title VII. 

    On April 9, 2018, the Ninth Circuit Court of Appeals (the circuit that covers the West Coast) agreed with Aileen.  The court held that “[p]rior salary, whether considered alone or with other factors, is not job related and thus does not fall within an exception to the Act that allows employers to pay disparate wages.”  That is, in states covered by the Ninth Circuit, employers cannot safely rely on an employee’s prior salary at all when setting his or her new wage.

    The court’s opinion is reflective of the general trend in both the law and society.  To date, 11 states and municipalities have prohibited employers from asking about an applicant’s salary history on an application or during the hiring process.  And it’s not just the typically-blue states that are banning these inquiries.  While the list includes California, Massachusetts, Oregon, and Washington, red states Iowa and Tennessee have also joined the party.  Further, according to a recent WorldatWork survey, 37% of employers have implemented a policy that prohibits hiring managers and recruiters from asking about a candidate’s salary history, regardless of whether a local law requires such a ban.  40% of the employers without a nationwide ban are “somewhat likely” or “extremely likely” to adopt such a nationwide policy in the next 12 months.

    The thinking behind this movement is clear.  Because women generally earn about 80% of what men earn, an employer that bases salaries off employees’ prior wages is likely to prolong these wage discrepancies.  The fact that employers may unintentionally perpetuate these discrepancies is of no consequence in the eyes of the law; the EPA does not require an employee to show that an employer intentionally paid men more than women.

    For now, the law here in Michigan does not prohibit employers from inquiring into salary history.  The Sixth Circuit Court of Appeals (which covers Michigan, Ohio, Tennessee, and Kentucky) has held that “[c]onsideration of a new employee’s prior salary is allowed as long as the employer does not rely solely on prior salary to justify a pay disparity.”  That is, employers can use prior salary as a factor in setting a new employee’s wages, it just cannot be the only factor.  And, on March 26, Michigan became the first state to prohibit local governments from barring employers from asking about an applicant’s pay history on an application or during an interview.   This law, according to its advocates, will make legal compliance easier for employers because it will ensure that local governments cannot create their own requirements that interfere with a uniform statewide set of rules. 

    Although these different standards may seem confusing, the rules that apply to Michigan employers are straightforward:  employers may inquire about an applicant’s salary history, but they may not use that history as the sole factor in setting a new employee’s salary.  Be aware, however, that the winds are starting to shift directions and the days of inquiring into an applicant’s salary history may be numbered.  The best way to avoid a lawsuit for pay discrimination based on an inquiry into salary history is to make certain that your hiring documentation reflects factors other than, or at least in addition to, the applicant’s prior wage.

    If you have any questions regarding this article or other matters, please contact the authors for more information:

    Nathan Plantinga (616) 831-1773; plantingan@millerjohnson.com

    Matthew O’Rourke (616) 831-1766; orourkem@millerjohnson.com

     

    Legal Update Archives